Filed with the Securities and Exchange Commission on August 3, 1999
1933 Act Registration File No. 33-26915
1940 Act File No. 811-5762
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ------------ [ ]
Post-Effective Amendment No. ---47----- [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. ---48---- [X]
FIRSTAR STELLAR FUNDS
---------------------
(Exact Name of Registrant as Specified in Charter)
615 East Michigan Street, Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 677-3863
Elaine E. Richards, Esquire
Firstar Mutual Funds Services, LLC
615 East Michigan Street, 2nd Floor
Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
------- immediately upon filing pursuant to paragraph (b)
---X--- on August 3, 1999 pursuant to paragraph (b)
------- 60 days after filing pursuant to paragraph (a)(1)
------- on -------------- pursuant to paragraph (a)(1)
------- 75 days after filing pursuant to paragraph (a)(2)
------- on -------------- pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
---X--- This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
PROSPECTUS
August 3, 1999
Firstar Stellar Science & Technology Fund
FIRSTAR
STELLAR
FUNDS
The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary
is a criminal offsense.
THE SCIENCE & TECHNOLOGY FUND
TABLE OF CONTENTS
INVESTMENT GOAL 4
INVESTMENT POLICIES AND PORTFOLIO SECURITIES 4
INVESTMENT RISKS 5
PERFORMANCE AND EXPENSES 6
MANAGEMENT OF THE FUNDS 7
DISTRIBUTION OF SHARES 7
DESCRIPTION OF CLASSES 8
PRICE OF SHARES 9
PURCHASING SHARES 10
SELLING SHARES 12
EXCHANGING SHARES 13
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 14
YEAR 2000 ISSUE 14
FOR MORE INFORMATION
See the last page for more information.
SCIENCE & TECHNOLOGY FUND
INVESTMENT GOAL
The investment objective of the SCIENCE & TECHNOLOGY FUND is to maximize growth
and capital appreciation by investing in equity securities of companies related
to the science and technology industry.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
The fund seeks to achieve its investment objective by investing primarily in
equity securities of companies related to the science and/or technology
sectors. Under normal market conditions, the fund will invest at least 65% of
the value of its total assets in common stock, preferred stocks and warrants
of companies of any size principally engaged in science and technology business
activities. The fund considers science and technology sectors to include
companies that:
o make or sell products used in health care;
o make or sell medical equipment and devices and related technologies;
o make or sell software or information-based services and consulting,
communications and related services;
o design, manufacture or sell electronic components and systems;
o research, design, develop, manufacture or distribute products, processes or
services that relate to hardware technology within the computer industry;
o develop, produce or distribute products or services in the computer,
semi-conductor, electronics, communications, health care and biotechnology
sectors; and
o engage in the development, manufacturing or sale of communications services
or communications equipment.
The adviser believes that because of rapid advances in technology and science,
an investment in companies with business operations in these areas will offer
substantial opportunities for long-term capital appreciation. It is important
to note that prices of common stocks of even the best managed, most profitable
corporations are subject to market risk, which means their stock prices can
decline.
The adviser's overall stock selection for the fund is not based on the
capitalization or size of the company but rather on an assessment of the
company's fundamental prospects. The adviser will select securities while
attempting to maintain an acceptable level of risk largely through the use of
automated quantitative measurement techniques. The adviser will consider 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 statistcal organizations
(NRSROs).
The adviser will then use the quantitative model together with economic
forecasts and assessments 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 securities.
TEMPORARY INVESTMENTS To respond to adverse market, economic, political or
other conditions, the fund may invest up to 100% of its assets in high quality
U.S. short-term money market instruments. The fund may invest up to 35% of
its assets in these securities to maintain liquidity. Some of these short-term
money instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and banker's acceptance
o U.S. government securities
o repurchase agreements (collateralized by U.S. Treasury obligations and
U.S. government agencies)
To the extent the fund engages in this temporary, defensive strategy, the fund
may not achieve its investment objective.
INVESTMENT RISKS
o STOCK MARKET RISKS: Stock mutual funds are subject to stock market risks
and significant fluctuations in value. If the stock market declines in
value, the fund is likely to decline in value. Therefore, you may lose
money if the value of the fund declines.
STOCK SELECTION RISKS: The stocks selected by the investment adviser may
decline in value or not increase in value when the stock market in general
is rising and may fail to achieve the fund's investment objective.
LIQUIDITY RISKS: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and price that the investment
adviser would like to sell. The adviser may have to lower the price, sell
other securities instead or forego an investment opportunity, any of which
could have a negative effect on fund management or performance.
INDUSTRY RISKS: Mutual funds that invest in a particular industry carry a
risk that a group of related stocks will decline in price due to industry
specific developments. Companies in the same or similar industries may
share common characteristics and are more likely to react to industry
specific market or economic developments.
SCIENCE & TECHNOLOGY CONCENTRATION RISKS: Science and technology related
companies face special risks such as competitive pressures and
technological obsolescence and may be subject to greater governmental
regulation than many other industries. Technology and technology related
companies may be subject to short product cycles and aggressive pricing
which may increase their volatility. For example, their products or
services may not prove commercially successful or may become obsolete
quickly. The value of the fund's shares may be susceptible to factors
affecting the science and technology areas and to greater risk and market
fluctuation than an investment in a fund that invests in a broader range
of portfolio securities not concentrated in any particular industry.
Furthermore, companies within the science and technology industries face
greater risks of competition from new market entrances and increased
research and development costs. Additionally companies in these areas are
dependent upon consumer and business acceptance as new technologies
evolve.
PORTFOLIO TURNOVER RISKS: The adviser may engage in active trading of its
portfolio securities to achieve its investment goals. This practice could
result in the fund experiencing a high turnover rate (100% or more). High
portfolio turnover rates lead to increased costs, could cause you to pay
higher taxes and could negatively affect the fund's performance.
FUTURES AND OPTIONS ON FUTURES RISKS The fund may use futures and options on
futures for hedging purposes only. The hedging strategy may not be successful
if the portfolio manager is unable to accurately predict movements in the prices
of individual securities held by a fund or if the strategy does not correlate
well with the fund's investments. The use of futures and options on futures may
produce a loss for the fund, even when used only for hedging purposes.
SMALL- AND MEDIUM-SIZE COMPANIES RISKS The fund may invest in the stocks of
small, medium and large-sized companies. Small- and medium-size companies
often have narrower markets and more limited managerial and financial resources
than larger, more established companies. As a result, their performance can be
more volatile and they face greater risk of business failure, which could
increase the volatility of the fund's portfolio.
NON-DIVERSIFICATION RISKS Aa a non-diversified investment company, more of the
fund's assets may be concentrated in the common stock of any single issuer,
which may make the value of the fund's shares more susceptible to adverse
developments affecting any single issuer, and more susceptible to greater
losses because of these developments than shares of a more diversified mutual
fund.
WHO MAY WANT TO INVEST
This fund may be appropriate for investors who wish to invest for the long term
and want to diversify their portfolios. Investors who want to allocate some
portion of their long-term investments to aggressive equity investing and are
willing to accept a high degree of volatility and risk in exchange for the
opportunity to realize greater financial gains in the future would be most
suitable for this fund.
An investment in the fund is not a deposit of Firstar Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
PERFORMANCE AND EXPENSES
PAST PERFORMANCE
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risk of
investing in the fund because it demonstrates how its returns have varied over
time. To date, there is no prior performance for the fund.
FEES AND EXPENSES FOR THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B CLASS Y
- ------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) 6.00% None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON
REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ESTIMATED ANNUAL FUND OPERATING EXPENSES(1)<F1>
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS B CLASS Y
- ------------------------------------------------------------------------------
MANAGEMENT FEES 0.90% 0.90%
DISTRIBUTION AND SERVICE (12B-1) FEES (2)<F2> 0.75% None
OTHER EXPENSES(3)<F3> 0.79% 0.79%
TOTAL ANNUAL FUND OPERATING EXPENSES 2.44% 1.69%
1<F1> Annual Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the fiscal year ended November 30,1999. During
the course of this period, expenses may be more or less than the average amount
shown.
2 <F2> The B shares are subject to a 12b-1 fee of 0.75% of 1.00% of average
daily net assets. The Y shares are not subject to a Rule 12b-1 plan.
3<F3> "Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above which are
estimated to total 0.54% of average daily net assets, plus (2) an annual
shareholder servicing fee of 0.25% of average daily net assets. For the
foreseeable future, the fund plans to limit the shareholder servicing fee to an
annual rate of 0.10% of average daily net assets but may adjust the fee at any
time it deems it necessary.
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.You reinvested all dividends and distributions,
3.Your investment has a 5% return each year, and
4.The fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS
- --------------------------------------------
CLASS B $847 $1,161
CLASS Y $172 $ 533
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS
- --------------------------------------------
CLASS B $247 $761
CLASS Y $172 $533
Class descriptions are on page __.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
The investment adviser for the fund is Firstar Bank, N.A. The adviser is
located at 425 Walnut Street, Cincinnati, Ohio 45202. The investment decisions
made by Firstar Bank are subject to direction of the fund's board of trustees.
(The Statement of Additional Information contains more information regarding the
board of trustees.) The adviser conducts investment research and supervision
for the fund and is responsible for the purchase and sale of securities for the
fund's portfolios. The adviser receives an annual fee from the fund for its
services of 0.90% of the average daily net assets.
Firstar Bank's assets under management, including mutual funds, have a market
value in excess of $12 billion. As part of its regular banking operations,
Firstar Bank may make loans to public companies. As a result, it may be
possible for the funds to hold or acquire securities of companies that are also
lending clients of Firstar Bank. The lending relationship will not be a factor
in the selection of securities.
PORTFOLIO MANAGER
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 SCIENCE & TECHNOLOGY FUND since its inception.
Mr. Keller has managed the domestic equity securities
components of three of the other Firstar Stellar Funds between 1991 and 1999
and become the lead manager of the three funds starting in 1999. Mr. Keller
also supported the international equity and fixed income components of one of
the Firstar Stellar Funds since 1994. 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.
FUND ADMINISTRATION, FUND ACCOUNTING, DIVIDEND DISBURSEMENT, AND CUSTODY
SERVICES
Firstar Mutual Fund Services, LLC, an affiliate of the fund's investment
adviser, provides administrative and accounting services to the fund and other
Firstar Stellar Funds and is located in Milwaukee, Wisconsin. Firstar Bank,
N.A., the fund's investment adviser, also serves as custodian for the funds.
DISTRIBUTION OF SHARES
DISTRIBUTOR
Edgewood Services, Inc. is the distributor for shares of the fund. Edgewood is
based in Pittsburgh, Pennsylvania and is the distributor for a number of
investment companies around the country.
RULE 12B-1 PLAN
The fund has adopted a Rule 12b-1 Plan under the Investment Company Act of 1940.
Under the Rule 12b-1 Plan, B shares may pay up to an annual rate of 0.75% of the
average daily net asset value of shares to Edgewood. Edgewood uses this fee to
finance activities that promote the sale of the fund's shares. Such activities
include, but are not necessarily limited to, advertising, printing and mailing
prospectuses to persons other than current shareholders, printing and mailing
sales literature, and compensating underwriters, dealers and sales personnel.
Whenever Edgewood deems it appropriate, Edgewood may, from time to time,
voluntarily reduce its compensation under the Rule 12b-1 Plan to the extent
expenses of the shares exceed a certain limit. Rule 12b-1 fees are paid out of
fund assets on an on-going basis. Over time, these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
Edgewood may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers and broker/dealers as agents to
provide sales or administrative services for their clients or customers who
beneficially own shares of the funds. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers.
Edgewood will determine the schedule of such fees and the basis upon which such
fees will be paid.
DESCRIPTION OF CLASSES
CLASS B SHARES
Class B shares are regular retail shares and may be purchased by individuals or
IRAs. With class B shares, a sales charge up to 6.00% of offering price may be
imposed if you redeem your shares within a certain time period. If you redeem
your class B shares within six 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. For more
information on the CDSC, see "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 B class, the class Y shares do pay
investment management fees and other expenses.
PRICE OF SHARES
NAV =
Assets - Liabilities
---------------------
# outstanding shares
HOW NAV IS DETERMINED
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 days the New York Stock Exchange is not open.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the fund's portfolio securities are determined as
follows:
1.For equity securities: according to the last quoted sale price of the day
on a national securities exchange or on the NASDAQ National Market System.
2.In the absence of recorded sales for listed equity securities: according to
the mean between the last closing bid and asked prices.
3.For unlisted equity securities: latest bid prices.
4.For bonds and other fixed-income securities: as determined by an independent
pricing service.
5.For short-term obligations: according to the mean between bid and asked
prices as furnished by an independent pricing service.
6.For short-term obligations with remaining maturities of 60 days or less at
the time of purchase: at amortized cost.
7.For all other securities: at fair value as determined in good faith by the
fund's board of trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
fund values 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/trustees,
although the actual calculation may be done by others.
WHAT SHARES COST - CLASS Y SHARES
If you purchase class Y shares of the SCIENCE & TECHNOLOGY 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.
WHAT SHARES COST - CLASS B SHARES
If you purchase class B shares of the SCIENCE & TECHNOLOGY 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 6.00%
YEAR 2 5.00%
YEAR 3 4.00%
YEAR 4 3.00%
YEAR 5 2.00%
YEAR 6 1.00%
YEAR 7 0.00%
In computing the amount of CDSC you could be charged, redemptions are deemed to
have occurred in the following order:
1.shares of the fund you purchased by reinvesting your dividends and long-term
capital gains
2.shares of a fund you held for more than six full years from the date of
purchase
3.shares of a fund you held for fewer than six full years on a first-in,
first-out basis
Redemptions made under the Automatic Withdrawal Plan (see "Selling Shares") will
not be assessed CDSC as long as the annual total amount withdrawn does not
exceed 10% of your balance. CDSC is also not charged on:
o shares purchased by reinvesting your dividends or distributions of short-
or long-term capital gains
o shares held for more than six 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 B or Y shares (see
page __ for class descriptions.) The minimum initial investment amounts for the
fund are as follows:
----------------------------------------------------------------------------
Class 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 an automatic
investment program and persons contributing to SIMPLE IRAs
----------------------------------------------------------------------------
Class Y Shares
----------------------------------------------------------------------------
o $1,000 for trust or institutional ustomers 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.
RECEIPT OF ORDERS
Shares may only be purchased on days the New York Stock Exchange is 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.
When making a purchase request, make sure your request is in good order. "Good
order" means your purchase request includes:
o the name of the fund
o the dollar amount of shares to be purchased
o purchase application or investment stub
o check payable to Firstar Stellar Funds
TIMING OF REQUESTS
The price per share will be the net asset value next computed after the time
your request is received in good order and accepted by the fund or the fund's
authorized agent. All requests (telephone orders and federal funds wire)
received in good order by the fund before 4:00 p.m. (Eastern time) will be
executed on that same day. Requests received after 4:00 p.m. will be processed
on the next business day.
METHODS OF BUYING
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND Call Firstar Stellar Funds at
(FIRSTAR BANK CUSTOMERS ONLY) to place the order. (Note: For security reasons, 1-800-677-FUND to place the order.
requests by telephone will be recorded.) (Note: For security reasons, requests by
telephone will be recorded.)
- ------------------------------------------------------------------------------------------------------------------------------------
BY MAIL Make your check payable to "Firstar Stellar Fill out the investment stub from an
Funds." Forward the check and your application account statement, or indicate the fund
to the address below. No third party checks will name and account number on your check.
be accepted. If your check is returned for any Make your check payable to "Firstar
reason, a $25 fee will be assessed against your Stellar Funds." Forward the check and
account. stub to the address below.
- ------------------------------------------------------------------------------------------------------------------------------------
BY FEDERAL FUNDS WIRE Forward your application to Firstar Stellar Call Firstar Stellar Funds at
Funds at the address below. Call 1-800-677-FUND to notify of incoming
1-800-677-FUND to obtain an account number. wire. Use the following instructions:
Wire funds using the instructions to the right. Firstar Bank, N.A.
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 #)
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN Open a fund account with one of the other If you didn't set up an automatic
methods. If by mail, be sure to include investment plan with your original
your checking account number on the application, call Firstar Stellar Funds at
appropriate section of your application and 1-800-677-FUND. Additional investments
enclose a voided check or deposit slip. (minimum of $25 per period) will be taken
automatically monthly or quarterly from
your checking account.
- ------------------------------------------------------------------------------------------------------------------------------------
THROUGH SHAREHOLDER To purchase shares for another investor, call To purchase shares for another investor,
SERVICE ORGANIZATIONS Firstar Stellar Funds at 1-800-677-FUND. call Firstar Stellar Funds at
1-800-677-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE Call 1-800-677-FUND to obtain exchange Call 1-800-677-FUND to obtain exchange
information. See page __. information. See page __.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDRESS FOR FIRSTAR STELLAR FUNDS
You should use the following addresses when sending documents by mail or by
overnight delivery:
BY MAIL BY OVERNIGHT DELIVERY
- -------- ----------------------
Firstar Stellar Funds Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: The fund does not consider the U.S. Postal Service or other independent
delivery services to be 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 fund.
SELLING SHARES
METHODS OF SELLING
TO SELL SOME OR ALL OF YOUR SHARES
- --------------------------------------------------------------------------------
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND to
sell any amount of shares.
(NOTE: For security reasons, requests by
telephone will be recorded.)
