-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M0z9uXoWxhhTp1QGynSkJYV3/OSctsPuDyEP99ym5j6/wpac3CQSCKhA6RBo/1z4 1XTdaiEeQuqGAyKSOYB12g== 0000898531-00-000049.txt : 20000210 0000898531-00-000049.hdr.sgml : 20000210 ACCESSION NUMBER: 0000898531-00-000049 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAR STELLAR FUNDS CENTRAL INDEX KEY: 0000846030 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251733855 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05762 FILM NUMBER: 529594 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 BUSINESS PHONE: 8006773863 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: STAR FUNDS DATE OF NAME CHANGE: 19930608 FORMER COMPANY: FORMER CONFORMED NAME: VALUE PLUS FUNDS DATE OF NAME CHANGE: 19890409 N-30D 1 FIRSTAR STELLAR INSURED TAX-FREE BOND FUND FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND FIRSTAR STELLAR STRATEGIC INCOME FUND BOND FUNDS COMBINED ANNUAL REPORT NOVEMBER 30, 1999 (FIRSTAR STELLAR FUNDS LOGO) President's Message Dear Shareholder: On behalf of the Firstar Stellar Funds, thank you for your continued confidence and for allowing us to help you achieve your financial goals. In 1999, the Firstar Stellar Funds added a new fund, the Firstar Stellar Science & Technology Fund, to focus on a business sector which we believe will show strong growth for many years. The year saw recovery in many foreign economies, which helped the performance of the Firstar Stellar International Equity Fund directly, and many of the other funds indirectly from increased export opportunities for U.S. companies. Interest rates continued an upward course through 1999, as the Federal Reserve acted to prevent an upsurge in inflation. Rising rates drove down the value of many fixed-income assets, but in that difficult environment the Firstar Stellar Funds with exposure to bonds performed at the median or better for their respective peer groups. This demonstrates our commitment to provide you steady performance through up and down markets. On the following pages you will find the results for the period from December 1, 1998 through November 30, 1999 for the bond funds, as well as questions and answers from our portfolio managers regarding fund performance. I ask you to take a few minutes to read this important information about your investments. Please let your financial advisor know if you have any questions about the Firstar Stellar Funds. FIRSTAR STELLAR INSURED TAX-FREE BOND FUND This Fund invests primarily in high-grade municipal bonds that are insured as to repayment of principal.* Although interest rates for municipals did not change to the same degree as some taxable bonds, values in the municipal market fell during the twelve months ended November 30, 1999. For that period, the Fund produced a return of (1.13)% or (5.55)% adjusted for the sales charge.** This Fund is a good choice for individuals who are seeking tax- free income through high quality investments. FIRSTAR STELLAR STRATEGIC INCOME FUND The Strategic Income Fund produced a steady flow of income to investors through the twelve months ended November 30, 1999 by maintaining a stable dividend during a period of fluctuating interest rates. This was accomplished through the unique combination of investments held by the Fund. For the twelve months ended November 30, 1999, total return was (4.99)% or (9.42)% adjusted for the maximum contingent deferred sales charge.** For a more complete description of the holdings of this unique Fund, please read the following material. FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND During 1999, the Federal Reserve increased interest rates three times, in hopes of keeping inflation from increasing. In this environment, the U.S. Government Income Fund was helped by its emphasis on quality. The Fund produced a total return for the twelve months ended November 30, 1999 of (2.34)% or (5.77)% adjusted for the sales charge for A shares, and (2.36)% or (6.99)% adjusted for the maximum contingent deferred sales charge for B shares while continuing to produce income for its shareholders.** This Fund remains a solid choice for those seeking quality taxable income performance. We are grateful that you have chosen to use the Firstar Stellar Funds to meet your investment needs and we look forward to providing solid performance and service to you in the future. Sincerely, /s/ Daniel B. Benhase Daniel B. Benhase President January 24, 2000 * Income may be subject to the federal alternative minimum tax and state and local taxes. ** Performance quoted represents past performance and is not indicative of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investment Reviews FIRSTAR STELLAR INSURED TAX-FREE BOND FUND Q 1999 was a difficult year for bonds as the Federal Reserve increased interest rates several times. How did this Fund fare in this environment? A Although the rise in interest rates brought the total return of the Fund into negative territory for the year of 1999 (-1.85%), the Fund fared well relative to other insured funds this year because it was shorter. Through November, the Fund ranked 2nd among the 50 funds in Lipper's Insured Municipal Debt Fund Category. The Fund's average weighted maturity is 8.9 years compared to the average of 15 years in Lipper's category. Q What is the advantage of insured bonds compared to uninsured? A The phrase "insured" refers to assuring timely payment of interest and principal over the life of the bond. Insured bonds are not protected against short-term market fluctuations in price due to changes in interest rates. Other benefits of insured bonds include better liquidity, attractive pricing compared to other "AAA" issues, and broader diversification. Thus, we frequently find that purchasing insured bonds provides better yields, liquidity, and more selection than a universe of high quality uninsured bonds. Q What is your outlook for this Fund for the coming year? A The Fund is well positioned going into 2000. We have increased the Fund's average coupon and continue to reduce the Fund's exposure to callable bonds. Both of these factors will help the Fund achieve a competitive total return in 2000. FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND Q Fixed income returns were mixed in 1998 due to international turmoil. How would you describe the bond market's performance in 1999? A The international turmoil and concerns for a global recession in 1998 quickly evaporated in 1999 as the U.S. economy displayed remarkable resilience. With growth returning more quickly and stronger than expected, the Federal Reserve decided to raise interest rates to cool the resurgence of potential inflationary pressures. Additionally, bond issuers who had postponed new issues in 1998 came to market at a furious pace during the summer to ensure liquidity prior to the calendar turn. The end result has been Treasury yields increasing 1.2% to 1.6% since our annual report last year. Bond yields for agency, corporate and mortgage-backed securities likewise rose, but less severely. We would characterize 1999 as a cyclical correction within the still running longer-term decline in interest rates that began in 1981. Q The U.S. Government Income Fund generated competitive results during the 1999 fiscal year. To what do you attribute the success of the Fund during this period? A The U.S. Government Income Fund is diversified across the fixed income maturity spectrum and market segments. Our outlook for 1999 envisioned lower interest rates due to the anticipation of good inflation data and strong relative returns from the non-Treasury sectors. While inflation remains subdued, bond yields clearly moved higher than expected. Fortunately, our decision to overweight agency, mortgage and corporate bonds