- --------------------------------------------------------------------------------
BY MAIL Send a letter instructing the Firstar Stellar
Funds to redeem the dollar amount or number of
shares you wish. The letter should contain the
fund's name, the account number and the number of
shares or the dollar amount of shares to be
redeemed. Be sure to have all shareholders sign
the letter. If your account is an IRA, your
signature must be guaranteed and your request must
indicate whether or not 10% with holding should
apply. Requests submitted without an election
whether or not to withhold will be subject to
withholding.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
REDEMPTION IN-KIND Call Firstar Stellar Funds at 1-800-677-FUND to
request the amount of money you want. If the
amount is over the lesser of $250,000 or 1% of
the class's net asset value, the fund has the
right to redeem your shares by giving you the
amount that exceeds $250,000 or 1% of the class's
net asset value in securities instead of cash.
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN Call Firstar Stellar Funds at 1-800-677-FUND to
arrange for regular monthly or quarterly fixed
withdrawal payments. The minimum payment you may
receive is $25 per period. Note that this plan
may deplete your investment and affect your income
or yield. Also, it isn't wise to make purchases
of class B shares while participating in this plan
because of the sales charges.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICE Consult your account agreement for information on
ORGANIZATION redeeming shares.
- --------------------------------------------------------------------------------
BY EXCHANGE Call 1-800-677-FUND to obtain exchange
information. See page __ for further information.
- --------------------------------------------------------------------------------
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
Your shares may only be redeemed on days on which the fund computes its net
asset value. Your redemption request 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 calendar days after Firstar receives a proper
redemption request.
If you purchase shares using a check and soon after request a redemption,
Firstar Stellar Funds will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 days).
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 (signature guaranteed for IRAs)
o the account registration number
VALUE OF SHARES SOLD
Your shares will be redeemed at the net asset value next determined after
Firstar Stellar Funds receives your redemption request in good order. In the
case of class B shares, the applicable contingent deferred sales charge will be
subtracted from your redemption amount or your account balance, per your
instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Firstar Stellar
Funds may mail you a notice if your account falls below $1,000 requesting that
you bring the account back up to $1,000 or close it out. If you do not respond
to the request within 30 days, Firstar Stellar Funds may close the account on
your behalf and send you the proceeds. If you have an account through a
shareholder service organization, consult your account agreement for information
on accounts with low balances.
SIGNATURE GUARANTEES
A signature guarantee assures that a signature is genuine and protects you
from unauthorized account transfers. 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
The fund may also require signature guarantees for other redemptions. You may
obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions. A notary public cannot guarantee
signatures.
EXCHANGING SHARES
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (no-load money market funds) for class A or
B shares of any Firstar Stellar Fund. However, you may not exchange shares from
class B to class C and then to class A.
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 than other funds and you may have
to pay the difference in fee. Exchanges also have the same tax consequences as
ordinary sales and purchases and you could realize short or long-term capital
gains or losses. Generally, exchanges may only be made between identically
registered accounts unless you send written instructions with a signature
guarantee.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another.
REINSTATEMENT PRIVILEGE
If you sell shares of a Firstar Stellar Fund or Firstar Fund, a separate family
of funds offered by Firstar Corporation, you may reinvest some or all of the
proceeds in the class A shares of any Firstar Stellar Fund within 60 days
without a sales charge, as long as your investment professional is notified
before you reinvest. All accounts involved must have the same registration.
You may be subject to taxes as a result of a redemption. Consult your tax
adviser concerning the results of a redemption or reinvestment.
The SAI contains more information on exchanges. You may also call
1-800-677-FUND to learn more about exchanges, the Firstar Funds or other Firstar
Stellar Funds.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The SCIENCE & TECHNOLOGY 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 the fund realizes capital gains, they will be distributed once
every 12 months.
TAX INFORMATION
The fund will pay no federal income tax because it expects to meet certain
Internal Revenue Code requirements. The fund will be treated as a single,
separate entity for federal income tax purposes so that income (including
capital gains, if any) and losses realized by one fund of the Firstar Stellar
Funds will not be combined for tax purposes with those realized by the other
funds. The fund will provide you with detailed tax information for reporting
purposes. You should consult your own tax adviser regarding tax consequences
under your state and local laws.
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 fund and distributions of
net realized short-term capital gains are taxable as ordinary income.
Distributions paid by the fund from net realized long-term capital gains are
taxable as long-term capital gains. The capital gain holding period and the
applicable tax rate is determined by the length of time that the fund has held
the security and not the length of time that you have held shares in the fund.
The fund expects that, because of its investment objectives, distributions will
consist primarily of long- and short-term capital gains. The 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 fund's exchange privilege is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a capital gain or
loss.
You should consult your own tax advisers regarding the status of your accounts
under state and local tax laws.
TAXPAYER IDENTIFICATION NUMBER
On the account application, you will be asked to certify that your social
security number or tax payer identification number is correct and that you
are not subject to backup withholding for failing to report income to the
IRS. If you are subject to backup withholding or you did not certify your
taxpayer identification number, the IRS requires the fund to withhold 31%
of any dividend and redemption or exchange proceeds. The fund reserves the
right to reject any application that does not include a certified social
security or taxpayer identification number.
YEAR 2000 ISSUE
Like all financial service providers, the fund investment adviser, the
distributor and other third party service providers utilize systems that may be
affected by year 2000 transition or other date related issues. The services
provided to you and the fund by these service providers depend on the smooth
functioning of their computer systems and those of other parties they deal with.
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because of the way dates are encoded and calculated. Such an
event could have a negative impact on handling securities trades, payments of
interest and dividends, pricing and account services. Although there can be no
assurance at this time that there will be no adverse impact on the funds, the
fund service providers have advised the fund that they have been actively
working on necessary changes to their computer systems to prepare for the year
2000. The fund service providers expect that their systems, and those of other
parties they deal with, will be adapted in time for that event. However, there
can be no assurance that the computer systems of the companies in which the fund
invests will be timely converted or that the value of such investments will not
be adversely affected by the year 2000 issue. Furthermore, there can be no
assurance that the computer systems of foreign companies, capital markets and
economies in which the fund invests will be timely converted or that the value
of the fund's investments will not be adversely affected by the year 2000 issue.
Additionally, foreign companies, capital markets and economies may be more
susceptible to year 2000 issues than domestic companies.
FIRSTAR
STELLAR
FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE FIRSTAR STELLAR
FUNDS FREE OF CHARGE:
O ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The fund does not have an annual or semi-annual report at this time. Once
the fund has been in existence for more than 6 months, a semi-annual report
will be made available. The annual and semi-annual reports provide the
fund's most recent financial statements and portfolio listings. The annual
report contains a discussion of the market conditions and investment
strategies that affected the fund's performance during the last fiscal
year.
O STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED AUGUST 3, 1999
The SAI is incorporated into this prospectus by reference (i.e., legally
made a part of this prospectus). The SAI provides more details about the
fund's policies and management.
TO RECEIVE ANY OF THESE DOCUMENTS OR PROSPECTUSES ON THE 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 and http://www.firstarstellarfunds.com.
You may review and obtain copies of fund information (including the SAI) at
the SEC Public Reference Room in Washington, D.C. Please call 1-800-SEC-
0330 for information relating to the operation of the Public Reference
Room. Copies of the information may be obtained for a fee by writing the
Public Reference Section, Securities and Exchange Commission, Washington,
D.C. 20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
August 3, 1999
Firstar Stellar Science & Technology Fund
This Statement of Additional Information is not a prospectus
and should be read together with the prospectus of the Science
& Technology Fund dated August 3, 1999. To receive a copy of
the prospectus, 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
CAPITAL STOCK..................................................3
DESCRIPTION OF THE FUND........................................4
THE FUND'S INVESTMENTS AND RISKS...............................4
THE FUND'S INVESTMENT LIMITATIONS.............................16
TEMPORARY INVESTMENTS.........................................18
MANAGEMENT OF THE FUND........................................18
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........20
INVESTMENT ADVISORY SERVICES..................................21
BROKERAGE TRANSACTIONS........................................22
ADMINISTRATIVE SERVICES.......................................22
FUND ACCOUNTING AND DIVIDEND PAYING AGENT SERVICES............23
CUSTODIAN.....................................................23
DISTRIBUTION PLAN.............................................23
DETERMINING NET ASSET VALUE...................................24
PURCHASE, EXCHANGE AND PRICING OF SHARES......................24
TAX STATUS....................................................28
CALCULATION OF PERFORMANCE DATA...............................28
PERFORMANCE COMPARISONS.......................................30
INDEPENDENT PUBLIC ACCOUNTANTS................................31
FINANCIAL STATEMENTS..........................................31
APPENDIX......................................................32
FIRSTAR STELLAR FUNDS
GENERAL INFORMATION ABOUT FIRSTAR STELLAR FUNDS
Firstar Stellar Funds (the "Trust") is a Massachusetts business trust
established under a Declaration of Trust dated January 23, 1989. The Trust
consists of a series of mutual funds, which are all open-ended management
investment company. The Trust was organized under the name "Value Plus Funds,"
but was changed on March 29, 1989 to "Losantiville Fund." 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. was 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" effective March 1, 1999.
CAPITAL STOCK
TITLE AND DESCRIPTION OF SHARE CLASSES
The Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of securities.
The Trust currently consists of 12 individual fund portfolios. Under the
Declaration of Trust and a Multiple Class Plan developed pursuant to Rule 18f-3
under the 1940 Act, each fund is permitted to offer several classes of shares as
follows: Class A, Class B, Class C and Class Y. Class A shares are subject to a
front-end sales load as described in the prospectus and a Rule 12b-1 fee.
Class B shares are subject to a contingent deferred sales load as described in
the prospectus and a Rule 12b-1 fee. Class C shares are not subject to a sales
load, but are subject to a Rule 12b-1 fee. Class Y shares are not subject to a
sales load or a Rule 12b-1 fee. The table below lists the fund together with
their share classes. Please note that throughout this Statement of Additional
Information ("SAI"), the individual fund series will be referred to by their
short name (i.e., without the "Firstar Stellar" preface).
- --------------------------------------------
Money Market Fund
- --------------------------------------------
Treasury Fund - C, Y
Tax-Free Money Market Fund - C
Ohio Tax-Free Money Market Fund - C
- --------------------------------------------
Bond Fund
- --------------------------------------------
Insured Tax-Free Bond Fund - A
U.S. Government Income Fund - A, B
Strategic Income Fund - B
- --------------------------------------------
Stock Fund
- --------------------------------------------
Growth Equity Fund - B, Y
Relative Value Fund - A, B, Y
The Stellar Fund - A, Y
Capital Appreciation Fund - A
International Equity Fund - A
Science & Technology Fund - B, Y
Classes A, B and C shares are sold primarily to individuals who purchase shares
through Firstar Bank, N.A. Class Y shares are offered to trusts, fiduciaries
and other institutions through Firstar Bank, N.A. The expenses incurred
pursuant to the Rule 12b-1 Plan will be borne solely by Classes A, B and C
shares of the applicable fund and constitute the only expenses allocated to one
class and not the other.
RIGHTS OF EACH SHARE CLASS
Each share of the common stock of a fund is entitled one vote in electing
Trustees and other matters that may be submitted to shareholders for a vote.
All shares of all classes of the fund in the Trust have equal voting rights.
However, matters affecting only one particular fund or class, can be voted on
only by shareholders in that fund or class. Only shareholders of Class A, B or
C shares will be entitled to vote on matters submitted to a shareholder vote
with respect to the Rule 12b-1 Plan applicable to such class. All shareholders
are entitled to receive dividends when and as declared by the Trustees from time
to time and as further discussed in the Prospectus.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable under
the law of Massachusetts for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required, by the Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
DESCRIPTION OF THE FUND, INVESTMENT AND RISKS
The investment objective below is a fundamental objective and therefore cannot
be changed without the approval of shareholders.
The SCIENCE & TECHNOLOGY FUND is a non-diversified fund and its goal is to
maximize growth and capital appreciation by investing in equity securities of
companies in the science and technology industries.
THE FUND'S INVESTMENTS AND RISKS
The respective prospectus describes the principal strategies and risks of the
fund. This section provides additional information regarding investments and
transactions that the fund is permitted to make.
REPURCHASE AGREEMENTS
The 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 fund or its
custodian will take possession of the securities subject to repurchase
agreements, and these securities will be marked to market daily. To the
extent that the original seller does not repurchase the securities from a
fund, a fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by a fund might be
delayed pending court action. The fund believes that under the regular
procedures normally in effect for custody of the fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would
rule in favor of the fund and allow retention or disposition of such
securities. The fund will only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers, which
are deemed by the fund's adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The fund may purchase short-term obligations on a when-issued or delayed
delivery basis. These transactions are arrangements in which a fund
purchases securities with payment and delivery scheduled for a future time.
The seller's failure to complete these transactions may cause a fund to miss
a price or yield considered advantageous. Settlement dates may be a month or
more after entering into these transactions and the market values of the
securities purchased may vary from the purchase prices.
A fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, a fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. A fund may realize short-term profits or
losses upon the sale of such commitments.
These transactions are made to secure what is considered to be an
advantageous price or yield for the fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a
fund sufficient to make payment for the securities to be purchased are
segregated on a fund's records at the trade date. These assets are marked to
market daily and are maintained until the transaction is settled. The fund
does 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
The fund 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 fund may invest pursuant to their investment
objective and policies but which are subject to restrictions on resale under
federal securities laws. The fund's Board of Trustees has established
criteria that allows the adviser to consider certain restricted securities as
liquid.
The 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
fund, 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 fund 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.
U.S. GOVERNMENT OBLIGATIONS
The fund may invest in U.S. government obligations. The types of U.S.
government obligations in which the fund 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.
OTHER INVESTMENT COMPANIES
As an efficient means of carrying out their investment policies, the 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 a fund in
shares of other investment companies may duplicate shareholder expenses.
DERIVATIVES
Derivatives include options, futures, forward contracts and financial
indexes. The fund intends to invest in options and financial indexes to
increase the fund's income and enhance the fund's return. The fund
intends to use these derivatives for hedging and non-hedging purposes.
The use of derivative instruments exposes the fund to additional risks and
transaction costs. Successful use of these instruments depends on the
adviser's ability to correctly forecast the direction of market movements.
If the adviser's judgment proves incorrect the fund's performance could be
worse than if the fund had not used these instruments. In addition, even
if the adviser's forecast is correct there may be an imperfect correlation
between the price of derivative instruments and movements in the prices of
the securities, interest rates or currencies being hedged.
SYNTHETICS
Synthetic securities are a form of securities where fixed rate bonds of a
single state or municipal issuer are deposited in a trust by a sponsor and
interests in the trust are sold to investors. The use of synthetic
securities exposes the fund to additional risks and transaction losses.
Furthermore, synthetic securities are subject to the greater risks
inherent in bond investing (i.e., varying interest rates and credit
quality rating).
WARRANTS
The fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value
of the optioned common stock at issuance) valid for a specific period of
time. Warrants may have a life ranging from less than a year to twenty years
or may be perpetual. However, most warrants have expiration dates after
which they are worthless. In addition, if the market price of the common
stock does not exceed the warrant's exercise price during the life of the
warrant, the warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
Warrants acquired in units or attached to securities may be deemed to be
without value for purposes of this policy.
CONVERTIBLE SECURITIES
The 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
"sable" 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 non-convertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than non-convertible securities of similar quality.
A fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common shares will assist the fund in achieving their investment objectives.
Otherwise, the fund will hold or trade the convertible securities. In
selecting convertible securities for the fund, 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 fund may invest in zero-coupon securities. The fund 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 its qualification as a regulated
investment company and to avoid liability of federal income taxes, the fund
will be required to distribute income accrued from zero-coupon securities
which they own, and may have to sell portfolio securities (perhaps at
disadvantageous times) in order to generate cash to satisfy these
distribution requirements.
Zero-coupon securities usually trade at a deep discount from their face or
par value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of
shares of the fund may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and have
resold them in custodial receipt programs with a number of different names,
including Treasury Income Growth Receipts ("TIGRS") and Certificates of
Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer of holder thereof), in trust on behalf of the owners
thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.
When the holder has stripped debt obligations of their unmatured interest
coupons, the stripped coupons are sold separately. The principal or corpus
is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
REAL ESTATE INVESTMENT TRUSTS
The 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 fund's asset
allocation policy, real estate of domestic issuers will not be considered
domestic equity securities. REITs will be diversified by geographic location
and by sector (such as shopping malls, apartment building complexes and
health care facilities). An equity REIT holds equity positions in real
estate and provides its shareholders with income from the leasing of its
properties and capital gains from any sales of properties. A mortgage REIT
specializes in lending money to developers of properties and passes any
interest income earned to its shareholders.
Risks associated with real estate investments include the fact that equity
and mortgage real estate investment trusts are dependent upon management
skill and are not diversified, and are, therefore, subject to the risk of
financing single projects or unlimited number of projects. They are also
subject to heavy cash flow dependency, defaults by borrowers, and self-
liquidation. Additionally, equity real estate investment trusts may be
affected by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by the
quality of any credit extended. The investment adviser seeks to mitigate
these risks by selecting real estate investment trusts diversified by sector
(shopping malls, apartment building complexes and health care facilities) and
geographic location.
OVER-THE-COUNTER OPTIONS
The fund may generally purchase over-the-counter options on portfolio
securities in negotiated transactions with the writers of the options when
options on the portfolio securities held by the fund is not traded on an
exchange. The fund purchases options only with investment dealers and other
financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the investment adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not.