improved relative performance. Q What are your expectations for the year 2000? A We expect the economy to moderate somewhat from its current torrid pace of growth and see marginally higher inflation pressures. We believe the Federal Reserve will increase the Federal funds rate to 5.75% from 5.5% within the first six months. This will likely translate into higher interest rates early in the year, but allow for an improved inflationary outlook later in 2000. As for the fixed income sectors, U.S. agency and corporate bonds both offer good value compared to Treasury securities. Patient investors will likely be rewarded for focussing on high quality and remaining highly diversified. In particular, we advocate a strong overweight in agency notes as there is little credit risk and liquidity remains outstanding. Longer-term, we anticipate that bond yields will continue the decline that began in 1981. Why? Real interest rates (yield less inflation) remain historically high, nominal yields are higher than economic growth, and a pre-emptive Federal Reserve will keep inflation contained. When the economic growth slows to a more subdued pace, interest rates should decline and the Firstar Stellar U.S. Government Income Fund should post excellent returns. FIRSTAR STELLAR STRATEGIC INCOME FUND Q Sector performance was negatively impacted in 1998 by international turmoil. How did the markets perform in 1999? A Treasury securities reached new lows for this cycle in 1998, then quickly reversed course in 1999 due to the return of global economic growth. With growth returning more quickly and stronger than expected, the Federal Reserve decided to raise interest rates to cool the resurgence of potential inflationary pressures. As a result, Treasury yields have increased 1.2% to 1.6% since our annual report last year. Bond yields for agency, corporate and mortgage-backed securities likewise rose, but less severely. The best relative performance in fixed income this year was corporate, mortgage and agency bonds, followed lastly by Treasury securities. In the equity area, high dividend yield instruments and value investing remain out of favor. Real estate investment trusts (REIT's) suffered through another difficult and disappointing year. Market fears of overbuilding, limited access to capital markets, and sub-industry specific problems contributed to the negative performance. The best relative returns over the past year were in the apartment and office/industrial group. Weakest performance could be found in hotels and health care groups where total returns were -21% and -31%, respectively. High yielding equities such as utility and preferred shares likewise had a difficult year. Many of these shares now offer valuations relative to the S&P 500* that have not been seen in over 10 years. Q How well did the Fund perform in 1999? A The investment objective for the Strategic Income Fund is to "generate high current income." Throughout the calendar year 1999, the Fund distributed a total of $0.65 per share despite market yields declining. For investors who purchased the Fund at the beginning of the review period (11/30/98), income distributions equate to a 6.9% yield. We accomplished this goal by investing the portfolio in a unique combination of five asset classes: corporate bonds, mortgage-backed, international, equity and REIT securities. Within these broad asset types, the Fund was diversified by issuer, geographic location and industry. Over the longer-term, this high level of diversification serves to protect the portfolio from market dislocations associated with a particular asset class. We have also taken steps to improve the Fund's total return (income and price). A more balanced emphasis has benefited shareholders in that total returns for the year are close to the median of the Lipper Flexible Income Fund category** while still providing substantially higher yields. Our decision to limit exposure to higher risk asset classes, remain diversified across industries, and closely monitor fundamental trends helped to limit portfolio volatility. We believe our longer-term focus helps to reduce volatility and leads to competitive long-term results. Q What are your expectations for the year 2000? A We expect the economy to moderate somewhat from its current torrid pace of growth and see marginally higher inflation pressures. We believe the Federal Reserve will increase the Federal funds rate to 5.75% from 5.5% within the first six months. This will likely translate into higher interest rates early in the year, but allow for an improved inflationary outlook later in 2000. As for the fixed income sectors, corporate bonds offer good value compared to Treasury securities. Patient investors will likely be rewarded for focussing on good quality and remaining highly diversified. In particular, we are focussing on the finance and cyclical industries that should benefit from this anticipated environment. Equity performance is expected to be generally positive as earnings growth remains positive and lower interest rates support higher price/earnings multiples. Preferred stocks are particularly attractive this year following significant tax-related selling that has pushed yields into double-digit territory. REIT markets offer some of the highest yields available to investors with earnings growth equivalent to the S&P 500, and a price to earnings multiple at 1/3 the overall market. REIT's are subject to periods of underperformance, followed by periods of exceptional growth such as the 1994-1996 period. Investors seeking a high level of income in a well diversified portfolio without the use of junk bonds or emerging markets debt will find the Firstar Stellar Strategic Income Fund an attractive investment. * Standard & Poor's 500 Stock Index, a composite index of 500 common stocks in industry, transportation, financial and public utility companies, can be used to compare to the total returns of funds whose portfolios are invested primarily in common stocks. This index is unmanaged and investments cannot be made in an index. ** 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 gain distributions, if any. Total return is not adjusted for sales charges. Firstar Stellar Insured Tax-Free Bond Fund GROWTH OF $10,000 INVESTED IN THE FIRSTAR STELLAR INSURED TAX-FREE BOND FUND THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE FIRSTAR STELLAR INSURED TAX-FREE BOND FUND (THE "FUND") FROM DECEMBER 30, 1996 (START OF PERFORMANCE) TO NOVEMBER 30, 1999 COMPARED TO THE LEHMAN BROTHERS TEN YEAR INSURED BOND INDEX(A) AND THE LIPPER INSURED MUNICIPAL DEBT FUND AVERAGE(B). FIRSTAR STELLAR LEHMAN BROTHERS LIPPER INSURED INSURED TAX-FREE TEN YEAR INSURED MUNICIPAL DEBT DATE BOND FUND BOND INDEX FUND AVERAGE 12/30/96 $9,550 $10,000 $10,000 11/30/97 $10,210 $10,746 $10,735 11/30/98 $10,945 $11,615 $11,472 11/30/99 $10,821(C) $11,424 $11,050 AVERAGE ANNUAL TOTAL RETURN(D) FOR THE PERIOD ENDED NOVEMBER 30, 1999 One Year (5.55)% Start of Performance (12/30/96) 2.74% PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. (a) The Lehman Brothers Ten Year Insured Bond Index is an unmanaged index that reflects the total performance of the insured bond sector. Securities in the index must have maturities between 8 and 12 years. The index is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. (b) The Lipper Insured Municipal Debt Fund Average represents the average of all the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the respective category and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in the Fund's performance. (c) Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge = $9,550). The Fund's performance assumes the reinvestment of all dividends and distributions. The Lehman Brothers Ten Year Insured Bond Index and the Lipper Insured Municipal Debt Fund Average have been adjusted to reflect reinvestment of dividends on securities in the index and average. (d) Total return quoted reflects all applicable sales charges. Firstar Stellar U.S. Government Income Fund -- A Shares GROWTH OF $10,000 INVESTED IN FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND -- A SHARES THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND -- A SHARES (THE "FUND") FROM JANUARY 5, 1993 (START OF PERFORMANCE) TO NOVEMBER 30, 1999 COMPARED TO THE LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX(A) AND THE LIPPER U.S. GOVERNMENT FUND AVERAGE(B). FIRSTAR STELLAR U.S. GOVERNMENT LEHMAN BROTHERS LIPPER U.S. INCOME FUND _ GOVERNMENT/CORPORATE GOVERNMENT FUND DATE A SHARES TOTAL INDEX AVERAGE 1/5/93 $9,650 $10,000 $10,000 11/30/93 $10,397 $11,057 $10,679 11/30/94 $10,030 $10,646 $10,178 11/30/95 $11,524 $12,593 $11,899 11/30/96 $12,038 $13,297 $12,418 11/30/97 $12,816 $14,283 $13,229 11/30/98 $13,969 $15,762 $14,408 11/30/99 $13,643(C) $15,555 $14,105 AVERAGE ANNUAL TOTAL RETURN(D) FOR THE PERIOD ENDED NOVEMBER 30, 1999 One Year (5.77)% Five Year 5.58% Start of Performance (1/5/93) 4.60% PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. (a) The Lehman Brothers Government/Corporate Total Index is an unmanaged index composed of bonds which have maturities of at least one year and are rated investment grade or higher by Moody's, S&P or Fitch, in that order. The index is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. (b) The Lipper U.S. Government Fund Average represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the respective category and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in the Fund's performance. (c) Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 3.50% ($10,000 investment minus $350 sales charge = $9,650). The Fund's performance assumes the reinvestment of all dividends and distributions. The Lehman Brothers Government/Corporate Total Index and Lipper U.S. Government Fund Average have been adjusted to reflect reinvestment of dividends on securities in the index and average. (d) Total return quoted reflects all applicable sales charges. Firstar Stellar U.S. Government Income Fund -- B Shares GROWTH OF $10,000 INVESTED IN FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND -- B SHARES THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND -- B SHARES (THE "FUND") FROM APRIL 27, 1998 (START OF PERFORMANCE) TO NOVEMBER 30, 1999 COMPARED TO THE LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX(A) AND THE LIPPER U.S. GOVERNMENT FUND AVERAGE(B). FIRSTAR STELLAR U.S. GOVERNMENT LEHMAN BROTHERS LIPPER INCOME FUND _ GOVERNMENT/CORPORATE U.S. GOVERNMENT DATE B SHARES TOTAL INDEX FUND AVERAGE 4/27/98 $10,000 $10,000 $10,000 11/30/98 $10,671 $10,703 $10,599 11/30/99 $10,038(C) $10,563 $10,377 AVERAGE ANNUAL TOTAL RETURN(D) FOR THE PERIOD ENDED NOVEMBER 30, 1999 One Year (6.99)% Start of Performance (4/27/98) 0.24% PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. (a) The Lehman Brothers Government/Corporate Total Index is an unmanaged index composed of bonds which have maturities of at least one year and are rated investment grade or higher by Moody's, S&P or Fitch, in that order. The index is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. (b) The Lipper U.S. Government Fund Average represents the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the respective category and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in the Fund's performance. (c) Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 4.00% contingent deferred sales charge on any redemption less than two years from the purchase date. The maximum contingent deferred sales charge is 5.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Lehman Brothers Government/Corporate Total Index and Lipper U.S. Government Fund Average have been adjusted to reflect reinvestment of dividends on securities in the index and average. (d) Total return quoted reflects all applicable contingent deferred sales charges. Firstar Stellar Strategic Income Fund GROWTH OF $10,000 INVESTED IN FIRSTAR STELLAR STRATEGIC INCOME FUND THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE FIRSTAR STELLAR STRATEGIC INCOME FUND (THE "FUND") FROM DECEMBER 12, 1994 (START OF PERFORMANCE) TO NOVEMBER 30, 1999 COMPARED TO THE LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX.(A) DATE FIRSTAR STELLAR LEHMAN BROTHERS STRATEGIC GOVERNMENT/CORPORATE INCOME FUND TOTAL INDEX 12/12/94 $10,000 $10,000 11/30/95 $11,271 $11,829 11/30/96 $12,059 $12,490 11/30/97 $13,147 $13,416 11/30/98 $12,863 $14,805 11/30/99 $12,136(b) $14,611 AVERAGE ANNUAL TOTAL RETURN(C) FOR THE PERIOD ENDED NOVEMBER 30, 1999 One Year (9.42)% Start of Performance (12/12/94) 3.97% PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. (a) The Lehman Brothers Government/Corporate Total Index is an unmanaged index composed of bonds which have maturities of at least one year and are rated investment grade or higher by Moody's, S&P or Fitch, in that order. The index is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. (b) Represents a hypothetical investment of $10,000 in the Fund. The ending value of the Fund reflects a 1.00% contingent deferred sales charge on any redemption less than five years from the purchase date. The maximum contingent deferred sales charge is 5.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Lehman Brothers Government/Corporate Total Index has been adjusted to reflect reinvestment of dividends on securities in the index. (c) Total return quoted reflects all applicable contingent deferred sales charges. Portfolios of Investments Firstar Stellar Insured Tax-Free Bond Fund November 30, 1999 PRINCIPAL AMOUNT OR SHARES VALUE --------- ----- LONG-TERM MUNICIPALS - 95.9% ALABAMA - 5.3% $1,750,000 Alabama Water PCA, Revenue Bonds, (AMBAC INS), 6.70%, 8/15/2006 $1,815,398 2,500,000 Alabama Water PCA, Revenue Bonds, (AMBAC INS), 5.50%, 8/15/2012 2,515,775 2,500,000 Bessemer, AL Water Revenue, Revenue Bonds, (AMBAC INS), 5.75%, 7/1/2016 2,504,050 1,500,000 Jefferson County, AL, Sewer, Revenue Bonds, (MBIA INS), 5.65%, 9/1/2008 1,583,760 ------------ Total 8,418,983 ------------ ALASKA - 3.3% 1,000,000 Alaska Energy Authority Power, Revenue Bonds, Bradley Lake, (FSA INS), 6.00%, 7/1/2010 1,057,350 4,040,000 Alaska Energy Authority Power, Revenue Bonds, Bradley Lake, (FSA INS), 6.00%, 7/1/2011 4,266,159 ------------ Total 5,323,509 ------------ COLORADO - 0.8% 1,250,000 Colorado Post-Secondary Education Facilities, Revenue Bonds, Auraria Foundation Project, (FSA INS), 5.75%, 9/1/2010 1,287,138 ------------ FLORIDA - 1.7% 1,280,000 Florida State Department of Transportation, Revenue Bonds, (FGIC INS), 5.125%, 7/1/2013 1,248,166 1,500,000 Orlando & Orange County Expressway Authority, FL, Revenue Bonds, (AMBAC INS), 5.375%, 7/1/2008 1,531,080 ------------ Total 2,779,246 ------------ ILLINOIS - 21.7% 1,080,000 Bolingbrook, IL Residential Mortgage, Revenue Bonds, (FGIC INS), 7.50%, 8/1/2010 1,246,806 1,100,000 Chicago, IL, GO UT, (MBIA INS), 5.375%, 1/1/2013 1,092,300 2,000,000 Chicago, IL Park District, GO UT, (MBIA INS), 5.60%, 1/1/2014 1,993,140 1,500,000 Cook County, IL, GO UT, (MBIA INS), 5.375%, 11/15/2012, Prerefunded 11/15/2002 1,571,385 2,235,000 Cook County, IL School District No. 97, GO UT, (FGIC INS), 9.00%, 12/1/2011 2,954,245 1,000,000 Cook County, IL School District No. 123, GO LT, (FSA INS), 6.20%, 12/1/2008 1,080,640 2,500,000 Illinois Health Facilities Authority, Revenue Bonds, Advocate Health Care Network, (MBIA INS), 5.80%, 8/15/2016 2,479,950 2,225,000 Illinois State, GO UT, (MBIA INS), 6.10%, 2/1/2017 2,263,359 1,410,000 Illinois State, GO UT, (MBIA INS), 