REVERSE REPURCHASE AGREEMENTS
The fund may enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, a fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future the fund will repurchase the portfolio instrument by remitting the
original consideration, plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market
daily and are maintained until the transaction is settled. During the period
any reverse repurchase agreements are outstanding, the fund will restrict the
purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements, but only to
the extent necessary to assure completion of the reverse repurchase
agreements. The use of reverse repurchase agreements may enable the fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
LENDING OF PORTFOLIO SECURITIES
The fund may lend portfolio securities to one-third of the value of its total
assets, on a short- or long-term basis, to broker/dealers, banks or other
institutional borrowers of securities. The collateral received when a fund
lend portfolio securities must be valued daily and, should the market value
of the loaned securities increase, the borrower must furnish additional
collateral to the fund. During the time portfolio securities are on loan,
the borrower pays the fund any dividends or interest paid on such securities.
Loans are subject to termination at the option of the fund or the borrower.
A fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing broker.
The fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment. The fund will only enter into loan
arrangements with broker/dealers, banks or other institutions that the
investment adviser has determined are creditworthy under guidelines
established by the fund's Board of Trustees. The fund must also receive
collateral in the form of cash or U.S. government securities equal to at
least 100% of the securities loaned at all times.
MONEY MARKET SECURITIES
The fund may invest in U.S. dollar and foreign dollar short-term money market
instruments. The short-term money market instruments include:
O commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch. In the case where commercial paper
has received different ratings from different rating services, such
commercial paper is acceptable so long as at least one rating is in
the two highest categories of the nationally recognized statistical
rating organizations ("NRSROs") described above;
O instruments of domestic and foreign banks and savings associations
(such as certificates of deposit, demand and time deposits and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if BIF or SAIF insures the principal
amount of the instrument. These instruments may include Eurodollar
Certificates of Deposit, Yankee Certificates of Deposit, and
Eurodollar Time Deposits;
O obligations of the U.S. government or its agencies or
instrumentalities;
O repurchase agreements; and
O other short-term instruments that are not rated but are determined by
the investment adviser to be of comparable quality to the other
obligations in which the funds may invest.
INVESTMENTS IN FOREIGN SECURITIES
The fund may invest in foreign securities. The types of international
securities in which the fund may invest include other investment companies
that invest primarily in international securities. The international
securities include equity securities of non-U.S. companies and corporate and
government fixed-income securities denominated in currencies other than U.S.
dollars. The international equity securities may be traded domestically or
abroad through various stock exchanges, American Depositary Receipts or
International Depositary Receipts (ADRs or IDRs). The international
fixed-income securities include ADRs, IDRs, and government securities of
other nations and must be rated Baa or better by Moody's or BBB or better by
S&P. If the securities are unrated, the adviser must determine that they are
of similar quality to the rated securities before a fund may invest in them.
The fund does not intend to invest more than 10% of their respective assets
in international securities.
INVESTMENT RISKS OF FOREIGN SECURITIES
Investments in foreign securities involve special risks that differ from
those associated with investments in domestic securities. The risks
associated with investments in foreign securities relate to political and
economic developments abroad, as well as those that result from the
differences between the regulation of domestic securities and issuers and
foreign securities and issuers. These risks may include, but are not
limited to, expropriation, confiscatory taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of fund
assets, political or social instability and adverse diplomatic
developments. In addition, there are restrictions on foreign investments
in other jurisdictions and there tends to be difficulty in obtaining
judgments from abroad and effecting repatriation of capital invested
abroad. Delays could occur in settlement of foreign transactions, which
could adversely affect shareholder equity. Moreover, individual foreign
economies may differ favorably or unfavorably from the domestic economy in
such respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Investing in foreign securities can carry higher returns and risks than
those associated with domestic investments. Foreign securities may be
denominated in foreign currencies. Therefore, the value in U.S. dollars of
a fund's assets and income may be affected by changes in exchange rates and
regulations. Although the funds value their assets daily in U.S. dollars,
they will not convert their holdings of foreign currencies to U.S. dollars
daily. When a fund converts its holdings to another currency, it may incur
currency conversion costs. Foreign exchange dealers realize a profit on
the difference between the prices at which they buy and sell currencies.
Other differences between investing in foreign companies and the U.S.
include:
O information is less publicly available
O there is a lack of uniform financial accounting standards applicable
to foreign companies
O market quotations are less readily available
O there are differences in government regulation and supervision of
foreign securities exchanges, brokers, listed companies and banks
O there is generally a lower foreign securities market volume
O it is likely that foreign securities may be less liquid or more
volatile
O there are generally higher foreign brokerage commissions
O there may be difficulties in enforcing contractual obligations or
obtaining court judgments abroad because of differences in the legal
systems
O the mail service between countries may be unreliable
O there are political or financial changes that adversely affect
investments in some countries.
INVESTMENT RISKS OF U.S. GOVERNMENT POLICIES REGARDING INVESTMENTS ABROAD
In the past, U.S. government policies have discouraged or restricted
certain investments abroad. Although the funds are unaware of any current
restrictions that would materially adversely affect their ability to meet
their investment objectives and policies, investors are advised that these
U.S. government policies could be reinstituted.
OPTIONS TRANSACTIONS
The fund may engage in options transactions. The fund 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 fund may write (sell) covered call options and covered put options. By
writing a call option, a fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, a fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised.
All options written by the fund must be "covered" options. This means that,
so long as a fund is obligated as the writer of a call option, it will own
the underlying securities subject to the option (or in the case of call
options on U.S. Treasury bills, substantially similar securities) or have the
right to obtain such securities without payment of further consideration (or
have segregated cash in the amount of an additional consideration).
The fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits
and maintains with its custodian in a segregated account liquid assets having
a value equal to or greater than the exercise price of the option.
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 fund receives a premium from writing a call
or put option that it retain whether or not the option is exercised. By
writing a call option, a fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option,
the fund might become obligated to purchase the underlying security for more
than the current market price upon exercise. A fund will write put options
only on securities which the fund wishes to have in its portfolio and where
the fund has determined, as an investment consideration, that it is willing
to pay the exercise price of the option.
Investments in put and call options may not exceed 5% of a fund's assets,
represented by the premium paid, and will only relate to specific securities
(or groups of specific securities) in which the fund may invest. The fund
may purchase put and call options for the purpose of offsetting previously
written put and call options of the same series. If a fund is unable to
effect a closing purchase transaction with respect to covered options it has
written, the fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or
are exercised. Put options may also be purchased to protect against price
movement in particular securities in the fund's portfolio. A put option
gives a fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. A fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the fund
are qualified for offer and sale.
FUTURES AND OPTIONS TRANSACTIONS
The fund may invest in futures and options transactions as a means of
reducing fluctuations in the fund's net asset value. The fund may attempt to
hedge all or a portion of their portfolios by buying and selling futures
contracts and options on futures contracts, and buying put and call options
on securities indices. The fund may also purchase put options on portfolio
securities to hedge a portion of their portfolio investments. The fund will
maintain positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed or have expired.
An option position on futures contracts may be closed out over-the-counter or
on a nationally recognized exchange which provides a secondary market for
options of the same series.
FUTURES CONTRACTS
The fund may purchase and sell futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying
or selling the securities. Although some futures contracts call for making
or taking delivery of the underlying securities, in most cases these
obligations are closed out before the settlement date. The closing of a
contractual obligation is accomplished by purchasing or selling an
identical offsetting futures contract. Other futures contracts by their
terms call for cash settlements.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer, who agrees to take delivery of the
securities ("going long") at a certain time in the future. For example, in
the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. To hedge their holdings or fixed income securities
against a rise in market interest rates, a fund could enter into contracts
to deliver securities at a predetermined price (i.e., "go short"). Going
short protects the funds against the possibility that the prices of their
fixed income securities may decline during the funds' anticipated holding
period. A fund would "go long" (agree to purchase securities in the future
at a predetermined price) to hedge against a decline in market interest
rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
The fund may engage in margin in futures transactions. Unlike the purchase
or sale of a security, the fund does not pay or receive money upon the
purchase or sale of a futures contract. Rather, a fund is required to
deposit an amount of "initial margin" in cash, U.S. government securities
or highly liquid debt securities with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures transactions
is different from that of margin in securities transactions. Initial
margin in futures transactions does not involve the borrowing of funds by
the fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to
the fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by a fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
fund but is instead settlement between the fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the fund will mark to market its open
futures position.
A fund is also required to deposit and maintain margins when it writes call
options on futures contracts. When a fund purchase futures contracts, an
amount of cash and cash equivalents, equal to the underlying commodity
value of the futures contracts (less any related margin deposits), will be
deposited in a segregated account with the fund's custodian (or the broker,
if legally permitted). The cash is segregated to provide collateral and to
insure that the use of the futures contracts is not leveraged.
PUT OPTIONS ON FUTURES CONTRACTS
The fund may purchase listed put options on futures contracts to protect
portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates or decrease in
stock prices. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at a
specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the fund
will normally close out its options by selling an identical option. If the
hedge is successful, the proceeds received by the fund upon the sale of the
second option will be large enough to offset both the premium paid by the
fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, a fund may exercise its put options to close out the
position. To do so, it would simultaneously enter into futures contracts
of the type underlying the options (for a price less than the strike price
of the option) and exercise the options. The fund would then deliver the
futures contract in return for payment of the strike price. If the fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FUTURES CONTRACTS
In addition to purchasing put options on futures, the fund may write listed
call options on futures contracts to hedge their portfolios. When a fund
writes call options on futures contracts, it is undertaking the obligation
of assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the options if the
options are exercised. As market interest rates rise, causing the prices
of futures to go down, the fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so the
fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the fund's fixed-income or
indexed portfolio that is occurring as interest rates rise.
Prior to the expiration of a call written by a fund, or exercise of it by
the buyer, the fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the fund for the initial option. The net premium
income of the fund will then substantially offset the decrease in value of
the hedged securities.
A fund will not maintain open positions in futures contracts it has sold or
call options it has written if, in the aggregate, the value of the open
positions (marked to market) exceeds the current market value of their
securities portfolio, plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
CALL OPTIONS ON STOCK INDEX FUTURES CONTRACTS
In addition to writing call options on futures contracts, the 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 a fund writes a call
option on a futures contract, it is undertaking the obligation of assuming
a short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is exercised.
As stock prices fall, causing the prices of futures to go down, a fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the fund's call option position
to increase.
STOCK INDEX OPTIONS
The fund may write (sell) and may purchase, put options on stock indices
listed on national securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market value of the
stocks listed in the index.
When a fund writes options, an amount equal to the net premium received by
the fund is included in the liability section of the fund's Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred
credit will be subsequently marked to market to reflect the current market
value of the options written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated
expiration date or if the fund enters into a closing purchase transaction,
the fund will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated.
The purchase of a put option would entitle a fund, in exchange for the
premium paid, to sell the underlying securities at a specified price during
the option period. The purchase of such puts is designed merely to offset
or hedge against a decline in the market value of an index. A fund would
ordinarily recognize a gain if the value of the index decreased below the
exercise price sufficiently to cover the premium and would recognize a loss
if the value of the index remained at or above the exercise price.
The effectiveness of writing or purchasing stock index options will depend
upon the extent to which price movements in the fund's portfolio correlate
with price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether a fund will realize a gain or loss
from the purchase of the option on an index generally depends upon
movements in the level of stock prices in the stock market. In the case of
certain indices, gain or loss depends upon movement of stock prices in an
industry or market segment rather than movements in the price of a
particular stock. Accordingly, successful use by a fund of options on
stock indices will be subject to the ability of the adviser to predict
correctly movements in the directions of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the prices of individual stocks.
RISKS
When investing in futures and options, you could lose more money than you
invested. When a fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the fund's portfolio. This may cause the futures contract
and any related options to react differently to market changes than the
portfolio securities. In addition, the adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, a fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the adviser
will consider liquidity before entering into these transactions, there is
no assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any particular
time. A fund's ability to establish and close out futures and options
positions depends on this secondary market. The inability to close these
positions could have an adverse effect on the fund's ability to hedge its
portfolio.
To minimize risks, a fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the fund's total
assets after taking into account the unrealized profits and losses on those
contracts it has entered into. In the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be excluded in
computing such 5%.
When a fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the fund's custodian (or the broker, if legally
permitted). The cash is segregated to provide collateral and to insure
that the use of the futures contracts is not leveraged. When a fund sells
futures contracts, they will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize the
position as discussed above.
MORTGAGE-BACKED SECURITIES
The fund may invest in mortgage-backed securities. Mortgage-backed
securities are securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property. There are currently three basic types of mortgage-backed
securities:
1.Those issued or guaranteed by the U.S. government or one of its agencies
or instrumentalities, such as Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC");
2.Those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities; and
3.Those issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit
enhancement.
Mortgage-backed securities generally pay back principal and interest over the
life of the security. At the time a fund reinvests the payments and any
unscheduled prepayments of principal received, the fund may receive a rate of
interest which is actually lower than the rate of interest paid on these
securities ("prepayments risks"). Mortgage-backed securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans may be prepaid without
penalty or premium. Prepayment risk on mortgage-backed securities tends to
increase during periods of declining mortgage interest rates because many
borrowers refinance their mortgages to take advantage of the more favorable
rates. Prepayments on mortgage-backed securities are also affected by other
factors, such as the frequency with which people sell their homes or elect to
make unscheduled payments on their mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
The fund may invest in ARMS. ARMS are actively traded, mortgage-backed
securities representing interests in adjustable rather than fixed interest
rate mortgages. The fund invests in ARMS issued by GNMA, FNMA, and FHLMC.
The underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration or Veterans Administration,
while those collateralizing ARMS issued by FHLMC or FNMA are typically
conventional residential mortgages conforming to strict underwriting size and
maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, holders of the ARMS, would receive monthly
scheduled payments of principal and interest, and may receive unscheduled
principal payments representing payments on the underlying mortgages. At the
time that a holder of the ARMS reinvests the payments and any unscheduled
prepayments of principal that it receives, the holder may receive a rate of
interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of
"locking in" long-term interest rates than other types of U.S. government
securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because as interest rates decline, the likelihood increases that mortgages
will be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely,
if ARMS are purchased at a discount, both a scheduled payment of principal
and an unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be taxed
as ordinary income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The fund may invest in CMOs. CMOs are debt obligations collateralized by
mortgage loans or mortgage-backed securities. Typically, CMOs are
collateralized by GNMA, FNMA or FHLMC certificates, but may be collateralized
by whole loans or private mortgage-backed securities.
The fund 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 shortest-maturity class (or A
bond). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity security (or
B bond). This process continues until all of the classes have been
paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors in
the longer-maturity classes receive no principal paydowns.
ASSET-BACKED SECURITIES
The fund may invest in asset-backed securities. Asset-backed securities have
structural characteristics similar to mortgage-backed securities but have
underlying assets that generally are not mortgage loans or interests in
mortgage loans. The fund may invest in asset-backed securities rated AAA by
an NRSRO including, but not limited to, interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables, equipment leases, manufactured housing (mobile home) leases or
home equity loans. These securities may be in the form of pass-through
instruments or asset-backed bonds. The securities are issued by
non-governmental entities and carry no direct or indirect government
guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time a fund reinvests the
payments and any unscheduled prepayments of principal received, the fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities (''prepayment risks''). Mortgage-backed and
asset-backed securities are subject to higher prepayment risks than most
other types of debt instruments with prepayment risks because the underlying
mortgage loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-backed
securities tend to increase during periods of declining mortgage interest
rates because many borrowers refinance their mortgages to take advantage of
the more favorable rates. Prepayments on mortgage-backed securities are also
affected by other factors, such as the frequency with which people sell their
homes or elect to make unscheduled payments on their mortgages. Although
asset-backed securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain of the factors that
affect the rate of prepayments on mortgage-backed securities also affect the
rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as
interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may result
in some loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a discount,
both a scheduled payment of principal and an unscheduled prepayment of
principal would increase current and total returns and would accelerate the
recognition of income, which would be taxed as ordinary income when
distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit
the servicer of such receivables to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there
is a risk that the purchaser would acquire an interest superior to that of
the holders of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then re-registered because the owner and
obligor moves to another state, such re-registration could defeat the
original security interest in the vehicle in certain cases. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
THE FUND'S INVESTMENT LIMITATIONS
The following is a list of the fund's investment limitations, which cannot be
changed without the approval of a majority of a fund's outstanding voting
securities. As used in this SAI, "a majority of a fund's outstanding voting
securities" means the lesser of (1) 67% of the shares of common stock of the
Fund represented at a meeting at which more than 50% of the outstanding shares
are present, or (2) more than 50% of the outstanding shares of common stock of
the fund.
1. SELLING SHORT. The fund will not sell any securities short.
2. BUYING ON MARGIN. The fund will not 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. The deposit or payment by the
fund of initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security on
margin.
3. ISSUING SENIOR SECURITIES. The fund will not issue senior securities,
except that each fund may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets,
including the amount borrowed. The fund will issue senior securities to the
extent that the fund may enter into futures contracts.
4. BORROWING MONEY. Except as described in their respective prospectuses the
fund will not borrow money or engage in reverse repurchase agreements for
investment leverage. However, the fund may borrow money up to one-third of
its value of its total assets as a temporary, extraordinary, or emergency
measure or to facilitate management of the fund by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous. Interest paid on borrowed funds will serve
to reduce the fund's income. A fund will not purchase any securities while
borrowings and reverse repurchase agreements in excess of 5% of its total assets
are outstanding. During the period any reverse repurchase agreements are
outstanding, the fund 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.
5. PLEDGING ASSETS. The fund 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%
of the value of total assets at the time of the pledge.
The following will not be deemed to be pledges of the fund's 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.
6. CONCENTRATION OF INVESTMENTS. The fund will not invest 25% or more of the
value of its respective total assets in any one industry, except in the science
and technology areas as set forth under the "Investment Objective and Policies"
in the Prospectus, provided also that there shall be no limitation on the fund
to purchase obligations issued or guaranteed by the United States Government,
its agencies or instrumentalities. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the issuing entity and a security is backed
only by the assets and revenues of the entity, the entity would be deemed to be
the sole issuer of the security. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental issuer, then such non-governmental issuer would be deemed to
be the sole issuer. If, however, in either case, the creating government
guarantees a security, such a guarantee would be considered a separate security
and would be treated as an issue of such government.
7. UNDERWRITING. The fund 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.
8. INVESTING IN REAL ESTATE. The fund will not purchase or sell real estate,
including limited partnership interests. However, it 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.
9. INVESTING IN COMMODITIES. The fund will not purchase or sell commodities,
commodity contracts, or commodity futures contracts. However the fund may
engage in transactions involving futures contracts or options on futures
contracts.
10. LENDING CASH OR SECURITIES The fund will not lend any of their respective
assets, except portfolio securities up to one-third of the value of its total
assets. This shall not prevent the fund from purchasing or holding U.S.
government obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by a fund's investment objectives, policies, and
limitations or the Trust's Declaration of Trust.
The Trustees may change the following investment limitations without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
1. INVESTING IN ILLIQUID AND RESTRICTED SECURITIES. The fund will not invest
more than 15% of the value of their respective net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options and certain restricted
securities not determined by the Trustees to be liquid.
2. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES.
The 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 respective total assets in any one investment
company,
O no more than 10% of their respective total assets in investment
companies in general.
The fund will purchase securities of investment companies only in open-market
transactions involving customary broker's commissions. The adviser will
waive its investment advisory fee on assets invested in securities of
open-end investment companies.
These limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets. It should be
noted that investment companies may incur certain expenses that may be
duplicative of certain fees incurred by the fund.
3. PURCHASING SECURITIES TO EXERCISE CONTROL. The fund will not purchase
securities of a company for the purpose of exercising control or management.
4. WRITING COVERED CALL OPTIONS. The 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.
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 fund does not expect to borrow money or pledge securities in excess of 5% of
the value of their respective total assets in the coming fiscal year.
For purposes of their policies and limitations, the consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
As a matter of operating policy, which may be changed without shareholder
approval, the fund will limit the margin deposits on futures contract and
options entered into by a fund to 5% of its net assets.
TEMPORARY INVESTMENTS
From time to time, the fund may invest in temporary investments. For
temporary defensive purposes (up to 100% of total assets) and to maintain
liquidity (up to 35% of total assets), the Fund may invest in U.S. and
foreign short-term money market instruments including:
O commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch. In the case where commercial paper
has received different ratings from different rating services, such
commercial paper is acceptable so long as at least one rating is in
the two highest categories of the NRSROs described above;
O instruments of domestic and foreign banks and savings associations
(such as certificates of deposit, demand and time deposits and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if BIF or SAIF insures the principal
amount of the instrument. These instruments may include Eurodollar
Certificates of Deposit, Yankee Certificates of Deposit, and
Eurodollar Time Deposits;
O obligations of the U.S. government or its agencies or
instrumentalities;
O repurchase agreements; and
O other short-term instruments that are not rated but are determined by
the adviser to be of comparable quality to the other obligations in
which the fund may invest.
MANAGEMENT OF THE FUND
The Trust is managed by a Board of Trustees. The Trust's Board of Trustees
consists of six individuals, five of whom are not "interested persons" of the
Trust as that term is defined in the 1940 Act. The Trustees are fiduciaries for
the fund's 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, ages, present
positions with the Trust and principal occupations.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
POSITION AND PRINCIPAL OCCUPATION
NAME AND ADDRESS BIRTHDATE OFFICE WITH THE TRUST DURING THE PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas L. Conlan, Jr.(1)<F5> 61 Trustee Retired; President and Chief Executive
c/o Firstar Corporation Officer, Student Loan Funding Resources,
425 Walnut Street Inc., 1998 to 1999; President and Chief
Cincinnati, Ohio 45202 Executive Officer, Student Loan Funding
Corporation, 1981 to June 1998; President
and Chief Executive Officer, Student Loan
Funding Corporation, Inc., 1991 to June
1998.
- ----------------------------------------------------------------------------------------------------------------------------------
Alfred Gottschalk, Ph.D. 69 Trustee Chancellor (January 1996 to present),
c/o Firstar Corporation Professor and President, 1971 to 1995,
425 Walnut Street Cincinnati, Ohio 45202 Hebrew Union College-Jewish Institute of
Religion.
- ----------------------------------------------------------------------------------------------------------------------------------
Robert J. Hill, D.O. 40 Trustee Physician, Ohio Valley Orthopaedic and
c/o Firstar Corporation Sports Medicine Institute, Inc. and
425 Walnut Street Wellington Orthopaedics, 1994 to present;
Cincinnati, Ohio 45202 Fellow Physician, Cleveland Clinic
Foundation, 1993 to 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
Dawn M. Hornback 36 Trustee Founder, President and Chief Executive
c/o Firstar Corporation Officer of Observatory Group, Inc., August
425 Walnut Street 1990 to present. Observatory Group, Inc.
Cincinnati, Ohio 45202 is a marketing communications firm
specializing in the commercial, medical
and educational fields.
- ----------------------------------------------------------------------------------------------------------------------------------
Lawrence M. Turner 52 Trustee Vice President and Treasurer, Kroger
c/o Firstar Corporation Company, 1986 to present. The Kroger Co.
425 Walnut Street Cincinnati, Ohio 45202 operates supermarkets and convenience
stores and processes food.
- ----------------------------------------------------------------------------------------------------------------------------------
William H. Zimmer, III 46 Trustee Executive Vice President & Chief Financial
c/o Firstar Corporation Officer, Advanced Communications Group,
425 Walnut Street Inc., December 1998 to present; Corporate
Cincinnati, Ohio 45202 Vice President, Cincinnati Bell, Inc.,
1997 to 1998 Treasurer, Cincinnati Bell,
Inc., 1991 to present; Secretary,
Cincinnati Bell, Inc. 1988 to 1997;
Assistant Treasurer, Cincinnati Bell,
Inc., 1988 to 1991.
- ----------------------------------------------------------------------------------------------------------------------------------
Daniel B. Benhase 40 President Executive Vice President, Firstar
Firstar Corporation Corporation since 1987.
425 Walnut Street
Cincinnati, OH 45202
- ----------------------------------------------------------------------------------------------------------------------------------
Joseph C. Neuberger 37 Vice President Vice President, Firstar Mutual Fund
Firstar Mutual Fund Services, LLC Services, LLC, 1994 to present.
615 E. Michigan Street
Milwaukee, WI 53202
- ----------------------------------------------------------------------------------------------------------------------------------
Michael T. Karbouski 34 Treasurer Trust Officer, Firstar Mutual Fund
Firstar Mutual Fund Services, LLC Services, LLC, 1990 to present.
615 E. Michigan Street
Milwaukee, WI 53202
- ----------------------------------------------------------------------------------------------------------------------------------
Elaine E. Richards 31 Secretary Trust Officer, Firstar Mutual Fund
Firstar Mutual Fund Services, LLC Services, LLC, June 1998 to present;
615 E. Michigan Street Associate Attorney, Reinhart, Boerner, Van
Milwaukee, WI 53202 Deuren, Norris & Rieselbach, s.c.,
Milwaukee, Wisconsin, 1995 to 1998.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)<F5> Before Mr. Conlan retired as President and Chief Executive Officer from
the Student Loan Funding Corporation, the Trustees considered him to be an
"interested person," as defined in the 1940 Act, of the Trust by virtue of his
business relationship with the fund's investment adviser, and certain of its
affiliates. The Student Loan Funding Corporation and SLFC, Inc., of which Mr.
Conlan was President and Chief Executive Officer, purchases student loans from
various financial institutions, including the Fund's investment adviser and its
affiliates. In addition, the fund's investment adviser extends credit from time
to time to Student Loan Funding Corporation and SLFC, Inc. to finance their
operations. Mr. Conlan is no longer considered an "interested person" because
of his recent retirement from Student Loan Funding Corporation and SLFC, Inc.
COMPENSATION
For their service as Trustees, the independent Trustees receive a $3,000 annual
retainer fee and $2,375 per meeting attended, as well as reimbursement for
expenses incurred in connection with attendance at such meetings. The
interested Trustees of the Trust receive no compensation for their service as
Trustees. The table below details the amount of compensation received by the
Trustees from the Trust for the past fiscal year. Presently, none of the
executive officers receive compensation from the Trust. The aggregate
compensation is provided for the Trust, which is comprised of eleven portfolios.
<TABLE>
AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM TRUST AND FUND
NAME AND POSITION FROM TRUST**<F7> PART OF TRUST EXPENSES UPON RETIREMENT COMPLEX PAID TO TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas L. Conlan, Jr.*<F6> None None None None
Trustee
Dr. Alfred Gottschalk $11,000 None None $11,000
Trustee
Dr. Robert J. Hill $11,500 None None $11,500
Trustee
Dawn M. Hornback $11,000 None None $11,000
Trustee
Lawrence M. Turner $11,000 None None $11,000
Trustee
William H. Zimmer, III $11,500 None None $11,500
Trustee
</TABLE>
*<F6>This trustee is deemed to be an interested person as defined in the 1940
Act.
**<F7>A portion of these fees were paid by the Market Capitalization Fund a
former Firstar Stellar Fund that was recently dissolved.
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
Fund. The following persons will not have to pay a sales charge on class A
or class B shares:
O Employees and retired employees of Firstar Bank (or Star Bank), or
their affiliates and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such
employees or retired employees;
O FirstarTrust customers of Firstar Corporation and its subsidiaries;
and
O non-trust customers of financial advisers.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSON AND PRINCIPAL HOLDERS
As of August 3, 1999, no one is deemed to be a control person or a principal
holder of the fund. A principal holder is a person that beneficially owns 5%
or more of the fund's outstanding equity securities. A control person is a
person that owns over 25% of the voting shares of the fund.
MANAGEMENT OWNERSHIP
As of August 3, 1999, the officers and Trustees of the Trust do not own any
outstanding shares of the fund.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Trust's investment adviser is Firstar Bank, N.A. located at 425 Walnut
Street, Cincinnati, Ohio 45202 ("Firstar Bank"). Firstar Bank is a wholly-owned
subsidiary of Firstar Corporation whose principal business is commercial
banking. On November 20, 1998, StarBanc Corporation merged with Firstar
Corporation. The new entity retained the "Firstar" name and Firstar Corporation
is now the parent company of the adviser. The adviser 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's assets under management, including mutual funds, have a market
value in excess of $ 12 billion. As part of its regular banking operations,
Firstar Bank may make loans to public companies. As a result, it may be
possible for the fund to hold or acquire securities of companies that are also
lending clients of Firstar Bank. The lending relationship will not be a factor
in the selection of securities. Because of internal controls maintained by
Firstar Bank to restrict the flow of non-public information, Trust investments
are typically made without any knowledge of Firstar Bank's or its affiliates'
lending relationships with an issuer.
Firstar Bank shall not be liable to the Trust, the fund, or any shareholder of
the fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Firstar Corporation is also the parent company to Firstar Investment Management
and Research Company, LLC ("FIRMCO"), a registered investment adviser. FIRMCO
serves as the investment adviser to the Firstar Funds, a separate family of fund
using the "Firstar" name.
ADVISORY FEES
For its advisory services, Firstar Bank receives an annual investment advisory
fee from the fund as described in the prospectus.
BROKERAGE TRANSACTIONS
The adviser is responsible for making decisions to buy and sell securities for
the fund and for placing the fund's securities. The adviser is also responsible
for negotiating the commissions to be paid on such transactions and allocating
portfolio transactions. The adviser seeks to obtain the best execution at the
best security price available with respect to each transaction. The best price
to a fund means the best net price without regard to the mix between purchase or
sale price and commission if any. While the adviser seeks reasonably
competitive commission rates, the fund does not necessarily pay the lowest
available commission. Brokerage will not be allocated based on the sale of the
Fund's shares.
Section 28(e) of the Securities Exchange Act of 1934, as amended permits an
investment adviser under certain circumstances, to cause an account to pay a
broker or dealer who supplies brokerage and research services a commission for
effecting a transaction in excess of the amount of commission another broker or
dealer would have charged for effecting the transaction. Brokerage and research
services include:
(a)furnishing advice as to the value of securities, the availability of
investing, purchasing or selling securities and the availability of
securities or purchases or sellers of securities;
(b)furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accruals; and
(c)effecting securities transactions and performing functions incidental thereto
(such as clearance, settlement and custody).
In selecting broker or dealers, the adviser considers investment and market
information and other research, such as economic, securities and performance
measurement research provided by such brokers or dealers and the quality and
reliability of brokerage services, including execution capability, performance
and financial responsibility. Accordingly, the commissions charged by any such
broker or dealer may be greater than the amount another firm might charge if the
adviser determines in good faith that the amount of such commissions is
reasonable in relation to the value of the research information and brokerage
services provided by such broker or dealers to the fund. The adviser believes
that the research information received in this manner provides the fund with
benefits by supplementing the research otherwise available to the fund. Such
higher commissions will not be paid by the fund unless:
(a)the adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms
of the adviser's overall responsibilities with respect to the accounts,
including the Fund as to which it exercises investment discretion;
(b)such payment is made in compliance with the provisions of Section 28(e) and
to other applicable state and federal laws; and
(c)in the opinion of the adviser, the total commissions paid by the fund will be
reasonable in relation to the benefits to the fund over the long term.
Although investment decisions for the fund are made independently from those of
the other accounts managed by the adviser, investments of the type the fund may
make may also be made by those other accounts. When the fund 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 fund or the size of the position obtained or disposed of by the fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the fund.
DISTRIBUTOR
Edgewood Services, Inc., 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779, is the distributor for the shares of the fund. Edgewood is the
distributor for a number of investment companies around the country. The
distributor will use its best efforts to distribute the fund's shares, which
shares are offered for sale by the fund continuously.
ADMINISTRATIVE SERVICES
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, a subsidiary of Firstar Bank, N.A., ("Firstar"), provides
administrative personnel and services to the fund. Firstar provides services
such as legal compliance and accounting services. Firstar provides these
services at an annual rate of 0.11% of the average daily net assets of the fund.
Edgewood Services, Inc. serves as sub-administrator to the fund. For its
services, Edgewood is paid a fee by the fund's administrator and is not paid by
the fund.
FUND ACCOUNTING AND DIVIDEND PAYING AGENT SERVICES
Firstar provides fund accounting personnel and services to the fund pursuant to
a Fund Accounting Service Agreement. Under the Fund Accounting Servicing
Agreement, Firstar provides portfolio accounting services, expense accrual and
payment services, fund valuation and financial reporting services, tax
accounting services and compliance control services. Firstar receives a fund
accounting fee, for the fund, which is billed on a monthly basis. Firstar acts
as the fund's dividend paying agent.
CUSTODIAN
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is custodian for
the cash and securities of the fund. Under the Custodian Agreement, Firstar
Bank holds the Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. The custodian receives
an annual fee equal to 0.025% of each fund's average daily net assets.
DISTRIBUTION PLAN
As noted in the fund's prospectus, the Trust on behalf of the fund has adopted a
Rule 12b-1 Plan, as amended and restated, pursuant to Rule 12b-1 promulgated by
the SEC pursuant to the 1940 Act (the "Plan"). The Plan was adopted to
facilitate the sale of a sufficient number of shares to allow the Fund to
achieve economic viability. The Plan is a compensation type of Plan that
provides the Trust the ability to use assets of the fund to pay securities
dealers, financial institutions and other industry professionals ("shareholder
service organizations") to finance any activity that is principally intended to
result in the sale of the fund' shares subject to the Plan. Such activities may
include:
O the advertising and marketing of shares of the fund;
O preparing, printing, and distributing prospectuses and sales
literature to prospective shareholders, brokers, or administrators;
and
O implementing and operating the Plan.
The distributor may pay fees to brokers and others for such services. Edgewood
Services, Inc., became the distributor for the Trust as of April 1, 1999.
In compensation for the services provided pursuant to this Plan, Edgewood
Services, Inc. will be paid a monthly fee computed at the annual rate of up to
0.25% of the average aggregate net asset value of shares of the fund held during
the month. The Plan provides that the only shares of the fund subject to the
accrual and payment of Rule 12b-1 fees are the fund in which there is Y class of
shares. Although Class Y shares are not subject to Rule 12b-1 fees, Classes A,
B or C shares within the particular fund are subject to the fees. Class C of
the Treasury Fund is paying Rule 12b-1 fees because a Y class of shares exists
in the fund.
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
fund to have monies available for the direct distribution activities of the
distributor in promoting the sale of the fund's shares. Furthermore, having
money available will avoid any uncertainties as to whether other payments by the
fund constitute distribution expenses on behalf of the fund. 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 fund's outstanding shares. All material amendments to the Plan or any
related agreements must be approved by a vote of the independent Trustees, cast
in person at a meeting called for the purpose of voting on any such amendment.
The distributor is required to report in writing to the Board of Trustees, at
least quarterly, on the amounts and purpose of any payment made under the Plan.
The distributor is also required to furnish the Board of Trustees with such
other information as may reasonably be requested in order to enable the Trustees
to make an informed determination of whether the Plan should be continued.