5.75%, 5/1/2021 1,371,874 2,400,000 McHenry County, IL Community Unit School District No. 200, Series A, GO UT, (FSA INS), 5.85%, 1/1/2016, Prerefunded 1/1/2008 2,412,888 1,000,000 Northern Illinois University, Revenue Bonds, (FGIC INS), 5.70%, 4/1/2016 991,630 2,500,000 Regional Transportation Authority Series A, Revenue Bonds, (AMBAC INS), 6.00%, 6/1/2009 2,680,050 2,020,000 St. Clair County, IL, GO UT, (FGIC INS), 6.00%, 10/1/2011 2,154,896 3,045,000 Will County, IL Community Unit School District No. 365, GO UT, (FSA INS), 0.00%, 11/1/2010, principal only 1,685,560 2,500,000 Will County, IL Forest Preservation District, GO UT, (AMBAC INS), 6.00%, 12/1/2006 2,595,000 5,805,000 Will County, IL Forest Preservation District, GO UT, (FGIC INS), 6.00%, 12/1/2010 6,177,855 ------------ Total 34,751,578 ------------ INDIANA - 1.3% 2,000,000 Indiana Transportation Finance Authority, Airport Lease, Revenue Bonds Series A, (AMBAC INS), 5.00%, 11/1/2007 2,007,060 ------------ KENTUCKY - 1.5% 2,500,000 Jefferson County, KY HFDA, Revenue Bonds, University Medical Center, Inc., (MBIA INS), 5.50%, 7/1/2017 2,411,200 ------------ LOUISIANA - 4.0% 2,030,000 Baton Rouge, LA Sales & Use Tax Public Improvements Series A, (FGIC INS), 5.25%, 8/1/2015 1,943,096 1,000,000 Jefferson Parish, LA, Revenue Bonds, (AMBAC INS), 5.00%, 11/1/2011 978,450 1,000,000 Lafayette, LA Sales Tax Public Improvements, Series B, (FGIC INS), 7.00%, 3/1/2008 1,130,540 1,500,000 Louisiana PFA, Revenue Bonds, Tulane University, (MBIA INS), 5.10%, 11/15/2014 1,419,285 1,000,000 Terrebonne Parish, LA Hospital Service District No. 1, Revenue Bonds, Terrebonne General Medical Center, (AMBAC INS), 5.25%, 4/1/2014 944,540 ------------ Total 6,415,911 ------------ MAINE - 2.3% 4,000,000 Maine Municipal Board Series D, (AMBAC INS), 5.35%, 11/1/2017 3,810,680 ------------ MASSACHUSETTS - 2.2% 1,000,000 Martha's Vineyard, MA Series A, Revenue Bonds, (FSA INS), 5.125%, 5/1/2018 916,340 2,500,000 Massachusetts Water Resources Authority, Revenue Bonds, (FGIC INS), 5.40%, 11/1/2011 2,604,575 ------------ Total 3,520,915 ------------ MICHIGAN - 6.5% 2,450,000 Dearborn, MI Economic Development Corp., Revenue Bonds, Oakwood Obligated Group, (FGIC INS), 5.75%, 11/15/2015 2,436,035 1,200,000 Haslett, MI Public School District, GO UT, (MBIA INS), 5.70%, 5/1/2016, Prerefunded 5/1/2007 1,262,496 1,000,000 Lanse Creuse, MI Public School District, (AMBAC INS), 5.25%, 5/1/2016 951,860 2,500,000 Michigan State Comprehensive Transportation Board, Revenue Bonds, 5.75%, 5/15/2004 2,609,275 1,065,000 Richmond, MI Community School District, GO UT, School Improvements, (AMBAC INS), 5.60%, 5/1/2018, Prerefunded 5/1/2006 1,111,253 2,000,000 Ypsilanti, MI School District, GO UT, (FGIC INS), 5.60%, 5/1/2012, Prerefunded 5/1/2007 2,091,820 ------------ Total 10,462,739 ------------ MONTANA - 1.4% 2,550,000 Montana State Health Facilities Authority, Revenue Bonds, Sisters of Charity, Leavenworth, (MBIA INS), 5.125%, 12/1/2018 2,322,183 ------------ NEBRASKA - 0.7% 1,000,000 Omaha, NE Public Power District Series B, Electric Revenue Bonds, 6.00%, 2/1/2007, Escrowed to maturity 1,066,060 ------------ NEVADA - 4.9% 1,000,000 Clark County, NV, Revenue Bonds, (MBIA INS), 5.90%, 6/1/2009, Prerefunded 6/1/2009 1,059,850 2,500,000 Clark County, NV School District, GO UT, (FGIC INS), 5.75%, 6/15/2010 2,648,100 2,500,000 Clark County, NV School District, GO UT, (MBIA INS), 5.80%, 6/15/2011 2,650,175 1,500,000 Washoe County, NV School District, GO UT, (MBIA INS), 5.75%, 6/1/2011 1,541,280 ------------ Total 7,899,405 ------------ OHIO - 13.6% 2,555,000 Clermont County, OH, GO UT, (AMBAC INS), 6.00%, 5/15/2007 2,681,958 2,460,000 Cleveland, OH Waterworks, Series H, Improvement Revenue Bonds, (MBIA INS), 5.75%, 1/1/2016, Prerefunded 1/1/2006 2,619,506 40,000 Cleveland, OH Waterworks, Series H, Improvement Revenue Bonds, (MBIA INS), 5.75%, 1/1/2016, Unrefunded balance 40,139 1,000,000 Columbus, OH Sewer System, Revenue Bonds, 6.25%, 6/1/2008 1,052,860 3,500,000 Greater Cleveland Regional Transportation Authority, OH, GO UT, (FGIC INS), 5.65%, 12/1/2016, Prerefunded 12/1/2006 3,701,355 1,000,000 Hamilton County, OH Hospital Facilities Authority, Revenue Bonds, Children's Hospital Medical Center, Cincinnati, (FGIC INS), 5.20%, 5/15/2009 1,004,500 2,000,000 Montgomery County, OH, Water Revenue Bonds, Greater Moraine-Beaver Creek, (FGIC INS), 6.25%, 11/15/2012 2,109,540 1,000,000 Ohio State Building Authority, Adult Correctional Facilities Revenue Bonds, Adult Correctional Facilities, (MBIA INS), 5.70%, 10/1/2006 1,050,960 1,000,000 Ohio State Building Authority, Revenue Bonds, State Facilities - Administration Building, (MBIA INS), 6.00%, 10/1/2008 1,056,930 1,225,000 Ohio State Building Authority, Revenue Bonds, State Facilities - Administration Building, (MBIA INS), 6.00%, 10/1/2009 1,289,300 1,000,000 Ohio State Turnpike Commission Series A, (MBIA INS), 5.70%, 2/15/2013 1,017,930 2,000,000 Ohio State Water Development Authority, Pollution Control Revenue Bonds, (MBIA INS), 5.25%, 12/1/2009 2,024,100 1,000,000 Ohio State Water Development Authority, Revenue Bonds, (AMBAC INS), 5.80%, 12/1/2011, Escrowed to maturity 1,059,030 1,000,000 Sylvania, OH City School District, GO UT, (FGIC INS), 5.80%, 12/1/2015 1,012,320 ------------ Total 21,720,428 ------------ PENNSYLVANIA - 3.7% 1,000,000 Bucks County, PA Water & Sewer Authority, Revenue Bonds, (FGIC INS), 5.55%, 12/1/2017 975,020 2,000,000 Chester Upland School Authority, PA, Series A, Revenue Bonds, (FSA INS), 5.25%, 9/1/2017 1,879,940 1,000,000 Pennsylvania State Higher Education Facilities Authority, Series A, Revenue Bonds, University of Pennsylvania - Health Services, (MBIA INS), 5.25%, 1/1/2012 986,320 2,000,000 Somerset County, PA General Authority, Commonwealth Lease, Revenue Bonds, (FGIC INS), 6.60%, 10/15/2002, Prerefunded 10/15/2001 2,084,280 ------------ Total 5,925,560 ------------ TENNESSEE - 1.9% 2,900,000 Jackson, TN Water & Sewer, Revenue Bonds, 6.30%, 7/1/2011, Escrowed to maturity 3,054,222 ------------ TEXAS - 7.0% 2,500,000 Harris County, TX HFDC, Revenue Bonds, Memorial Hospital System, (MBIA INS), 5.75%, 6/1/2019 2,421,750 1,000,000 Houston, TX Water Conveyance System Contract, Certificate Participation Series J, (AMBAC INS), 6.125%, 12/15/2009 1,069,200 2,290,000 Laredo, TX Independent School District, GO UT, 6.75%, 8/1/2009 2,578,196 2,500,000 Port Houston Authority, TX Harris County, Revenue Bonds, (MBIA INS), 6.50%, 5/1/2005 2,595,000 2,500,000 Texas Water Development Board, Revenue Bonds, 5.50%, 7/15/2010 2,551,950 ------------ Total 11,216,096 ------------ UTAH - 3.2% 2,500,000 Davis County, UT School District, GO UT, (MBIA INS), 5.70%, 6/1/2007 2,621,075 2,400,000 Jordan, UT School District, GO UT, 5.90%, 6/15/2004, Prerefunded 12/1/2004 2,498,064 ------------ Total 5,119,139 ------------ VIRGINIA - 0.7% 1,000,000 Chesapeake Bay Bridge & Tunnel District, VA, Revenue Bonds, (FGIC INS), 5.60%, 7/1/2007 1,044,180 ------------ WASHINGTON - 3.3% 2,500,000 Seattle, WA Municipal Lighting & Power, Revenue Bonds, 6.10%, 7/1/2005, Prerefunded 7/1/2004 2,688,000 330,000 Tacoma, WA Electric System, Revenue Bonds, (AMBAC INS), 6.15%, 1/1/2008 347,437 2,170,000 Tacoma, WA Electric System, Revenue Bonds, (AMBAC INS), 6.15%, 1/1/2008, Prerefunded 2,273,422 ------------ Total 5,308,859 ------------ WASHINGTON, D.C. - 0.8% 1,350,000 District of Columbia, Revenue Bonds, Association of American Medical Colleges, (AMBAC INS), 5.375%, 2/15/2017 1,277,397 ------------ WISCONSIN - 4.1% 2,460,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Aurora Medical Group, (FSA INS), 5.60%, 11/15/2016 2,385,339 2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, Meriter Hospital, Inc., (MBIA INS), 