With the exception of Firstar Bank, in its capacity as the Fund's investment
adviser, and Edgewood Services Inc., in its capacity as distributor of the
fund's shares, no "interested person" of the fund, as defined in the 1940 Act,
and no trustee of the fund who is not an "interested person" has or had a direct
or indirect financial interest in the Plan or any related argument.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net asset
value is calculated by the fund 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 fund are informed of the ex-dividend date.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the fund's portfolio securities are determined as
follows:
1.For equity securities: according to the last quoted sale price of the
day on a national securities exchange or on the NASDAQ National Market
System.
2.In the absence of recorded sales for listed equity securities:
according to the mean between the last closing bid and asked prices.
3.For unlisted equity securities: latest bid prices.
4.For bonds and other fixed-income securities: as determined by an
independent pricing service.
5.For short-term obligations: according to the mean between bid and asked
prices as furnished by an independent pricing service.
6.For short-term obligations with remaining maturities of 60 days or less
at the time of purchase: at amortized cost.
7.For all other securities: at fair value as determined in good faith by
the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
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
fund value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the underlying fund's board of directors, although
the actual calculation may be done by others.
PURCHASE, EXCHANGE AND PRICING OF SHARES
Except in initial circumstances as described in the prospectus, shares of the
fund are sold at their net asset value plus a sales charge, on days the New York
Stock Exchange and the Federal Reserve wire system are open for business. The
procedure for purchasing shares of the fund is explained in the prospectus.
CLASS C AND CLASS Y SHARES
Class C and Class Y shares are sold at their net asset value and do not have
sales charges or contingent deferred sales charges. See the prospectus for more
information. (Class C shares are offered with other Firstar Stellar Funds.)
EXCHANGE PRIVILEGE
Shareholders may exchange shares within the Firstar Stellar Funds. Prior to any
exchange, shareholders should read a copy of the current prospectus of the fund
into which they wish to exchange. To participate in the exchange privilege,
shareholders must exchange shares having a net asset value of at least $1,000.
If you established your account through a Shareholder Service Organization, you
may be able to exchange a lower amount, but you should consult your account
agreement for procedures. Exercising the exchange privilege is treated as a
sale for federal income tax purposes and you may realize short or long-term
capital gains or losses on the exchange.
Shareholders may exchange shares by telephone or in writing as follows:
Telephone
- ----------
You may exchange shares by telephone only if the shareholders registered on your
account are the same shareholders registered on the account into which you are
exchanging. Exchange requests must be received before 3:30 p.m. (Eastern time)
to be processed that day.
In Writing
- -----------
You may send your exchange request in writing. Please provide the fund name and
account number for each of the funds involved in the exchange and make sure the
letter of instruction is signed by all shareholders on the account.
Each class of shares may be exchanged as follows:
O Holders of Class C or Y shares of any of the Firstar Stellar Funds may
exchange such shares for Class C or Y shares of any other Firstar
Stellar Funds at net asset value.
O Holders of Class B shares of any Firstar Stellar Funds may exchange
such shares for Class B or C shares of any other Firstar Stellar Funds
at net asset value.
O Holders of Class A shares of any Firstar Stellar Funds may exchange
such shares for Class A or C shares of any other Firstar Stellar Funds
at net asset value plus the difference (if any) between the sales
charge already paid on the shares of the fund which are being
exchanged out of, and any sales charge imposed by the fund which is
being exchanged into. In all cases, shareholders will be required to
pay a sales charge only once.
Shares are exchanged at their net asset values. However, additional fees may
apply to class A and B shares as noted in the table below.
A to A Exchange
- -------------------------------------------------------------------------------
When you exchange Class A shares of a fund for Class A shares of another fund,
you will have to pay the difference between the fund's sales charge you already
paid and the sales charge of the fund into which you are entering.
A to C Exchange
- -------------------------------------------------------------------------------
When you exchange Class A shares of a fund for Class C shares of another fund,
the Class A shares retain their charge to be exercised in further exchanges.
If you later re-exchange the C shares that you obtained from the A-C exchange,
you would exchange at the NAV plus the difference between the sales charge
initially paid and the sales charge of the fund into which you are entering.
B to B Exchange / B to C Exchange
- -------------------------------------------------------------------------------
When you exchange Class B shares of a fund for Class B or C shares of another
fund, no sales charges are assessed at the time of the exchange. However, if
you redeem shares within 5 years of the original purchase, a CDSC will be
imposed according to the original purchase date.
NOTE: Firstar Stellar Funds may modify or terminate the exchange privilege at
any time. Investors may have difficulty making exchanges by telephone through
brokers or banks during times of drastic market changes. If you cannot contact
your broker or bank, by telephone, you should send your request in writing via
overnight mail.
EXCHANGING SECURITIES FOR FUND SHARES
The fund may accept securities in exchange for shares. The fund will allow such
exchanges only upon the prior approval of the particular fund and a
determination by the fund and the Adviser that the securities to be exchanged
are acceptable.
Any securities exchanged must meet the investment objective and policies of the
fund, must have a readily ascertainable market value, and must not be subject to
restrictions on resale. The fund acquires the exchanged securities for
investment and not for resale. The market value of any securities exchanged in
an initial investment, plus any cash, must be at least $25,000.
Securities accepted by the fund will be valued in the same manner as the fund
values its assets. The basis of the exchange will depend upon the net asset
value of shares of the fund on the day the securities are valued. One share of
the fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the fund, along with
the securities.
SHAREHOLDER SERVICES PLAN
Shareholder service organizations are non-affiliated banks and broker/dealers
that provide certain support and distribution services to their customers who
are the beneficial owners of the fund's 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 fund and are responsible for promptly transmitting orders. The
organizations may charge their customers for services relating to their
investment in the fund. If you are a customer of a shareholder service
organization, carefully read your account agreement together with the fund's
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 establish and maintain shareholder accounts and records;
O process purchase and redemption transactions and automatic investments of
client account cash balances;
O answer routine client inquiries; and
O assist clients in changing dividend options, account designations and
addresses.
CONVERSION TO FEDERAL FUND
It is the fund's 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 fund or be converted into federal fund. Firstar Bank acts as the
shareholder's agent in depositing checks and converting them to federal fund.
REDEEMING SHARES
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If the state's policy changes, the fund reserve the right to redeem
in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act under
which the fund is obligated to redeem shares for any one shareholder in cash
only up to the lesser of $250,000 or 1% of the class' net asset value during any
90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs in the disposition of such securities.
REDEMPTION IN WRITING
To redeem shares, shareholders may send a written request to:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
The written letter of instructions must include:
O the shareholder(s)' name,
O the fund name,
O the account number,
O the share or dollar amount to be redeemed, and
O signatures by all shareholders on the account.
The proceeds will be wired to the bank account of record or sent to the address
of record within seven calendar days.
If shareholders request redemption proceeds be sent to an address other than
that on record with the fund or proceeds made payable other than to the
shareholder(s) of record, the written request must have signatures guaranteed
by:
O a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;
O a member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
O a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
O any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
"regulated investment companies" and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the fund must, among
other requirements:
O derive at least 90% of their gross income from dividends, interest and
gains from the sale of securities;
O invest in securities within certain statutory limits; and
O distribute to their shareholders at least 90% of their net income
earned during the year.
In the event the Trust fails to qualify as a "regulated investment company," it
will be treated as a regular corporation for federal income tax purposes.
Accordingly, the Trust would be subject to federal income taxes and any
distributions made by the fund would be taxable and non-deductible by the Trust.
This would increase the cost of investing in the fund for shareholders and would
make it more economical for shareholders to invest directly in securities held
by the fund instead of investing indirectly in such securities through the fund.
CAPITAL GAINS
Shareholders will pay federal tax at long-term capital gain rates on long-term
capital gains distributed to them regardless of how long they have held fund
shares.
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.
CALCULATION OF PERFORMANCE DATA
The fund's performance or return may be shown in the form of various performance
figures. The fund's performance figures are based upon historical results and
are not necessarily representative of future performance. Factors affecting the
fund's performance include general market conditions, generating expenses, the
imposition of sales charges and investment management.
YIELD
Yield is computed in accordance with a standardized method prescribed by rules
of the Securities and Exchange Commission. Under that method, the current yield
quotation for a fund is based on a one-month or 30-day period. The yield is
computed by dividing the net investment income per share earned during the 30-
day or one month period by the maximum offering-price per share on the last day
of the period, according to the following formula:
YIELD = 2[(a-b + 1)6 - 1]
----
c-d
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
This value is then annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by each class of
shares because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in each class of shares, the performance will be
reduced for those shareholders paying those fees.
AVERAGE ANNUAL TOTAL RETURNS
The average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the redeemable value according to the following formula:
P(1+T)n = ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the stated periods at the end of the stated
periods.
Performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) ("initial investment") in a fund's shares on the first
day of the period and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting
the initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by a fund have been
reinvested at the net asset value of the fund on the reinvestment date during
the period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between their factor and their contributions to total return.
PERFORMANCE COMPARISONS
The performance of the fund's 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 fund's 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 fund's 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 fund uses 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 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 fund.
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.
Advertisements and other sales literature for shares may quote total returns
that are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in share classes
based on reinvestment of dividends over a specified period of time.
Advertisements may quote performance information that does not reflect the
effect of the contingent deferred sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the fund's 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 fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by funds' portfolio managers and their views and analysis on how
such developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202,
serves as the independent public accountants for the fund. Their services
include examination of the fund's financial statements and the performance of
other related audit and tax services.
FINANCIAL STATEMENTS
There are no financial statements for the fund at this time.
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) AMENDED AND RESTATED DECLARATION OF TRUST of the Registrant is filed
herewith.
(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 Amended and Restated Declaration of Trust.
(d) INVESTMENT ADVISORY CONTRACT between Registrant and Firstar Bank, N.A
through and including Exhibit G is incorporated by reference to
Registrant's Post-Effective Amendment No. 16 to the Registration Statement
filed November 20, 1992.
(1) EXHIBIT H TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
23 to the Registration Statement filed May 13, 1994.
(2) EXHIBIT I TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
24 to the Registration Statement filed September 15, 1994.
(3) EXHIBIT J TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
25 to the Registration Statement Form N-1A filed January 26, 1995.
(4) EXHIBIT K TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
33 to the Registration Statement filed March 25, 1997.
(5) EXHIBIT L TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(6) EXHIBIT M TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(7) EXHIBIT N TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(8) EXHIBIT O TO INVESTMENT ADVISORY CONTRACT of the Registrant is filed
herewith.
(e) DISTRIBUTION AGREEMENT between Registrant and Edgewood Services, Inc. dated
as of April 1, 1999 with respect to Treasury Fund, Tax-Free Money Market
Fund, Ohio Tax-Free Money Market Fund, The Stellar Fund, Growth Equity
Fund, International Equity Fund, Market Capitalization Fund, Relative Value
Fund, Capital Appreciation Fund, Stellar Insured Tax-Free Bond Fund,
Strategic Income Fund, and U.S. Government Income Fund is incorporated by
reference to Registrant's PostEffective Amendment No. 44 to the
Registration Statement filed April 1, 1999.
(1) EXHIBIT A TO DISTRIBUTION AGREEMENT of the Registrant is incorporated
by reference to Registrant's PostEffective Amendment No. 44 to the
Registration Statement filed April 1, 1999.
(2) EXHIBIT B TO DISTRIBUTION AGREEMENT of the Registrant is incorporated
by reference to Registrant's PostEffective Amendment No. 44 to the
Registration Statement filed April 1, 1999.
(3) EXHIBIT C TO DISTRIBUTION AGREEMENT of the Registrant is filed
herewith.
(4) EXHIBIT D TO DISTRIBUTION AGREEMENT of the Registrant is filed
herewith.
(f) BONUS OR PROFIT SHARING CONTRACTS. Not Applicable.
(g) CUSTODIAN CONTRACT between Registrant and Firstar Bank, N.A. dated October
1, 1992 is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement filed July 2, 1993.
(1) FEE SCHEDULES OF CUSTODIAN CONTRACT of the Registrant is incorporated
by reference to Registrant's Post-Effective Amendment No. 37 to the
Registration Statement filed November 24, 1997.
(h) OTHER MATERIAL CONTRACTS
(1) SHAREHOLDER RECORDKEEPING AGREEMENT between Registrant and Firstar
Bank, N.A. dated as of January 26, 1998 is incorporated by reference
to Registrant's PostEffective Amendment No. 41 to the Registration
Statement filed March 23, 1998.
(2) FUND ADMINISTRATION SERVICING AGREEMENT between Registrant and Firstar
Mutual Fund Services, LLC dated October 1, 1998 filed January 29, 1999
is incorporated by reference to Registrant's PostEffective Amendment
No. 42.
(3) AMENDED AND RESTATED SHAREHOLDER SERVICES PLAN is incorporated by
reference to Registrant's PostEffective Amendment No. 44 to the
Registration Statement filed April 1, 1999.
(4) SHAREHOLDER SERVICES AGREEMENT between Firstar Stellar Funds and
Firstar Bank, N.A. dated as of March 1, 1999 is incorporated by
reference to Registrant's PostEffective Amendment No. 44 to the
Registration Statement filed April 1, 1999.
(5) FUND ACCOUNTING SERVICING AGREEMENT between Registrant and Firstar
Mutual Fund Services, LLC dated October 1, 1998 filed January 29, 1999
is incorporated by reference to Registrant's PostEffective Amendment
No. 42.
(i) LEGAL OPINION. Filed herewith.
(j) OTHER OPINIONS. Not applicable.
(k) OMITTED FINANCIAL STATEMENTS. Not applicable.
(l) INITIAL CAPITAL UNDERSTANDING is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1 to the Registration Statement filed April 10,
1989.
(m) AMENDED AND RESTATED DISTRIBUTION PLAN AND FORM OF AGREEMENT is
incorporated by reference to Registrant's PostEffective Amendment No. 44 to
the Registration Statement filed April 1, 1999.
(1) EXHIBIT A TO THE AMENDED AND RESTATED DISTRIBUTION PLAN AND FORM OF
AGREEMENT is filed herewith.
(2) EXHIBIT B TO THE AMENDED AND RESTATED DISTRIBUTION PLAN AND FORM OF
AGREEMENT is filed herewith.
(n) FINANCIAL DATA SCHEDULES Not applicable.
(o) AMENDED AND RESTATED MULTIPLE CLASS PLAN including Exhibit A is
incorporated by reference to Registrant's Post-Effective Amendment No. 40
to the Registration Statement filed March 23, 1998.
(p) POWER OF ATTORNEY filed January 29, 1999 is incorporated by reference to
Registrant's PostEffective Amendment No. 42.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 25. INDEMNIFICATION
Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 to the Registration Statement filed July 26, 1989.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Firstar Bank, N.A. ("Firstar Bank"), a national bank, was founded in
1863 and is the largest bank and trust organization of Firstar
Corporation. Firstar Bank had an asset base of $38 billion as of
December 31, 1998.
Firstar Bank's expertise in trust administration, investments, and
estate planning ranks it among the most predominant trust institutions
in the Midwest, with assets under management of $12 billion as of
December 31, 1998.
The officers and directors of the Firstar Bank any other business,
profession, vocation, or employment of a substantial nature in which
each such officer and director is or has been engaged during the past
two years, is set forth below. Unless otherwise noted, the position
listed under "Other Business, Profession, Vocation or Employment" is
with Firstar Bank.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Edgewood Services, Inc. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
openend investment companies, including the Registrant:
o Deutsche Portfolios
o Deutsche Funds, Inc.
o Excelsior Funds
o Excelsior Funds, Inc. (formerly, UST Master Funds, Inc.),
o Excelsior Institutional Trust
o Excelsior TaxExempt Funds, Inc.
o FTI Funds
o FundManger Portfolios
o Great Plains Funds
o Old Westbury Funds, Inc.
o The Riverfront Funds
o Robertsons Stephens Investment Trust
o WesMark Funds
o WCT Funds
(b) To the best of Registrant's knowledge, the directors and
executive officers of Edgewood Services, Inc. are as follows:
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS EDGEWOOD SERVICES, INC WITH REGISTRANT
- ------------------ ------------------------- ---------------------
Lawrence Caracciolo Director, President None
Arthur L. Cherry Director None
J. Christopher Donahue Director None
Thomas P. Sholes Vice President None
Ernest L. Linane Assistant Vice President None
Christine T. Johnson Assistant Vice President None
Denis McAuley Treasurer None
Leslie K. Rose Secretary None
Amanda J. Reed Assistant Secretary None
The address of each of the foregoing is 5800 Corporate Drive, Pittsburgh PA
15237-5829.
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a1 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 Firstar Bank, N.A.
investment adviser 425 Walnut Street
Cincinnati, OH 45202
Records relating to Registrant's Firstar Bank, N.A.
custodian, transfer agent 425 Walnut Street
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(b) 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 3rd day of August, 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
- ---- ----- ----
*<F8>/s/ Thomas L. Conlan, Jr.
- ------------------------------
Thomas L. Conlan, Jr. Trustee August 3, 1999
*<F8>/s/ Dr. Alfred Gottschalk
- ------------------------------
Dr. Alfred Gottschalk Trustee August 3, 1999
*<F8>/s/ Dr. Robert J. Hill
- ---------------------------
Dr. Robert J. Hill Trustee August 3, 1999
*<F8>/s/ William H. Zimmer, III
- -------------------------------
William H. Zimmer, III Trustee August 3, 1999
*<F8>/s/ Dawn M. Hornback
- -------------------------
Dawn M. Hornback Trustee August 3, 1999
*<F8>/s/ Lawrence M. Turner
- ---------------------------
Lawrence M. Turner Trustee August 3, 1999
*<F8> By /s/ Elaine E. Richards
-----------------------
Elaine E. Richards
Attorney-in-fact
FIRSTAR STELLAR FUNDS
- ---------------------
EXHIBIT INDEX
- -------------
(a) Amended and Restated Declaration of Trust
(d)(8) Exhibit O to Investment Advisory Contract
(e)(3) Exhibit C to Distribution Agreement
(e)(4) Exhibit D to Distribution Agreement
(i) Legal Opinion
(m)(1) Exhibit A to Amended and Restated Distribution Plan and Form of
Agreement
(m)(2) Exhibit B to Amended and Restated Distribution Plan and Form of
Agreement
EXHIBIT (A)
AMENDED AND RESTATED
DECLARATION
OF
TRUST
FIRSTAR STELLAR FUNDS
AMENDED AND RESTATED
DECLARATION OF TRUST
TABLE OF CONTENTS
Page
ARTICLE I NAMES AND DEFINITIONS 4
Section 1. Name 4
---------- ----
Section 2. Definitions 4
---------- -----------
ARTICLE II PURPOSE OF TRUST 5
ARTICLE III BENEFICIAL INTEREST 5
Section 1. Shares of Beneficial Interest 5
---------- -----------------------------
Section 2. Ownership of Shares 6
---------- -------------------
Section 3. Investment in the Trust 6
---------- -----------------------
Section 4. No Pre-emptive Rights 6
---------- ---------------------
Section 5. Establishment and Designation of Series or Class 6
---------- ------------------------------------------------
ARTICLE IV THE TRUSTEES 9
Section 1. Management of the Trust 9
---------- -----------------------
Section 2. Election of Trustees at Meeting of Shareholders 9
---------- -----------------------------------------------
Section 3. Term of Office of Trustees 9
---------- --------------------------
Section 4. Termination of Service and Appointment of Trustees 10
---------- --------------------------------------------------
Section 5. Number of Trustees 10
---------- ------------------
Section 6. Effect of Death, Resignation, etc. of a Trustee 10
---------- -----------------------------------------------
Section 7. Ownership of Assets 11
---------- -------------------
ARTICLE V POWERS OF THE TRUSTEES 11
Section 1. Powers 11
---------- ------
Section 2. Principal Transactions 13
---------- ----------------------
Section 3. Trustees and Officers as Shareholders 14
---------- -------------------------------------
Section 4. Parties to Contract 14
---------- -------------------
ARTICLE VI TRUSTEES' EXPENSES AND COMPENSATION 14
Section 1. Trustee Reimbursement 14
---------- ---------------------
Section 2. Trustee Compensation 15
---------- --------------------
ARTICLE VII INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINCIPAL
UNDERWRITER AND TRANSFER AGENT 15
Section 1. Investment Adviser 15
---------- ------------------
Section 2. Administrative Services 16
---------- -----------------------
Section 3. Principal Underwriter 16
---------- ---------------------
Section 4. Transfer Agent 16
---------- --------------
ARTICLE VIII SHAREHOLDERS' VOTING POWERS AND MEETINGS 17
Section 1. Voting Powers 17
---------- -------------
Section 2. Meetings 17
---------- --------
Section 3. Quorum and Required Vote 17
---------- ------------------------
Section 4. Additional Provisions 18
---------- ---------------------
ARTICLE IX CUSTODIAN 18
ARTICLE X DISTRIBUTIONS AND REDEMPTIONS 18
Section 1. Distributions 18
---------- -------------
Section 2. Redemptions and Repurchases 19
---------- ---------------------------
Section 3. Net Asset Value of Shares 20
---------- -------------------------
Section 4. Suspension of the Right of Redemption 20
---------- -------------------------------------
Section 5. Trust's Right to Redeem Shares 20
---------- ------------------------------
ARTICLE XI LIMITATION OF LIABILITY AND INDEMNIFICATION 21
Section 1. Limitation of Personal Liability and Indemnification 21
---------- ----------------------------------------------------
of Shareholders
---------------
Section 2. Limitation of Personal Liability of Trustees, 21
---------- ---------------------------------------------
Officers, Employees or Agents or the Trust
----------------------
Section 3. Express Exculpatory Clauses and Instruments 22
---------- -------------------------------------------
ARTICLE XII MISCELLANEOUS 22
Section 1. Trust is not a Partnership 22
---------- --------------------------
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety 22
---------- --------------------------------------------------------
Section 3. Establishment of Record Dates 22
---------- -----------------------------
Section 4. Termination of Trust 23
---------- --------------------
Section 5. Resident Agent, Offices of the Trust, Filing of 24
---------- -----------------------------------------------
Copies, Headings, Counterparts
------------
Section 6. Applicable Law 24
---------- --------------
Section 7. Amendments - General 24
---------- --------------------
Section 8. Amendments - Series 25
---------- -------------------
Section 9. Use of Name 26
---------- -----------
AMENDED AND RESTATED
DECLARATION OF TRUST
FIRSTAR STELLAR FUNDS
Dated January 23, 1989
Amended and Restated May 17, 1999
DECLARATION OF TRUST made January 23, 1989, by J. Christopher Donahue,
Frank Polefrone and Byron F. Bowman, amended and restated May 17, 1999.
WHEREAS, the Trustees desire to establish a trust fund for the investment
and reinvestment of the funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.
ARTICLE I
---------
NAMES AND DEFINITIONS
---------------------
Section 1. Name
- ---------- ----
This Trust shall be know as "Firstar Stellar Funds"
Section 2. Definitions
- ---------- -----------
Wherever used herein, unless otherwise required by the context or
specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or
50% requirement of Section 2(a) (42) of the 1940 Act, whichever
may be applicable) and "Principal Underwriter" shall have the
meanings given them in the 1940 Act, as amended from time to
time;
(b) The "Trust" refers to Firstar Stellar Funds,
(c) "Class" refers to a class of Shares established and designated
under or in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and
designated under or in accordance with the provisions of
Article III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f) (2) of the 1940
Act or in any successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or
Class;
(g) The "Trustees" refer to the individual Trustees in their
capacity as Trustees hereunder of the Trust and their successor
or successors for the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided
from time to time, or if more than one Series or Class of
Shares is authorized by the Trustees, the equal proportionate
units into which each Series or Class of Shares shall be
divided from time to time and includes fractions of Shares as
well as whole Shares; and
(i) the "1940 Act" refers to the Investment Company Act of 1940,
and the Rules and Regulations thereunder, (including any
exemptions granted thereunder) as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investments by investing primarily in securities (including options) and
also in debt instruments, commodities, commodity contracts and options thereon.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest
- ---------- -----------------------------
The beneficial interest in the Trust shall at all times be divided into
transferable Shares, without par value. Subject to the provisions of Section 5
of this Article III, each Share shall have voting rights as provided in Article
VIII hereof, and holders of the Shares of any Series shall be entitled to
receive dividends, when and as declared with respect thereto in the manner
provided in Article X, Section 1 hereof. The Shares of any Series may be issued
in two or more Classes, as the Trustees may authorized pursuant to Article XII,
Section 8 hereof. Unless the Trustees have authorized the issuance of Shares of
a Series in two or more Classes, each Share of a Series shall represent an equal
proportionate interest in the assets and liabilities of the Series with each
other Share of the same Series, none having priority or preference over another.
If the Trustees have authorized the issuance of Shares of a series in two or
more Classes, then the Classes may have such variations as to dividend,
redemption, and voting rights, net assets values, expenses borne by the Classes,
and other matters as the Trustees have authorized provided that each Share of a
Class shall represent an equal proportionate interest in the assets and
liabilities of the Class with each other Share of the same Class, none having
priority or preference over another. The number of Shares authorized shall be
unlimited. The Trustees may from time to time divide or combine the Shares of
any Series or Class into a greater or lesser number without thereby changing the
proportionate beneficial interest in the Series or Class.
Section 2. Ownership of Shares
- ---------- -------------------
The ownership of Shares shall be recorded in the books of the Trust or a
transfer agent which books shall be maintained separately for the Shares of each
Series or Class. The Trustees may make such rules as they consider appropriate
for the transfer of Shares and similar matters. The record books of the Trust
or any transfer agent, as the case may be, shall be conclusive as to who are the
Shareholders of each Series or Class and as to the number of Shares of each
Series or Class held from time to time by each.
Section 3. Investment in the Trust
- ---------- -----------------------
The Trustees shall accept investments in the Trust from such persons and on
such terms as they may from time to time authorize. After the date of the
initial contribution of capital (which shall occur prior to the initial public
offering of Shares), the number of Shares to represent the initial contribution
shall be considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the Trust to be
allocated among any Series or Classes in the manner described in Section 5(a) of
this Article. Subsequent to such initial contribution of capital, Shares
(including Shares which may have been redeemed or repurchased by the Trust) may
be issued or sold at a price which will net the relevant Series or Class, as the
case may be, before paying any taxes in connection with such issue or sale, not
less than the net asset value (as defined in Article X, Section 3) thereof;
provided, however, that the Trustees may in their discretion impose a sales
charge upon investments in the Trust.
Section 4. No Pre-emptive Rights
- ---------- ---------------------
Shareholders shall have no pre-emptive or other right to subscribe to any
additional Shares or other securities issued by the Trust.
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:
Firstar Stellar Capital Appreciation Fund A Shares
Firstar Stellar Growth Equity Fund B Shares
Y Shares
Firstar Stellar International Equity Fund A Shares
Firstar Stellar Ohio Tax-Free Money Market Fund C Shares
Firstar Stellar Relative Value Fund A Shares
B Shares
Y Shares
Firstar Stellar Strategic Income Fund B Shares
Firstar Stellar Tax-Free Money Market Fund C Shares
Firstar Stellar Treasury Fund C Shares
Y Shares
Firstar Stellar U.S. Government Income Fund A Shares
B Shares
Firstar Stellar Fund A Shares
Y Shares
Firstar Stellar Insured Tax-Free Bond Fund A Shares
Firstar Stellar Science & Technology Fund B Shares
Y Shares
Shares of any Series or Class established in this Section 5 shall have the
following relative rights and preferences:
(a) Assets belonging to Series or Class. All consideration
------------------------------------
received by the Trust for the issue or sale of Shares of a
particular Series or Class, together with all assets in which
such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof from whatever source
derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the that Series or Class for all purposes, subject
only to the rights of creditors, and shall be so recorded upon
the books of account of the Trust. Such consideration, assets,
income, earnings, profits and proceeds thereof, from whatever
source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets ,
and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred
to as "assets belonging to" that Series or Class. In the event
that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily
identifiable as belonging to any particular Series or Class
(collectively "General Assets"), the Trustees shall allocate
such General Assets to, between or among any one or more of the
Series or Classes established and designated from time to time
in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Assets so
allocated to a particular Series or Class shall belong to that
Series or Class. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all Series or
Classes for all purposes.
(b) Liabilities Belonging to Series or Class. The assets belonging
-----------------------------------------
to each particular Series or Class shall be charged with the
liabilities of the Trust in respect to that Series or Class and
all expenses, costs, charges and reserves attributable to that
Series or Class, and any general liabilities of the Trust which
are not readily identifiable as belonging to any particular
Series or Class shall be allocated and charged by the Trustees
to and among any one or more of the Series or Classes
established and designated from time to time in such manner and
on such basis as the Trustees in their sole discretion deem
fair and equitable. The liabilities, expenses, costs, charges
and reserves so charged to a Series or Class are herein
referred to as "liabilities belonging to" that Series or Class.
Each allocation of liabilities belonging to a Series or Class
by the Trustees shall be conclusive and binding upon the
Shareholders of all Series or Classes for all purposes.
(c) Dividends, Distributions, Redemption, Repurchases and
-----------------------------------------------------
Indemnification. Notwithstanding any other provisions of this
----------------
Declaration, including, without limitation, Article X, no
dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any
Series of Class) with respect to, nor any redemption or
repurchase of the Shares of any Series or Class shall be
effected by the Trust other than from the assets belonging to
such Series or Class, nor except as specifically provided in
Section 1 of Article XI hereof, shall any Shareholder of any
particular Series or Class otherwise have any right or claim
against the assets belonging to any other Series or Class
except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series or Class.
(d) Voting. Notwithstanding any of the other provisions of this
-------
Declaration, including, without limitation, Section 1 of
Article VIII, only Shareholders of a particular Series or Class
shall be entitled to vote on any matters affecting such Series
or Class. Except with respect to matters as to which any
particular Series or Class is affected, all of the Shares of
each Series or Class shall, on matters as to which such Series
or Class is entitled to vote, vote with other Series or Classes
so entitled as a single class. Notwithstanding the foregoing,
with respect to matters which would otherwise be voted on by
two or more Series or Classes as a single class, the Trustees
may, in their sole discretion, submit such matters to the
Shareholders of any or all such Series or Classes, separately.
(e) Fraction. Any fractional Share of a Series or Class shall
---------
carry proportionately all the rights and obligations of a whole
Share of that Series or Class, including rights with respect to
voting, receipt of dividends and distributions, redemption of
Shares and termination of the Trust or of any Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
-------------------
provide that the holders of Shares of any Series or Class,
shall have the right to exchange said Shares for Shares of one
or more other Series or Classes in accordance with such
requirements and procedures as may be established by the
Trustees.
(g) Combination of Series or Classes. The Trustees shall have the
---------------------------------
authority, without the approval of the Shareholders of any
Series or Class, unless otherwise required by applicable law,
to combine the assets and liabilities belonging to a single
Series or Class with the assets and liabilities of one or more
other Series or Classes.
(h) Elimination of Series or Classes. At any time that there are
---------------------------------
no Shares outstanding of any particular Series or Class
previously established and designated, the Trustees may amend
this Declaration of Trust to abolish that Series or Class and
to rescind the establishment and designation thereof.
ARTICLE IV
----------
THE TRUSTEES
------------
Section 1. Management of the Trust
- ---------- -----------------------
The business and affairs of the Trust shall be managed by the Trustees,
and they shall have all powers necessary and desirable to carry out that
responsibility. The Trustees of the Trust as of the date of this Amended and
Restated Declaration of Trust are Thomas L. Conlan, Jr., Dr. Alfred Gottschalk,
Dr. Robert J. Hill, Dawn M. Hornback, Lawrence M. Turner and William H. Zimmer,
III. The business address of the trustees is Firstar Corporation, 425 Walnut
Street, Cincinnati, Ohio, 45202.
Section 2. Election of Trustees at Meeting of Shareholders
- ---------- -----------------------------------------------
On a date fixed by the Trustees, which shall be subsequent to the initial
public offering of Shares, the Shareholders shall elect Trustees. The number of
Trustees shall be determined by the Trustees pursuant to Article IV, Section 5.
Section 3. Term of Office of Trustees
- ---------- --------------------------
The Trustees shall hold office during the lifetime of this Trust, and
until its termination as hereinafter provided; except (a) that any Trustee may
resign his or her office at any time by written instrument signed by him or her
and delivered to the other Trustees, which shall take effect upon such delivery
or upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has become mentally or physically incapacitated may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his or her retirement; and (d) a Trustee may be removed at any special
meeting of Shareholders of the Trust by a vote of two-thirds of the outstanding
Shares.
Section 4. Termination of Service and Appointment of Trustees
- ---------- --------------------------------------------------
In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing such other persons as they in
their discretion shall see fit. Such appointment shall be effected by the
signing of a written instrument by a majority of the Trustees in office. An
appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number or Trustees. As soon as any
Trustee so appointed shall have accepted this Trust, the trust estate shall vest
in the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and the Trustee shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 4 is subject to the
provisions of Section 16(a) of the 1940 Act.
Section 5. Number of Trustees
- ---------- ------------------
The number of Trustees, not less than three (3) nor more than twenty (20)
serving hereunder at any time, shall be determined by the Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally incapacitated,
the other Trustees shall have all the powers hereunder and the certificate
signed by a majority of the other Trustees of such vacancy, absence or
incapacity, shall be conclusive, provided, however, that no vacancy which
reduces the number of Trustees below three (3) shall remain unfilled for a
period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee
- ---------- -----------------------------------------------
The death, resignation, retirement, removal, or mental or physical
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Section 7. Ownership of Assets
- ---------- -------------------
The assets belonging to each Series or Class shall be held separate and
apart from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustee. All of the assets
belonging to each Series or Class or owned by the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to have a
severable ownership interest in any individual asset belonging to any Series or
Class or owned by the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate undivided beneficial interest in a
Series or Class.
ARTICLE V
---------
POWERS OF THE TRUSTEES
----------------------
Section 1. Powers
- ---------- ------
The Trustees in all instances shall act as principals, and are and shall
be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust or a Series or Class. The Trustees
shall not be bound or limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, the
Trustees shall have the following specific powers and authority, subject to any
applicable limitation in this Declaration of Trust or in the By-Laws of the
Trust.