6.00%, 12/1/2017 2,007,580 2,095,000 Wisconsin State, GO UT, (FGIC INS), 5.50%, 5/1/2010 2,138,995 ------------ Total 6,531,914 ------------ TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $153,424,133) 153,674,402 ------------ MUTUAL FUNDS - 2.4% 892,754 SEI Tax Exempt Money Market Fund 892,754 2,892,204 Tax-Free Inv. Co. 2,892,204 ------------ TOTAL MUTUAL FUNDS (IDENTIFIED COST $3,784,958) 3,784,958 ------------ TOTAL INVESTMENTS - 98.3% (IDENTIFIED COST $157,209,091) 157,459,360 ------------ OTHER ASSETS, LESS LIABILITIES - 1.7% 2,796,243 ------------ TOTAL NET ASSETS - 100.0% $160,255,603 ------------ ------------ (See Notes to Financial Statements.) Firstar Stellar U.S. Government Income Fund November 30, 1999 PRINCIPAL AMOUNT VALUE - --------- ----- CORPORATE BONDS - 31.7% AUTOMOBILE - 1.2% $2,250,000 Ford Motor Co., 6.375%, 2/1/2029 $1,928,475 ------------ BANKING - 3.7% 3,000,000 Citigroup Inc., 9.50%, 3/1/2002 3,166,077 2,000,000 First Union Corp., 6.625%, 6/15/2004 1,964,764 1,000,000 Huntington National Bank, 6.75%, 6/15/2003 999,388 ------------ Total 6,130,229 ------------ CHEMICALS - 0.5% 849,804 Dow Chemical Co., 7.60%, 1/2/2002 856,242 ------------ DEFENSE - 1.2% 2,000,000 Martin Marietta Corp., 6.50%, 4/15/2003 1,941,804 ------------ ELECTRONICS - 0.4% 750,000 Motorola, Inc., 6.50%, 11/15/2028 658,877 ------------ ENERGY SERVICES - 1.2% 2,000,000 Halliburton Co., 6.30%, 8/5/2002 1,973,028 ------------ FINANCE - 7.4% 1,750,000 Associates Corp. of North America, 5.50%, 2/15/2004 1,658,479 1,750,000 Bear Stearns Companies Inc. (The), 6.45%, 8/1/2002 1,728,296 850,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 858,218 500,000 Ford Motor Credit Corp., 6.11%, 12/28/2001 494,291 1,500,000 General Electric Global Insurance Holding Corp., 7.00%, 2/15/2026 1,402,760 1,000,000 Goldman Sachs Group, 6.65%, 5/15/2009 948,811 250,000 International Lease Finance Corp., 8.375%, 12/15/2004 263,298 2,000,000 Merrill Lynch & Co., Inc., 6.00%, 2/17/2009 1,827,606 1,500,000 Morgan Stanley Dean Witter & Co., 5.625%, 1/20/2004 1,429,703 1,500,000 Sears Roebuck Acceptance Corp., 7.00%, 6/15/2007 1,443,099 ------------ Total 12,054,561 ------------ HOUSEHOLD PRODUCTS - 0.6% 1,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 967,841 ------------ INDUSTRIAL - 1.3% 2,200,000 Fort James Corp., 6.625%, 9/15/2004 2,134,233 ------------ INTERNATIONAL - 1.6% 100,000 Koninklijke Philips Electronics NV, 8.375%, 9/15/2006 105,043 2,000,000 TransCanada PipeLines Ltd., 9.125%, 4/20/2006 2,150,640 430,000 TransCanada PipeLines Ltd., 8.625%, 5/15/2012 467,514 ------------ Total 2,723,197 ------------ OIL - 3.6% 1,000,000 Ashland Inc., 7.90%, 8/5/2006 1,007,028 1,750,000 Enron Corp., 7.625%, 9/10/2004 1,774,663 3,000,000 Occidental Petroleum Corp., 8.50%, 11/9/2001 3,079,650 ------------ Total 5,861,341 ------------ REAL ESTATE INVESTMENT TRUSTS - 1.7% 1,000,000 Highwoods Forsyth LP, 7.19%, 6/15/2004 942,447 1,000,000 Irvine Apartment Communities, Inc., 7.00%, 10/1/2007 893,708 1,000,000 Post Apartment Homes LP, 7.30%, 4/1/2004 998,439 ------------ Total 2,834,594 ------------ RETAIL - 2.3% 2,000,000 May Department Stores Company (The), 6.70%, 9/15/2028 1,792,988 1,000,000 Safeway, Inc., 5.875%, 11/15/2001 981,504 1,000,000 Safeway, Inc., 7.50%, 9/15/2009 1,001,367 ------------ Total 3,775,859 ------------ TELECOMMUNICATIONS - 2.0% 2,000,000 GTE California, Inc., 5.50%, 1/15/2009 1,757,440 1,500,000 GTE Corp., 7.83%, 5/1/2023 1,460,760 ------------ Total 3,218,200 ------------ UTILITIES - ELECTRIC - 3.0% 500,000 Northern Illinois Gas Co., 7.26%, 10/15/2025 461,352 4,500,000 ENSEARCH Corp., 6.25%, 1/1/2003 4,390,735 ------------ Total 4,852,087 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $53,784,863) 51,910,568 ------------ GOVERNMENT AGENCIES - 34.8% FANNIE MAE - 16.8% 3,000,000 5.41%, 12/15/2003 2,879,898 12,318,000 5.125%, 2/13/2004 11,676,294 1,000,000 6.50%, 4/29/2009 948,451 3,000,000 6.625%, 9/15/2009 2,964,177 5,000,000 6.00%, 2/25/2011, REMIC, Series 1996-21-PK 4,687,969 273,425 6.00%, 8/1/2013 260,218 4,250,000 6.50%, 4/25/2023, REMIC, Series 1993-210-PL 4,063,064 ------------ Total 27,480,071 ------------ FEDERAL HOME LOAN BANK - 14.4% 6,000,000 5.475%, 3/15/2001 5,952,306 5,000,000 5.875%, 8/15/2001 4,971,940 5,500,000 6.00%, 8/15/2002 5,450,885 1,500,000 5.40%, 1/15/2003 1,457,440 1,000,000 5.038%, 10/14/2008 886,224 2,000,000 5.705%, 3/2/2009 1,854,514 3,000,000 6.30%, 6/3/2009 2,896,302 ------------ Total 23,469,611 ------------ FREDDIE MAC - 3.6% 2,075,000 6.22%, 3/24/2003 2,061,307 2,000,000 7.585%, 9/19/2006 2,004,418 2,000,000 6.50%, 3/15/2026 1,825,294 ------------ Total 5,891,019 ------------ TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $57,813,246) 56,840,701 ------------ U.S. TREASURIES - 32.0% U.S. TREASURY BONDS - 22.1% 2,000,000 6.00%, 8/15/2009 1,975,626 5,400,000 9.875%, 11/15/2015 7,095,940 1,500,000 9.00%, 11/15/2018 1,880,625 3,500,000 8.125%, 8/15/2019 4,074,220 4,250,000 8.75%, 5/15/2020 5,256,719 6,250,000 6.75%, 8/15/2026 6,429,688 7,500,000 6.125%, 11/15/2027 7,148,437 2,250,000 6.125%, 8/15/2029 2,202,188 ------------ Total 36,063,443 ------------ U.S. TREASURY NOTES - 9.4% 2,000,000 6.50%, 5/31/2001 2,015,626 3,000,000 5.875%, 10/31/2001 2,993,439 7,000,000 7.50%, 5/15/2002 7,231,875 3,000,000 7.00%, 7/15/2006 3,117,189 ------------ Total 15,358,129 ------------ U.S. TREASURY STRIPS - 0.5% 5,000,000 0.00%, 11/15/2027, principal only 861,580 ------------ TOTAL U.S. TREASURIES (IDENTIFIED COST $54,799,422) 52,283,152 ------------ SHORT-TERM INVESTMENT - 0.1% REPURCHASE AGREEMENT - 0.1% 233,000 Donaldson, Lufkin and Jenrette Securities Corp., 5.70%, dated 11/30/1999, due 12/1/1999, repurchase price $233,037 (Collateralized by U.S. Government Securities) 233,000 ------------ TOTAL SHORT-TERM INVESTMENT (IDENTIFIED COST $233,000) 233,000 ------------ TOTAL INVESTMENTS - 98.6% (IDENTIFIED COST $166,630,531) 161,267,421 ------------ OTHER ASSETS, LESS LIABILITIES - 1.4% 2,285,855 ------------ TOTAL NET ASSETS - 100.0% $163,553,276 ------------ ------------ CONTRACTS VALUE --------- ----- SCHEDULE OF PUT OPTIONS WRITTEN 100 Chicago Board Options Exchange 30-Year Treasury Bond Index, expires 12/18/1999, exercise price $65 $23,125 ------------ TOTAL PUT OPTIONS WRITTEN (PREMIUMS RECEIVED $27,099) $23,125 ------------ ------------ (See Notes to Financial Statements.) Firstar Stellar Strategic Income Fund November 30, 1999 SHARES, PRINCIPAL AMOUNT OR CONTRACTS VALUE - ---------------- ----- DOMESTIC EQUITY - 9.0% COMMON STOCKS - 3.2% BANKING & FINANCE - 0.6% 10,000 Banc One Corp. $352,500 15,000 KeyCorp 405,000 10,000 National City Corp. 249,375 ------------ Total 1,006,875 ------------ UTILITIES - 2.6% 32,500 Central and South West Corp. 650,000 10,000 Duke Energy Corp. 506,875 46,900 GPU, Inc. 1,500,800 10,000 PG & E Corp. 223,750 35,000 Texas Utilities Co. 1,253,438 ------------ Total 4,134,863 ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $6,309,035) 5,141,738 ------------ PREFERRED STOCKS - 5.8% ENERGY - 1.0% 68,200 Enron Capital Trust I, $2.08 1,611,225 ------------ FINANCE - 3.9% 80,000 Citigroup Capital Trust I, $2.00 1,985,000 40,000 Merrill Capital Trust V, $1.82 877,500 136,500 PLC Capital Trust I, Series B, $2.06 3,267,469 10,000 Sears, Roebuck Acceptance Corp., $1.74 205,000 ------------ Total 6,334,969 ------------ TELECOMMUNICATIONS - 0.4% 30,000 MCI Capital I, Series A, $2.00 721,875 ------------ UTILITIES - 0.5% 32,500 Alabama Power Capital Trust II, $1.90 747,500 ------------ TOTAL PREFERRED STOCKS (IDENTIFIED COST $10,136,505) 9,415,569 ------------ TOTAL DOMESTIC EQUITY (IDENTIFIED COST $16,445,540) 14,557,307 ------------ REAL ESTATE INVESTMENT TRUSTS - 17.9% 10,000 Archstone Communities