(a) To buy, and invest funds in their hands in securities
including, but not limited to, common stocks, preferred stocks,
bonds, debentures, warrants and rights to purchase securities,
options, certificates of beneficial interest, money market
instruments, notes or other evidences of indebtedness issued by
any corporation, trust or association, domestic or foreign, or
issued or guaranteed by the United States of America or any
agency or instrumentality thereof, by the government of any
foreign country, by any State of the United States, or by any
political subdivision or agency or instrumentality of any State
or foreign country, or in "when-issued" or delayed-delivery"
contracts for any such securities, or in any repurchase
agreement or reverse repurchase agreement, or in debt
instruments, commodities, commodity contracts and options
thereon, or to retain assets belonging to each and every Series
or Class in cash, and from time to time to change the
investments of the assets belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the
Declaration of Trust providing for the conduct of the business
of the Trust and to amend and repeal them to the extent that
they do not reserve that right to the Shareholders;
(c) To Elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider
appropriate;
(d) To appoint or otherwise engage a bank or trust company as
custodian of any asset belonging to any Series or Class subject
to any conditions set forth in this Declaration of Trust or in
the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend
disbursing agents, Shareholder servicing agents, investment
advisers, sub-investment advisers, principal underwriters,
administrative services agents, and such other agents as the
Trustees may from time to time appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series or
Class either through a principal underwriter in the manner
hereinafter provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a
committee or committees composed of Trustees, including without
limitation, an Executive Committee, or to any officers of the
Trust and to any agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one
or more Series of Classes, subject to the provisions of Article
XII, Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or their securities or property; and to
execute and deliver powers of attorney to such persons or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable
form; or either in its own name or in the name of a custodian
or a nominee or nominees, subject in either case to proper
safeguards according to the usual practice of Massachusetts
trust companies or investment companies.
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
concern, any security of which belongs to any Series or Class;
to consent to any contract, lease, mortgage, purchase, or sale
of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security which belongs to any
Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon,
or adjust, by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to
the Trust, and out of the assets belonging to any Series or
Class to pay, or to satisfy, any debts, claims or expenses
incurred in connection therewith, including those of
litigation, upon any evidence that the Trustees may deem
sufficient (such powers shall include without limitation any
actions, suits, proceedings, disputes, claims, demands and
things relating to the Trust wherein any of the Trustees may be
named individually and the subject matter of which arises by
reason of business for or on behalf of the Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such
amounts as the Trustees may deem desirable, but subject to the
limitation set forth in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without
limitation, insurance on behalf of any person who is or was a
Trustee, Officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a Trustee, Director,
Officer, agent or employee of another corporation, partnership,
joint venture, trust or other enterprise against any liability
asserted against the Trustee and incurred by the Trustee in any
such capacity or arising out of his or her status as such.
(s) To sell, exchange, lend, pledge, mortgage, hypothecate, lease,
or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets belonging
to any Series or Class.
The Trustees shall have all of the powers set forth in this Section 1 with
respect to all assets and liabilities of each Series and Class.
Section 2. Principal Transactions
- ---------- ----------------------
The Trustee shall not cause the Trust on behalf of any Series or Class to
buy any securities (other than Shares) from or sell any securities (other than
Shares) to, or lend any assets belonging to any Series or Class to any Trustee
or officer or employee of the Trust or any firm of which any such Trustee or
officer is a member acting as principal unless permitted by the 1940 Act, but
the Trust may employ any such other party or any such person or firm or company
in which any such person is an interested person in any capacity not prohibited
by the 1940 Act.
Section 3. Trustees and Officers as Shareholders
- ---------- -------------------------------------
Any Trustee, officer or other agent of the Trust or any Series or Class
may acquire, own and dispose of Shares of any Series or Class to the same extent
as if he or she were not a Trustee, officer or agent; and the Trustees may issue
and sell or cause to be issued or sold Shares of any Series or Class to and buy
such Shares from any such person or any firm or company in which he or she is an
interested person subject only to the general limitations herein contained as to
the sale and purchase of such Shares; and all subject to any restrictions which
may be contained in the By-Laws.
Section 4. Parties to Contract
- ---------- -------------------
The Trustees may enter into any contract of the character described in
Article VII or in Article IX hereof or any other capacity not prohibited by the
1940 Act with any corporation, firm, trust or association, although one or more
of the Shareholders, Trustees, officers, employees or agents of the Trust or any
Series or Class or their affiliates may be an officer, director, trustee,
shareholder of interested person of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely be reason of such relationship for any loss or
expense to the Trust or any Series or Class under or by reason of said contract
or accountable for any profit realized directly or indirectly therefrom, in the
absence of actual fraud. The same person (including a firm, corporation, trust
or association) may be the other party to contracts entered into pursuant to
Article VII or Article IX or any other capacity not prohibited by the 1940 Act,
and any individual may be financially interested or otherwise an interested
person of persons who are parties to any or all of the contracts mentioned in
this Section 4.
ARTICLE VI
----------
TRUSTEES' EXPENSES AND COMPENSATION
-----------------------------------
Section 1. Trustee Reimbursement
- ---------- ---------------------
The Trustee shall be reimbursed from the assets belonging to each
particular Series or Class for all such Trustees' expenses as such expenses are
allocated to any among any one or more of the Series or Classes pursuant to
Article III, Section 5(b), including, without limitation, expenses of organizing
the Trust or any Series or Class and continuing its or their existence; fees and
expenses of Trustees and Officers of the Trust; fees for investment advisory
services, administration services and principal underwriting services provided
for in Article VII, Sections 1, 2, 3; fees and expenses of preparing and
printing Registration Statements under the Securities Act of 1933 and the 1940
Act and any amendments thereto; expenses of registering and qualifying the Trust
and any Series or Class and the Shares of any Series or Class under federal and
state laws and regulations; expenses of preparing, printing and distributing
prospectuses and any amendments thereto sent to shareholders, underwriters,
broker-dealers and to investors who may be considering the purchase of Shares;
expenses of registering, licensing or other authorization of the Trust or any
Series or Class as a broker-dealer and of its or their officers as agents and
salesmen under federal and state laws and regulations; interest expenses, taxes,
fees and commissions of every kind; expenses of issue (including cost of share
certificates), purchases, repurchases and redemptions of Shares, including
expenses attributable to a program of periodic issue charges and expenses or
custodians, transfer agents, dividends disbursing agents, Shareholder servicing
agents and registrars; printing and mailing costs; auditing, accounting and
legal expenses; reports to Shareholders and governmental officers and
commissions; expenses of meeting of Shareholders and proxy solicitations
therefore; insurance expenses; association membership dues and nonrecurring
items as may arise, including all losses and liabilities by them incurred in
administering the Trust and any Series or Class, including expenses incurred in
connection with litigation, proceedings and claims and the obligations of the
Trust under Article XI hereof and the By-Laws to indemnify its Trustees,
Officers, employees, shareholders and agents, and any contract obligation to
indemnify principal underwriters under Section 3 of Article VII; and for the
payment of such expenses, disbursements, losses and liabilities, the Trustees
shall have a lien on the assets belonging to each Series or Class prior to any
rights or interest of the Shareholder of any Series or Class., This Section
shall not preclude the Trust from directly paying any of the aforementioned fees
and expenses.
Section 2. Trustee Compensation
- ---------- --------------------
The Trustee shall be entitled to compensation from the Trust from the
assets belonging to any Series or Class for their respective services as
Trustees, to be determined from time to time by vote of the Trustees, and the
Trustees shall also determine the compensation of all Officers, consultant and
agents whom they may elect or appoint. The Trust may pay out of the assets
belonging to any Series or Class any Trustee or any corporation, firm, trust or
other entity of which a Trustee is an interested person for services rendered in
any capacity not prohibited by the 1940 Act, and such payments shall not be
deemed compensation for services as a Trustee under the first sentence of this
Section 2 of Article VI.
ARTICLE VII
-----------
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
--------------------------------------------
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
-----------------------------------------
Section 1. Investment Adviser
- ---------- ------------------
Subject to a Majority Shareholder Vote by the relevant Series or Class,
the Trustees may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall undertake to
furnish the Trustees investment advisory services for such Series or Class upon
such terms and conditions and for such compensation as the Trustees may in their
discretion determine. Subject to a Majority Shareholder Vote by the relevant
Series or Class, the investment advisory contract to receive investment advice
and/or statistical and factual information from the sub-investment adviser for
such Series or Class upon such terms and conditions and for such compensation as
the Trustees, in their discretion, may agree. Notwithstanding any provisions of
this Declaration of Trust, the Trustees may authorize the investment adviser or
sub-investment adviser or any person furnishing administrative personnel and
services as set forth Article VII, Section 2 (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales or exchanges of portfolio securities belonging to a Series or
Class on behalf of the Trustees or may authorize any officer or Trustee to
effect such purchases, sales, or exchanges pursuant to recommendations of the
investment adviser (and all without further action by the Trustees). Any such
purchases, sales and exchanges shall be deemed to have been authorized by the
Trustees. The Trustees may also authorize the investment adviser to determine
what firms shall be employed to effect transactions in securities for the
account of a Series or Class and to determine what firms shall participate in
any such transactions or shall share in commissions or fees charged in
connection with such transactions.
Section 2. Administrative Services
- ---------- -----------------------
The Trustees may in their discretion from time to time contract for
administrative personnel and services whereby the other party shall agree to
provide the Trustees administrative personnel and services to operate the Trust
or a Series or Class on a daily basis, on such terms and conditions as the
Trustees may in their discretion determine. Such services may be provided by
one or more entities.
Section 3. Principal Underwriter
- ---------- ---------------------
The Trustees may in their discretion from time to time enter into an
exclusive or nonexclusive contract or contracts providing for the sale of the
Shares of a Series or Class to net such Series or Class not less than the amount
provided in Article III, Section 3 hereof, whereby a Series or Class may either
agree to sell the Shares to the to the other party to the contract or appoint
such other party its sales agent for such shares. In either case, the contract
shall be on such terms and conditions (including indemnification of principal
underwriters allowable under applicable law and regulation) as the Trustees may
in their discretion determine not inconsistent with the provisions of this
Article VII; and such contract may also provide for the repurchase or sale of
Shares of a Series or Class by such other party as principal or as agent of the
Trust and may provide that the other party may maintain a market for shares of a
Series or Class.
Section 4. Transfer Agent
- ---------- --------------
The Trustees may in their discretion from time to time enter into transfer
agency and shareholder services contracts whereby the other party shall
undertake to furnish a transfer agency and shareholder services. The contracts
shall be on such terms and conditions as the Trustees may in their discretion
determined not inconsistent with the provisions of this Declaration of Trust or
of the By-Laws. Such services may be provided by one or more entities.
ARTICLE VIII
------------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 1. Voting Powers
- ---------- -------------
Subject to the provisions set forth in Article III, Section 5(d), the
shareholders shall have power to vote, (i) for the election of Trustees as
provided in Article IV, Section 2; (ii) for the removal of Trustees as provided
in Article IV, Section 3(d); (iii) with respect to any investment adviser or
sub-investment adviser as provided in Article VII, Section 1; (iv) with respect
to the amendment of this Declaration of Trust as provided in Article XII,
Section 7; (v) to the same extent as the shareholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should be brought or maintained derivatively or as a class action on behalf of
the Trust or the Shareholders, and (vi) with respect to such additional matters
relating to the Trust as may be required by law, by this Declaration of Trust,
or the By-Laws of the Trust or any regulation of the Trust or the Commission or
any State, or as the Trustees may consider desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in persons or by proxy. Until Shares of a Series or Class are issued, the
Trustees may exercise all rights of Shareholders of such Series or Class with
respect to matters affecting such Series or Class, and may take any action with
respect to the Trust or such Series or Class required or permitted by law, this
Declaration of Trust or any By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings
- ---------- --------
A Shareholders meeting shall be held as specified in Section 2 of Article
IV at the principal office of the Trust or such other place as the Trustees may
designate. Special meetings of the Shareholders may be called by the Trustees
or the Chief Executive Officer of the Trust and shall be called by the Trustees
upon the written request of Shareholders owning at least one-tenth of the
outstanding Shares of all Series and Classes entitled to vote. Shareholders
shall be entitled to at least fifteen days' notice of any meeting.
Section 3. Quorum and Required Vote
- ---------- ------------------------
Except as otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders there must be
present, in person or by proxy, holders of more than fifty percent of the total
number of outstanding Shares of all Series and Classes entitled to vote at such
meeting. When any one or more Series or Classes is entitled to vote as a single
Series or Class, more than fifty percent of the shares of each such Series or
Class entitled to vote shall constitute a quorum at a Shareholders' meeting of
that Series or Class. If a quorum shall not be present for the purpose of any
vote that may properly come before the meeting, the Shares present in person or
by proxy and entitled to vote at such meeting on such matter may, by plurality
vote, adjourn the meeting from time to time to such place and time without
further notice than by announcement to be given at the meeting until a quorum
entitled to vote on such matter shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened. Subject
to any applicable requirement of law or of this Declaration of Trust or the By-
Laws, a plurality of the votes cast shall elect a Trustee, and all other matters
shall be decided by a majority of the votes cast and entitled to vote thereon.
Section 4. Additional Provisions
- ---------- ---------------------
The By-Laws may include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE IX
----------
CUSTODIAN
---------
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial and accounting services to the Trust or any
Series or Class. The contracts shall be on the terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Declaration of Trust or of the By-Laws. Such services may be provided
by one or more entities, including one or more sub-custodians.
ARTICLE X
---------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 1. Distributions
- ---------- -------------
(a) The Trustees may from time to time declare and pay dividends to
the Shareholders of any Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the
discretion of the Trustees. Such dividends may be accrued and
automatically reinvested in additional Shares (or fractions
thereof) of the relevant Series or Class or paid in cash or
additional Shares of such Series or Class, all upon such terms
and conditions as the Trustees may prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively,
amounts sufficient to enable any Series or Class to qualify as
a regulated investment company to avoid any liability for
federal income taxes in respect of that year.
(c) The decision of the Trustees as to what constitutes income and
what constitutes principal shall be final, and except as
specifically provided herein the decision of the Trustees as to
what expenses and charges of any Series or Class shall be
charged against principal and what against the income shall be
final. Any income not distributed in any year may be permitted
to accumulate and as long as not distributed may be invested
from time to time in the same manner as the principal funds of
any Series or Class.
(d) All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of
that Series or Class in proportion to the number of Shares of
that Series or Class held by such holders and recorded on the
books of the Trust or its transfer agent at the date and time
of record established for that payment.
Section 2. Redemptions and Repurchases
- ---------- ---------------------------
(a) In case any Shareholder of record of any Series or Class at any
time desires to dispose of Shares of such Series or Class
recorded in his or her name, he or she may deposit a written
request (or such other from of request as the Trustee may from
time to time authorize) requesting that the Trust purchase his
or her Shares, together with such other instruments or
authorizations to effect the transfer as the Trustees may from
time to time require, at the office of the Transfer Agent, and
the Trust shall purchase his or her Shares out of assets
belonging to such Series or Class. The purchase price shall be
the net asset value of his or her share reduced by any
redemption charge as the Trustees from time to time may
determine.
Payment for such Shares shall be made by the Trust to the
Shareholder of record within that time period required under
the 1940 Act after the request (and, if required, such other
instruments or authorizations of transfer) is deposited,
subject to the right of the Trustees to postpone the date of
payment pursuant to Section 4 of this Article X. If the
redemption is postponed beyond the date on which it would
normally occur by reason of a declaration by the Trustees
suspending the right of redemption pursuant to Section 4 of
this Article X, the right of the Shareholder to have his or her
Shares purchased by the Trust shall be similarly suspended, and
he or she may withdraw his or her request (or such other
instruments or authorizations of transfer) from deposit if he
or she so elects; or, if he or she does not so elect the
purchase price shall be the net asset value of his or her
Shares determined next after termination of such suspension
(reduced by any redemption charge), and payment therefor shall
be made within the time period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by agreement
with the owner thereof at a purchase price not exceeding the
net asset value per Share (reduced by any redemption charge)
determined (1) next after the purchase or contract of purchase
is made or (2) at some later time.
(c) The Trust may pay the purchase price (reduced by any redemption
charge) in whole or in part by a distribution in kind of
securities from the portfolio of the relevant Series or Class,
taking such securities at the same value employed in
determining net asset value, and selecting the securities in
such manner as Trustees may deem fair and equitable.
Section 3. Net Asset Value of Shares
- ---------- -------------------------
The net asset value of each Share of a Series or Class outstanding shall
be determined at such time or times as may be determined by or on behalf of the
Trustees. The power and duty to determine net asset value may be delegated by
the Trustees from time to time to one or more of the Trustees or Officers of the
Trust, to the other party to any contract entered into pursuant to Section 1 or
2 of Article VII or to the custodian or to a transfer agent or other person
designated by the Trustees.
The net asset value of each Share of a Series or Class of any particular
time shall be the quotient (adjusted to the nearer cent) obtained by dividing
the value, as of such time, of the net assets belonging to such Series or Class
(i.e., the value of the assets belonging to such Series or Class less the
liabilities belonging to such Series or Class exclusive of capital and surplus)
by the total number of Shares outstanding of the Series or Class at such time in
accordance with the requirements of the 1940 Act and applicable provisions of
the By-Laws of the Trust in conformity with generally accepted accounting
practices and principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole part of any period in accordance with the 1940 Act.
Section 4. Suspension of the Right of Redemption
- ---------- -------------------------------------
The Trustees may declare a suspension of the right of redemption or
postpone the date of payment for the whole or any part of any period in
accordance with the 1940 Act.
Section 5. Trust's Right to Redeem Shares
- ---------- ------------------------------
The Trust shall have the right to cause the redemption of Shares of any
Series or Class in any Shareholder's account for their then current net asset
value and promptly make payment to the Shareholder (which payment may be reduced
by any applicable redemption charge), if at any time the total investment in the
account does not have a minimum dollar value determined from time to time by the
Trustees in their sole discretion.