Trust 200,625 20,000 Archstone Communities Trust, Pfd., $2.19 410,000 55,000 Bedford Property Investors, Inc. 941,875 45,000 Brandywine Realty Trust 756,563 60,000 CarrAmerica Realty Corp. 1,245,000 70,000 Crescent Real Estate Equities Co. 1,185,625 130,000 Developers Diversified Realty Corp. 1,811,875 5,000 Equity Residential Properties Trust 200,938 30,000 Equity Residential Properties Trust, Pfd., $1.81 580,312 84,637 Healthcare Realty Trust, Inc. 1,401,800 23,000 Highwoods Properties, Inc., Pfd., $2.00 386,688 55,000 Hospitality Properties Trust 1,017,500 17,500 JDN Realty Corp. 287,656 42,100 Kimco Realty Corp., Cumulative Pfd., $2.13 920,938 20,000 Koger Equity, Inc. 313,750 208,500 LaSalle Hotel Properties 2,475,937 162,000 Lexington Corporate Properties Trust 1,711,125 70,000 Liberty Property Trust 1,596,875 30,000 Pacific Gulf Properties Inc. 603,750 84,356 Pennsylvania Real Estate Investment Trust 1,439,324 40,000 Prime Retail, Inc. 255,000 45,000 Public Storage, Inc., Pfd., Series F, $2.44 1,153,125 185,000 RFS Hotel Investors, Inc. 2,058,125 69,800 Realty Income Corp. 1,522,513 20,000 Reckson Associates Realty Corp. 403,750 196,000 Sizeler Property Investors, Inc. 1,604,750 21,000 Spieker Properties, Inc. 735,000 20,000 Storage USA, Inc. 540,000 114,000 Winston Hotels, Inc. 969,000 ------------ TOTAL REAL ESTATE INVESTMENT TRUSTS (IDENTIFIED COST $34,668,921) 28,729,419 ------------ CORPORATE BONDS - 41.0% AUTOMOTIVE - 1.8% $2,925,000 Ford Motor Co., 7.50%, 8/1/2026 2,878,311 ------------ BANKS & SAVINGS INSTITUTIONS - 2.1% 500,000 Capital Holding Corp., 9.25%, 5/7/2001 512,777 3,000,000 Citicorp, 7.25%, 10/15/2011 2,951,154 ------------ Total 3,463,931 ------------ COMPUTERS - 2.0% 3,500,000 Dell Computer Corp., 7.10%, 4/15/2028 3,262,126 ------------ DIVERSIFIED ENERGY - 1.3% 2,000,000 Occidental Petroleum Corp., 10.69%, 7/27/2000 2,050,750 ------------ ELECTRONICS - 0.6% 1,000,000 Loral Corp., 7.625%, 6/15/2025 911,276 ------------ ENERGY - 3.9% 750,000 Ashland Inc., Series F, 7.90%, 8/5/2006 755,271 1,500,000 Ashland Inc., 7.78%, 9/19/2016 1,430,781 2,000,000 Atlantic Richfield Co., Series B, 8.60%, 5/15/2012 2,211,244 500,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 504,834 1,000,000 Coastal Corp., 9.625%, 5/15/2012 1,149,574 289,000 Duke Energy Corp., 7.875%, 5/1/2024 292,197 ------------ Total 6,343,901 ------------ FINANCE - 8.9% 4,000,000 Banc One Corp., 8.00%, 4/29/2027 4,093,112 1,000,000 Citigroup Inc., 9.50%, 3/1/2002 1,055,359 1,500,000 International Lease Finance Corp., 8.375%, 12/15/2004 1,579,791 3,500,000 Lehman Brothers Holdings, Inc., 7.25%, 10/15/2003 3,498,551 4,150,000 NationsBank Capital Trust IV, 8.25%, 4/15/2027 4,093,934 ------------ Total 14,320,747 ------------ GROCERY STORE - RETAIL - 1.3% 2,000,000 Safeway, Inc., Medium Term Note, 8.57%, 4/1/2003 2,090,174 ------------ HOUSEHOLD PRODUCTS - 1.2% 2,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 1,935,682 ------------ INDUSTRIAL - 2.4% 2,000,000 Lockheed Martin Corp., 7.875%, 3/15/2023 1,776,852 2,000,000 Weyerhaeuser Co., 7.50%, 3/1/2013 1,997,742 ------------ Total 3,774,594 ------------ INSURANCE - 1.3% 2,000,000 Ohio National Life Insurance Co., 8.875%, 7/15/2004 2,107,144 ------------ REAL ESTATE INVESTMENT TRUSTS - 6.6% 2,000,000 AvalonBay Communities, Inc., 6.80%, 7/15/2006 1,883,616 2,000,000 EOP Operating LP, 6.763%, 6/15/2007 1,875,750 2,000,000 Highwoods Forsyth LP, 7.19%, 6/15/2004 1,884,894 1,125,000 Irvine Apartment Communities, Inc., 7.00%, 10/1/2007 1,005,421 1,000,000 Post Apartment Homes LP, 7.30%, 4/1/2004 998,439 2,000,000 Spieker Properties, Inc., 8.00%, 7/19/2005 1,992,842 1,000,000 Spieker Properties, Inc., 7.35%, 12/1/2017 892,271 ------------ Total 10,533,233 ------------ RETAIL & APPAREL - 3.7% 2,250,000 Federated Department Stores, Inc., 7.45%, 7/15/2017 2,184,932 1,000,000 May Department Stores Company (The), 7.625%, 8/15/2013 1,019,427 1,050,000 Penney (J.C.) Co., Inc., 9.45%, 7/15/2002 1,038,873 1,000,000 Penney (J.C.) Co., Inc., 7.95%, 4/1/2017 897,296 725,000 Sears, Roebuck & Co., 8.66%, 10/2/2006 756,191 ------------ Total 5,896,719 ------------ TELECOMMUNICATIONS - 2.1% 3,500,000 GTE Corp., 7.83%, 5/1/2023 3,408,440 ------------ TOBACCO - 0.6% 1,017,000 Philip Morris Cos., Inc., 7.125%, 8/15/2002 1,000,457 ------------ UTILITIES - 1.2% 2,000,000 Northern Illinois Gas Co., 7.26%, 10/15/2025 1,845,408 ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $69,981,846) 65,822,893 ------------ INTERNATIONAL SECURITIES - 13.4% CLOSED-END INVESTMENT COMPANIES - 2.3% 265,000 Dresdner RCM Global Strategic Income Fund, Inc. 1,606,562 220,000 First Commonwealth Fund Inc. 2,145,000 ------------ Total 3,751,562 ------------ ELECTRONICS - 0.7% $1,000,000 Koninklijke Philips Electronics NV, 8.375%, 9/15/2006 1,050,435 ------------ FINANCE - 6.9% 3,700,000 ABN-AMRO Bank NV, New York, 7.75%, 5/15/2023 3,709,883 3,000,000 Societe Generale, New York, 7.40%, 6/1/2006 2,990,052 4,500,000 Zurich Capital Trust, 8.376%, 6/1/2037 4,400,010 ------------ Total 11,099,945 ------------ INTERNATIONAL OIL - 3.5% 154,300 TransCanada PipeLines Ltd., Pfd., $2.13 3,703,200 $1,645,000 TransCanada PipeLines Ltd., 9.875%, 1/1/2021 1,937,234 ------------ Total 5,640,434 ------------ TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST $24,325,867) 21,542,376 ------------ MORTGAGE-BACKED SECURITIES - 17.5% FANNIE MAE - 1.3% 265,526 7.00%, 11/1/2006 265,358 358,223 7.50%, 4/1/2007 362,090 264,386 8.40%, REMIC, 8/25/2019 271,729 571,199 7.50%, REMIC, 5/25/2020 570,516 634,257 9.50%, REMIC, 6/25/2020 662,996 ------------ Total 2,132,689 ------------ FEDERAL HOME LOAN BANK - 0.8% 38,543 11.00%, 4/1/2003 39,147 390,602 9.00%, 5/1/2021 411,745 840,042 8.50%, 6/1/2024 873,378 ------------ Total 1,324,270 ------------ FREDDIE MAC - 5.6% 670,000 10.00%, REMIC, 12/15/2020 705,825 2,000,000 10.00%, REMIC, 1/15/2021 2,159,903 850,982 7.50%, REMIC, 7/15/2021 857,403 3,250,000 7.00%, REMIC, 1/15/2022 3,150,925 2,000,000 7.50%, REMIC, 5/20/2024 2,009,785 ------------ Total 8,883,841 ------------ GINNIE MAE - 9.8% 66,301 9.00%, 7/15/2016 70,117 227,906 9.00%, 1/15/2022 240,344 4,000,000 7.50%, REMIC, 5/16/2023 4,036,818 359,430 8.00%, 11/20/2026 364,482 541,923 7.50%, 12/15/2026 541,304 1,084,126 7.50%, 2/20/2027 1,078,976 2,098,436 7.50%, 6/15/2027 2,095,390 2,874,525 6.50%, 12/20/2028 2,727,508 4,980,831 6.00%, 5/15/2029 4,597,822 ------------ Total 15,752,761 ------------ TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $28,937,645) 28,093,561 ------------ OPTIONS PURCHASED - 0.0% CALL OPTIONS - 0.0% 200 USX-Marathon Group, expires 12/18/1999, exercise price $30 3,750 ------------ PUT OPTIONS - 0.0% 50 American International Group, Inc., expires 12/18/1999, exercise price $80 1,250 100 GTE Corp., expires 1/22/2000, exercise price $60 1,562 ------------ Total 2,812 ------------ TOTAL OPTIONS PURCHASED (IDENTIFIED COST $38,800) 6,562 ------------ SHORT-TERM INVESTMENT - 0.2% REPURCHASE AGREEMENT - 0.2% $270,000 Donaldson, Lufkin and Jenrette Securities Corp., 5.70%, dated 11/30/1999, due 12/1/1999, repurchase price $270,043 (Collateralized by U.S. Government Securities) 270,000 ------------ TOTAL SHORT-TERM INVESTMENT (IDENTIFIED COST $270,000) 270,000 ------------ TOTAL INVESTMENTS - 99.0% (IDENTIFIED COST $174,668,619) 159,022,118 ------------ OTHER ASSETS, LESS LIABILITIES - 1.0% 1,583,418 ------------ TOTAL NET ASSETS - 100.0% $160,605,536 ------------ ------------ SCHEDULE OF CALL OPTIONS WRITTEN 100 Hospitality Properties Trust, expires 12/18/1999, exercise price $25 $2,500 50 Chicago Board Options Exchange 30-Year Treasury Bond Index, expires 12/18/1999, exercise price $62.50 4,063 ------------ TOTAL CALL OPTIONS WRITTEN (PREMIUMS RECEIVED $13,875) 6,563 ------------ SCHEDULE OF PUT OPTIONS WRITTEN 50 Chicago Board Options Exchange 30-Year Treasury Bond Index, expires 12/18/1999, exercise price $62.50 2,500 50 Dayton-Hudson Corp., expires 1/22/2000, exercise price $60 4,219 100 GTE Corp., expires 1/22/2000, exercise price $65 7,812 50 Kohl's Corp., expires 1/22/2000, exercise price $60 3,437 ------------ Total Put Options Written (PREMIUMS RECEIVED $33,686) 17,968 ------------ TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $47,561) $24,531 ------------ ------------ (See Notes to Financial Statements.) Abbreviations to Portfolios of Investments The following abbreviations are used in these portfolios: AMBAC -- American Municipal Bond Assurance Corporation FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance GO -- General Obligation HFDA -- Health Facility Development Authority HFDC -- Health Facility Development Corporation INS -- Insured LP -- Limited Partnership LT -- Limited Tax MBIA -- Municipal Bond Investors Assurance PCA -- Pollution Control Authority PFD -- Preferred REMIC -- Real Estate Mortgage Investment Conduit UT -- Unlimited Tax Statements of Assets and Liabilities November 30, 1999 Firstar Stellar Firstar Stellar Firstar Stellar Insured U.S. Government Strategic Tax-Free Income Income Bond Fund Fund Fund --------------- --------------- --------------- ASSETS: Total investments in securities, at value $157,459,360 $161,267,421 $159,022,118 Cash 45,420 98,356 57,485 Income receivable 2,779,476 2,348,766 1,941,057 Receivable for investments sold -- 988,437 93,297 Receivable for Fund shares sold 167,000 53,319 22,147 Other assets 12,374 10,341 24,996 ------------ ------------ ------------ Total assets 160,463,630 164,766,640 161,161,100 ------------ ------------ ------------ LIABILITIES: Payable for Fund shares redeemed 50,475 80,863 311,484 Income distribution payable -- 937,865 -- Options written, at value -- 23,125 24,531 Payable to affiliates 139,351 149,943 202,196 Accrued expenses 18,201 21,568 17,353 ------------ ------------ ------------ Total liabilities 208,027 1,213,364 555,564 ------------ ------------ ------------ NET ASSETS $160,255,603 $163,553,276 $160,605,536 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS CONSIST OF: Paid in capital $159,907,324 $170,176,069 $198,740,230 Accumulated undistributed net investment income 6,511 -- 362 Accumulated undistributed net realized gain (loss) on investments and options 91,499 (1,263,657) (22,511,585) Net unrealized appreciation (depreciation) on investments and options 250,269 (5,359,136) (15,623,471) ------------ ------------ ------------ Total net assets $160,255,603 $163,553,276 $160,605,536 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS: A Shares $160,255,603 $162,523,239 -- B Shares -- 1,030,037 $160,605,536 ------------ ------------ ------------ Total net assets $160,255,603 $163,553,276 $160,605,536 ------------ ------------ ------------ ------------ ------------ ------------ SHARES OUTSTANDING: A Shares 16,162,407 17,247,638 -- B Shares -- 109,383 18,846,601 ------------ ------------ ------------ Total shares outstanding 16,162,407 17,357,021 18,846,601 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE PER SHARE: A Shares $9.92 $9.42 -- B Shares -- $9.42 $8.52 ------------ ------------ ------------ OFFERING PRICE PER SHARE: A Shares $10.39 $9.76 -- B Shares -- $9.42 $8.52 ------------ ------------ ------------ REDEMPTION PROCEEDS PER SHARE: A Shares $9.92 $9.42 -- B Shares -- $8.95 $8.09 ------------ ------------ ------------ Investments, at identified cost $157,209,091 $166,630,531 $174,668,619 ------------ ------------ ------------ ------------ ------------ ------------ Investments, at tax cost $157,209,091 $166,638,414 $175,490,304 ------------ ------------ ------------ ------------ ------------ ------------
(See Notes to Financial Statements.) Statements of Operations Year Ended November 30, 1999 Firstar Stellar Firstar Stellar Firstar Stellar Insured U.S. Government Strategic Tax-Free Income Income Bond Fund Fund Fund --------------- --------------- --------------- INVESTMENT INCOME: Interest income $8,123,266 $10,066,851 $9,589,829 Dividend income -- -- 5,984,563 ----------- ----------- ----------- Total income 8,123,266 10,066,851 15,574,392 ----------- ----------- ----------- EXPENSES: Investment advisory fees 1,187,196 956,781 1,783,691 Shareholder services fees 395,857 398,727 469,075 Administration fees 174,122 175,409 206,533 Portfolio accounting fees 57,073 64,189 62,588 Custodian fees 39,573 39,866 46,939 Transfer and dividend disbursing agent fees and expenses 36,613 39,977 66,873 Auditing fees 23,944 20,126 19,027 Federal and state registration fees 16,458 25,321 21,668 Trustees' fees 6,564 6,500 6,285 Printing and postage 5,238 6,650 25,889 Legal fees 1,666 1,264 1,994 Miscellaneous 2,323 1,835 2,131 ----------- ----------- ----------- Total expenses 1,946,627 1,736,645 2,712,693 ----------- ----------- ----------- Waivers-- Waiver of investment advisory fees (335,685) -- -- Waiver of shareholder services fees (256,664) (257,951) (306,020) ----------- ----------- ----------- Total waivers (592,349) (257,951) (306,020) ----------- ----------- ----------- Net expenses 1,354,278 1,478,694 2,406,673 ----------- ----------- ----------- NET INVESTMENT INCOME 6,768,988 8,588,157 13,167,719 ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS: Net realized gain (loss) on investments and options 92,300 (811,188) (17,555,019) Net change in unrealized appreciation (depreciation) on investments and options (8,739,502) (11,492,349) (5,028,961) ----------- ----------- ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND OPTIONS (8,647,202) (12,303,537) (22,583,980) ----------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(1,878,214) $(3,715,380) $(9,416,261) ----------- ----------- ----------- ----------- ----------- -----------
(See Notes to Financial Statements.) Statements of Changes in Net Assets Firstar Stellar Firstar Stellar Firstar Stellar Insured U.S. Government Strategic Tax-Free Bond Fund Income Fund Income Fund ------------------------- ------------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended November 30, November 30, November 30, November 30, November 30, November 30, 1999 1998 1999 1998 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS-- Net investment income $6,768,988 $6,293,827 $8,588,157 $7,405,285 $13,167,719 $14,128,659 Net realized gain (loss) on investments and options 92,300 166,776 (811,188) 1,754,333 (17,555,019) (5,003,385) Net change in unrealized appreciation (depreciation) on investments and options (8,739,502) 3,424,446 (11,492,349) 2,658,356 (5,028,961) (14,077,724) ------------ ------------ ------------ ------------ ------------ ------------ Change in net assets resulting from operations (1,878,214) 9,885,049 (3,715,380) 11,817,974 (9,416,261) (4,952,450) ------------ ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income A Shares (6,874,733) (6,255,253) (8,553,900) (7,416,798) -- -- B Shares -- -- (44,235) (7,290) (13,047,652) (14,227,658) Distributions in excess of net investment income B Shares -- -- -- -- (142,618) -- Distributions from net realized gain on investments and options A Shares (167,577) (324,276) -- -- -- -- B Shares -- -- -- -- -- (1,593,824) ------------ ------------ ------------ ------------ ------------ ------------ Change in net assets from distributions to shareholders (7,042,310) (6,579,529) (8,598,135) (7,424,088) (13,190,270) (15,821,482) ------------ ------------ ------------ ------------ ------------ ------------ SHARE TRANSACTIONS-- Proceeds from sales of shares 37,245,264 36,272,222 62,147,773 39,578,764 39,163,705 83,977,189 Net asset value of shares issued to shareholders in payment of distributions declared 158,664 108,994 3,007,102 2,917,392 3,845,725 5,175,549 Cost of shares redeemed (20,459,273) (16,046,687) (38,365,710) (35,257,729) (62,150,941) (45,437,959) ------------ ------------ ------------ ------------ ------------ ------------ Change in net assets from share transactions 16,944,655 20,334,529 26,789,165 7,238,427 (19,141,511) 43,714,779 ------------ ------------ ------------ ------------ ------------ ------------ Change in net assets 8,024,131 23,640,049 14,475,650 11,632,313 (41,748,042) 22,940,847 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS: Beginning of year 152,231,472 128,591,423 149,077,626 137,445,313 202,353,578 179,412,731 ------------ ------------ ------------ ------------ ------------ ------------ End of year $160,255,603 $152,231,472 $163,553,276 $149,077,626 $160,605,536 $202,353,578 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Accumulated undistributed net investment income included in net assets at end of year $6,511 $112,256 -- $116,722 $362 -- ------------ ------------ ------------ ------------ ------------ ------------