ARTICLE XI
----------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Section 1. Limitation of Personal Liability and Indemnification of Shareholders
- ---------- --------------------------------------------------------------------
The Trustees, officers, employees or agents of the Trust shall have no
power to bind any Shareholder of any Series or Class personally or to call upon
such Shareholder for the payment of any sum of money or assessment whatsoever,
other than such as the Shareholder may at any time agree to pay by way of
subscription to any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his or her being or having been a Shareholder for any
debt, claim, action, demand, suit, proceeding, judgment, decree, liability or
obligation of any kind, against , or with respect to the Trust or any Series or
Class arising out of any action taken or omitted for or on behalf of the Trust
or such Series or Class, and the Trust or such Series or Class shall be solely
liable therefor and resort shall be had solely to the property of the relevant
Series or Class of the Trust for the payment or performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in case of a
corporate entity, its corporate or general successor) shall be entitled to be
indemnified and reimbursed by the Trust to the full extent of such liability and
the costs of any litigation or other proceedings in which such liability shall
have been determined including, without limitation, the fees and disbursements
of counsel if, contrary to the provisions hereof, such Shareholders or former
Shareholder of such Series or Class shall be held to be personally liable. Such
indemnification and reimbursement shall come exclusively from the assets of the
relevant Series or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act of
obligation of the Trust or any Series or Class and satisfy an judgement thereon.
Section 2. Limitation of Personal Liability of Trustees, Officers, Employees or
- ---------- --------------------------------------------------------------------
Agents or the Trust
-------------------
No Trustee, officer, employee or agent o the Trust shall have the power to
bind any other Trustee, officer, employee or agent of the Trust personally. The
Trustees, officers, employees or agents of the Trust incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for in
connection with the Trust are, and each shall be deemed to be acting as Trustee,
officer, employee or agent of the Trust and not in his or her own individual
capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustees or officer, as the case may
be, and for nothing else.
Section 3. Express Exculpatory Clauses and Instruments
- ---------- -------------------------------------------
The Trustees shall use every reasonable means to assure that all persons
having dealings with the Trust or any Series or Class shall be informed that the
property of the Shareholders and the Trustees, officers, employees and agents of
the Trust or any Series or Class shall not be subject to claims against or
obligations of the Trust or any other Series or Class to any extent whatsoever.
The Trustees shall cause to be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust or any Series or Class
(including certificates for Shares of any Series or Class) an appropriate
reference to the provisions of this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of the
Trust or any Series of Class shall be liable thereunder, and that the other
parties to such instrument shall look solely to the assets belonging to the
relevant Series or Class for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any such
instrument shall not render any Shareholder, Trustee, officer, employee or agent
liable, nor shall the Trustee, or any officer, agent or employee of the Trust or
any Series or Class be liable to anyone for such omission. If, notwithstanding
this provision, any Shareholder, Trustee, officer, employee or agent shall be
held liable to any other person by reason of the omission of such provision from
any such agreement, undertaking or obligation, the Shareholder, Trustee,
officer, employee or agent shall be indemnified and reimbursed the Trust.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 1. Trust is not a Partnership
- ---------- --------------------------
It is hereby expressly declared that a trust and not a partnership is
created hereby.
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety
- ---------- --------------------------------------------------------
The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of Article
XI, the Trustees shall not be liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect
to the meaning and operation of this Declaration of Trust, and subject to the
provisions of Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.
Section 3. Establishment of Record Dates
- ---------- -----------------------------
The Trustees may close the Share transfer books of the Trust maintained
with respect to any Series or Class for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or any Series or
Class, or the date from the payment of any dividend or the making of any
distribution to Shareholders, or the date for the allotment of rights, or the
date when any change or conversion or exchange of Shares of any Series or Class
shall go into effect; or in lieu of closing the Share transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or any Series or
Class, or the date for the payment of any dividend or the making of any
distribution to Shareholders of any Series or Class, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares of any Series or Class shall go into effect, or the last day on which the
consent or dissent of Shareholders of any Series or Class may be effectively
expressed for any purpose, as a record date for the determination of the
Shareholders entitled to notice of, and, to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to any such allotment of rights in respect of any such change,
conversion or exchange of shares, or to exercise the right to give such consent
or dissent, and in such case such Shareholders and only such Shareholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend or distribution, or to
receive such allotment or rights, or to exercise such rights, as the case may
be, notwithstanding, after such date fixed aforesaid, and transfer of any Shares
on the books of the Trust maintained with respect to any Series or Class.
Nothing in the foregoing sentence shall be construed as precluding the Trustees
from setting different record dates for different Series or Classes.
Section 4. Termination of Trust
- ---------- --------------------
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of
this section 4.
(b) The Trustees may, by majority action, with the approval of the
holders of more than fifty percent of the outstanding Shares of
each Series or Class entitled to vote and voting separately by
Series or Class, sell and convey the assets of the Trust or any
Series or Class to another trust or corporation. Upon making
provision for the payment of all liabilities, by assumption or
otherwise, the Trustees shall distribute the remaining proceeds
belonging to each Series or Class ratably among the holders of
the Shares or Class then outstanding.
(c) Subject to a Majority Shareholder Vote by such Series or Class,
the Trustees may at any time sell and convert into money all
the assets of the Trust or any Series or Class. Upon making
provision for the payment of all outstanding obligations, taxes
and other liabilities, accrued or contingent, belonging to each
Series or Class, the Trustees shall distribute the remaining
assets belonging to each Series or Class ratably among the
holders of the outstanding Shares of that Series or Class.
(d) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b) and (c);
the Trust or the applicable Series or Class shall terminate and
the Trustees shall be discharged of any and all further
liabilities and duties hereunder or with respect thereto and
the right, title and interest of all parties shall be canceled
and discharged.
Section 5. Resident Agent, Offices of the Trust, Filing of Copies, Headings,
- ---------- -----------------------------------------------------------------
Counterparts
------------
The Trust's Resident Agent shall be CT Corporation System. The Trust
shall maintain a usual place of business in Massachusetts, which shall be CT
Corporation System, 2 Oliver Street, Boston, Massachusetts, 02109, and shall
continue to maintain an office at such address unless changed by the Trustees to
another location in Massachusetts. The Trust may maintain other offices as the
Trustees may from time to time determine. The original or a copy of this
instrument and of each declaration of trust supplemental hereto shall be kept at
the office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each supplemental declaration of trust shall be filed by
the Trustees with the Massachusetts Secretary of State and the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required. Headings are placed herein for convenience of reference
only and in case of any conflict, the text of this instrument, rather than the
heading shall control. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 6. Applicable Law
- ---------- --------------
The Trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of The
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such trust.
Section 7. Amendments - General
- ---------- --------------------
Prior to the initial issuance of Shares pursuant to Section 3 of Article
III, a majority of the Trustees then in office may amend or otherwise supplement
this instrument by making a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof. Subsequent to such initial issuance of
Shares, amendments or supplements to this instrument may be authorized by a
majority of the Trustees then in office and by the holders of a majority of the
Shares of all Series and Classes then outstanding and entitled to vote thereon
(except that any amendments or supplements changing the name of the Trust of
pursuant to section 8 hereunder may be made without shareholder approval), or by
any larger vote which may be required by applicable law or this Declaration of
Trust in any particular case, which amendment or supplement thereafter shall
form a part hereof. Any such amendment or supplement (which may be in the form
of a complete restatement) may be evidenced by either (i) a supplemental
Declaration of Trust signed by at least a majority of the Trustees then in the
office or (ii) by a certificate of the President and Secretary of the Trust
setting forth such amendment or supplement and certifying that such amendment or
supplement has been duly authorized by the Trustees, and if required, by the
shareholders copies of the supplemental Declaration of Trust or the certificate
of the President and Secretary, as the case may be, shall be filed as specified
in Section 5 of this Article XII.
Section 8. Amendments - Series
- ---------- -------------------
The establishment and designation of any series or class of Shares in
addition to those established and designated in Section 5 of Article III hereof
shall be effective upon the execution by a majority of the then Trustees of an
amendment to this Declaration of Trust, taking the form of a complete
restatement or otherwise, setting forth such establishment and designation and
the relative rights and preferences of any such Series or Class, or as otherwise
provided in such instrument.
Without limiting the generality of the foregoing, the Declaration of the
Trust may be amended to:
(a) create one or more Series or Classes of Shares (in addition to
any Series or Classes already existing or to otherwise) with
such rights and preferences and such eligibility requirements
for investment therein as the Trustees shall determine and
reclassify and or all outstanding Shares as Shares of
particular Series or Classes in accordance with such
eligibility requirements;
(b) combine two or more Series or Classes of Shares into as single
Series or Class on such terms and conditions as the Trustees
shall determine;
(c) change or eliminate any eligibility requirements for investment
in Shares of any Series or Class, including without limitation
the power to provide for the issue of Shares of any Series or
Class in connection with any merger or consolidation of the
Trust with another trust or company or any acquisition by the
Trust of part or all of the assets of another trust or company;
(d) change the designation of any Series or Class of Shares;
(e) change the method of allocating dividends among the various
Series and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or any
specific items of income of expense of the Trust to one or more
Series and Classes of Shares;
(g) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of
Shares which are preferred over all other Series or Classes of
Shares in respect of assets specifically allocated thereto or
any dividends paid by the Trust with respect to any net income,
however determined, earned from the investor and reinvestment
of any assets so allocated or otherwise and provide for any
special voting or other rights with respect to such Series or
Classes.
Section 9. Use of Name
- ---------- -----------
The Trust acknowledges that Firstar Bank, N.A. grants the Trust the rights
to use the name "Firstar Stellar Funds" or any derivative thereof. Firstar
Bank, N.A. retains sole and exclusive ownership of the name and all goodwill and
rights related thereto and the right to withdraw from the Trust or one or more
Series or Classes any right to the use of the name "Firstar Stellar Funds." The
Trust agrees that use of the name shall inure to the benefit of Firstar Bank,
N.A.
IN WITNESS WHEREOF, the undersigned has executed this amended and restated
instrument the day and year first above written.
/s/ Elaine E. Richards
- ----------------------
Elaine E. Richards
Secretary
CERTIFICATION
I, Elaine Richards, Secretary of the Trust, do hereby certify that I have
been duly authorized by resolution of the Trustees on April 15, 1999 to file
this Amended and Restated Declaration of Trust on behalf of the Trust.
/s/ Elaine E. Richards
----------------------
Elaine E. Richards
COUNTY OF MILWAUKEE )
)
)
STATE OF WISCONSIN )
I, hereby certify that on May 13, 1999, Elaine E. Richards, Secretary of
------------
the Trust, personally appeared before me, and acknowledged the foregoing Amended
and Restated Declaration of Trust to be the act of the Trust.
/s/ Katie Brozovich Commission Expires 11/17/02
- ------------------- --------
Notary Public
EXHIBIT (O)
EXHIBIT O
to the
Investment Advisory Contract
FIRSTAR STELLAR SCIENCE & TECHNOLOGY FUND
For all services rendered by Adviser hereunder, the above named Fund of the
Trust shall pay to Adviser and Adviser agrees to accept as full compensation for
all services rendered hereunder, an annual investment advisory fee equal to 0.90
of 1% of the average daily net assets of the Fund
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.90 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of May, 1999.
Attest: FIRSTAR BANK, N.A.
- ----------------------------------- ----------------------------------
Assistant Secretary Vice President
Attest: FIRSTAR STELLAR FUNDS
- ----------------------------------- ----------------------------------
Secretary President
EXHIBIT [C]
EXHIBIT C
to the
Distributor's Contract
FIRSTAR STELLAR FUNDS
Firstar Stellar Science & Technology Fund
Y Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated April 1, 1999 between Firstar Stellar Funds and
ESI with respect to the Class of Shares set forth above:
1.ESI shall maintain membership in the National Securities Clearing
Corporation ("NSCC") Fund/Serv System for the purpose of clearing trades in
shares of Firstar Stellar Funds, as necessary and as may be agreeable
between Firstar Stellar Funds and ESI (provided Firstar Stellar Funds shall
be responsible for settling transactions and transmitting and accepting
funds for trades cleared through NSCC); and
2.ESI shall assist in the administration of the payments of sales charge
concessions and distribution fees to dealers in such manners as may be
mutually acceptable to ESI and Firstar Mutual Fund Services, Inc.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated April 1, 1999 between FIRSTAR STELLAR FUNDS and ESI, Firstar
Stellar Funds executes and delivers this Exhibit on behalf of the Fund and
Class first set forth in this Exhibit.
Witness the due execution hereof this 1st day of May, 1999.
FIRSTAR STELLAR FUNDS
By:------------------------
Name:----------------------
Title:---------------------
EDGEWOOD SERVICES, INC.
By:------------------------
Name:----------------------
Title:---------------------
EXHIBIT D
EXHIBIT D
to the
Distributor's Contract
FIRSTAR STELLAR FUNDS
Firstar Stellar Science & Technology Fund
B Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated April 1, 1999, between Firstar Stellar Funds and
ESI with respect to the Class of shares set forth above.
1. The Trust hereby appoints ESI to engage in activities principally intended
to result in the sale of shares of the above-listed Class ("Shares").
Pursuant to this appointment, ESI is authorized to select a group of
financial institutions ("Financial Institutions") to sell Shares at the
current offering price thereof as described and set forth in the respective
prospectuses of the Trust.
2. During the term of this Agreement, the Trust will pay ESI for services
pursuant to this Agreement, a monthly fee computed at the annual rate of
distribution fee of the average aggregate net asset value of the Shares
held during the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the month.
3. ESI may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class expenses exceed such lower
expense limitation as ESI may, by notice to the Trust, voluntarily declare
to be effective.
4. ESI will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. ESI, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid
shall be determined from time to time by ESI in its sole discretion.
5. ESI will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid
to Financial Institutions and the purpose for such expenditures, relying on
information furnished to ESI by Firstar Stellar Corporation.
6. ESI shall maintain membership in the National Securities Clearing
Corporation ("NSCC") Fund/Serv System for the purpose of clearing trades in
shares of Firstar Stellar Funds, as necessary and as may be agreeable
between Firstar Stellar Funds and ESI (provided Firstar Stellar Funds shall
be responsible for settling transactions and transmitting and accepting
funds for trades cleared through NSCC).
7. ESI shall enter into dealer agreements and related agreements under Firstar
Stellar Funds' Rule 12b-1 Plan and oversee payment of distribution fees to
dealers by Firstar Mutual Fund Services, LLC.
8. ESI shall assist in the administration of the payments of sales charge
concessions and distribution fees to dealers in such manners as may be
mutually acceptable to ESI and Firstar Mutual Fund Services, LLC.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated April 1, 1999 between Firstar Stellar Funds and Edgewood
Services, Inc., Firstar Stellar Funds executes and delivers this Exhibit on
behalf of the Funds and Classes first set forth in this Exhibit.
Witness the due execution hereof this 1st day of May, 1999.
FIRSTAR STELLAR FUNDS
By:-------------------------
Name:-----------------------
Title:----------------------
EDGEWOOD SERVICES, INC.
By:-------------------------
Name:-----------------------
Title:----------------------
Taft, Stettinius & Hollister LLP
1800 Firstar Tower
425 Walnut Street
Cincinnati, OH 45202-3957
August 3, 1999
Firstar Stellar Funds
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53201-3011
Re: Firstar Stellar Funds
1933 Act File No. 33-26915
1940 Act File No. 811-5762
--------------------------
Gentlemen:
At your request, we have examined the Post Effective Amendment No. 47 to
the above-referenced Registration Statement (the "Registration Statement
Amendment"), relating to the registration of shares, without par value,
established and designated as Firstar Stellar Science and Technology Fund
(classes B Shares and Y Shares) (the "Shares") of Firstar Stellar Funds, a
Massachusetts trust (the "Trust"). We are familiar with the proceedings taken
and to be taken by the Trust in connection with the authorization, issuance and
sale of the Shares, and have examined such documents and reviewed such questions
of law and fact as we have deemed necessary in order to express the following
opinion.
Based on the foregoing, and subject to the proceedings referred to above
being duly taken and completed by you, it is our opinion that the Shares will,
upon issuance and sale thereof in the manner described in the Registration
Statement Amendment, be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement Amendment.
Very truly yours,
TAFT, STETTINIUS & HOLLISTER LLP
/s/ Taft, Stettinius & Hollister LLP
Updated: July 15, 1999
EXHIBIT A
FIRSTAR STELLAR FUNDS
This Plan is adopted by Firstar Stellar Funds with respect to the Class of
Shares of the portfolios of the Trust set forth below.
In compensation for the services provided pursuant to this Plan, the
Distributor will be paid a monthly fee computed at the annual rate of 0.25 of 1%
of the average aggregate net assets of the Funds held during the month.
If a Y class of shares is created for a Fund, the other class(es) (A, B or C)
will pay a monthly fee as discussed above.
Treasury Fund - C
Tax-Free Money Market Fund - C
Ohio Tax-Free Money Market Fund - C
Growth Equity Fund - B
Relative Value Fund - A, B
Capital Appreciation Fund - A
Stellar Fund - A
International Equity Fund - A
Strategic Income Fund - B
U.S. Government Income Fund - A, B
Stellar Insured Tax-Free Bond Fund - A
Updated: July 15, 1999
EXHIBIT B
FIRSTAR STELLAR FUNDS
This Plan is adopted by Firstar Stellar Funds with respect to the Class of
Shares of the portfolios of the Trust set forth below.
In compensation for the services provided pursuant to this Plan, the
Distributor will be paid a monthly fee computed at the annual rate of 1% of the
average aggregate net assets of the Funds held during the month.
If a Y class of shares is created for the Fund, the other class(es) (A, B or
C) will pay a monthly fee as discussed above.
Science & Technology Fund - B