(See Notes to Financial Statements.) Financial Highlights (For a share outstanding throughout each period) NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS NET ASSET UNREALIZED DISTRIBUTIONS IN EXCESS FROM NET IN EXCESS OF NET VALUE, NET GAIN (LOSS) ON TOTAL FROM FROM NET OF NET REALIZED GAIN REALIZED GAIN PERIOD ENDED BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT INVESTMENT ON INVESTMENTS ON INVESTMENTS NOVEMBER 30, OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME INCOME AND OPTIONS AND OPTIONS (D) - ------------ --------- ---------- -------------- ---------- ------------- ------------- -------------- ---------------- FIRSTAR STELLAR INSURED TAX-FREE BOND FUND A SHARES 1997(a) $10.00 0.44 0.24 0.68 (0.43) -- -- -- 1998 $10.25 0.46 0.26 0.72 (0.46) -- (0.02) -- 1999 $10.49 0.44 (0.55) (0.11) (0.45) -- (0.01) -- FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND A SHARES 1995 $9.24 0.60 0.74 1.34 (0.60) -- -- -- 1996 $9.98 0.57 (0.15) 0.42 (0.57) -- -- -- 1997 $9.83 0.57 0.04 0.61 (0.57) -- -- -- 1998 $9.87 0.56 0.30 0.86 (0.55) -- -- -- 1999 $10.18 0.52 (0.76) (0.24) (0.52) -- -- -- B SHARES 1998(c) $9.89 0.36 0.29 0.65 (0.36) -- -- -- 1999 $10.18 0.52 (0.76) (0.24) (0.52) -- -- -- FIRSTAR STELLAR STRATEGIC INCOME FUND B SHARES 1995(b) $10.00 0.69 0.55 1.24 (0.67) -- (0.04) (0.00)(h) 1996 $10.53 0.73 (0.04) 0.69 (0.72) -- -- -- 1997 $10.50 0.73 0.18 0.91 (0.74) -- -- -- 1998 $10.67 0.72 (0.94) (0.22) (0.73) -- (0.10) -- 1999 $9.62 0.64 (1.10) (0.46) (0.63) (0.01) -- --
(a) Reflects operations for the period from December 30, 1996 (date of initial public investment) to November 30, 1997. (b) Reflects operations for the period from December 12, 1994 (date of initial public investment) to November 30, 1995. (c) Reflects operations for the period from April 27, 1998 (date of initial public investment) to November 30, 1998. (d) Distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These distributions did not represent a return of capital for federal income tax purposes. (e) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge if applicable. (f) Computed on an annualized basis. (g) This voluntary expense decrease is reflected in both the expense and net investment income ratios. (h) Less than one cent per share. (See Notes to Financial Statements.) RATIOS TO AVERAGE NET ASSETS -------------------------------------------- NET ASSETS, NET ASSET NET EXPENSE END PORTFOLIO TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ OF PERIOD TURNOVER DISTRIBUTIONS OF PERIOD RETURN (E) EXPENSES INCOME REIMBURSEMENT (G) (000 OMITTED) RATE ------------- ---------- --------------- -------- ---------- ---------------------- ------------- --------- (0.43) $10.25 6.91% 0.79%(f) 4.66%(f) 0.45%(f) $128,591 15% (0.48) $10.49 7.20% 0.79% 4.43% 0.45% $152,231 14% (0.46) $9.92 (1.13)% 0.86% 4.27% 0.37% $160,256 15% (0.60) $9.98 14.90% 0.92% 6.23% 0.20% $109,666 236% (0.57) $9.83 4.46% 0.92% 5.88% 0.20% $138,874 158% (0.57) $9.87 6.46% 0.89% 5.88% 0.20% $137,445 140% (0.55) $10.18 9.00% 0.91% 5.51% 0.20% $148,773 88% (0.52) $9.42 (2.34)% 0.93% 5.38% 0.16% $162,523 122% (0.36) $10.18 6.71% 0.91%(f) 5.51%(f) 0.20%(f) $305 88% (0.52) $9.42 (2.36)% 0.93% 5.38% 0.16% $1,030 122% (0.71) $10.53 12.71% 1.47%(f) 7.41%(f) 0.30%(f) $47,513 258% (0.72) $10.50 6.99% 1.36% 7.26% 0.20% $110,775 201% (0.74) $10.67 9.02% 1.26% 7.13% 0.20% $179,413 142% (0.83) $9.62 (2.16)% 1.26% 7.19% 0.20% $202,354 146% (0.64) $8.52 (4.99)% 1.28% 6.95% 0.16% $160,605 73%
Notes to Financial Statements NOVEMBER 30, 1999 (1) ORGANIZATION Firstar Stellar Funds, formerly Star Funds, (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of ten diversified portfolios and two non-diversified portfolios. The financial statements of the following portfolios (individually referred to as the "Fund", or collectively as the "Funds") are presented herein along with each Fund's investment objective: PORTFOLIO NAME INVESTMENT OBJECTIVE - ------------------------------------- -------------------------------- Firstar Stellar Insured Tax- Provide current income which Free Bond Fund is exempt from federal ("Stellar Tax-Free Bond Fund") income tax. Firstar Stellar U.S. Government Provide current income. Income Fund ("U.S. Government Income Fund") Firstar Stellar Strategic Income Fund Generate high current income. ("Strategic Income Fund") The financial statements of the Money Market Funds and Stock Funds are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Stellar Tax-Free Bond Fund issues one class of shares (A Shares); U.S. Government Income Fund offers two classes of shares, (A Shares and B Shares); and Strategic Income Fund issues one class of shares (B Shares). Class A Shares are subject to an initial sales charge imposed at the time of purchase, in accordance with the Funds' prospectus. The maximum sales charge on Class A Shares in the Stellar Tax-Free Bond Fund is 4.50% of the offering price or 4.71% of the net asset value. The maximum sales charge on Class A Shares in the U.S. Government Income Fund is 3.50% of the offering price or 3.62% of the net asset value. The Class B Shares in the U.S. Government Income Fund and the Strategic Income Fund are subject to a contingent deferred sales charge at the time of redemption, in accordance with the Funds' prospectus. The maximum sales charge is 5% for redemptions in the first year, 4% in the second year, 3% in the third year, 2% in the fourth year, 1% in the fifth year and 0% thereafter. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS Equity securities traded on a securities exchange and securities traded in the over-the-counter market are valued at the last reported sales price on the day of valuation; other securities for which no sale was reported on that date, are valued at the last quoted bid price. Corporate and municipal bonds, asset-backed securities and U.S. government securities are valued using the last quoted bid price as furnished by an independent pricing service. Short-term securities with remaining maturities of sixty days or less at the time of purchase are valued at amortized cost, which approximates fair market value. Investments in open-end regulated investment companies are valued at net asset value. B. REPURCHASE AGREEMENTS It is the policy of the Funds to require a custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Funds to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Funds will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Funds' adviser to be creditworthy pursuant to the guidelines and/or standards approved or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Funds could receive less than the repurchase price on the sale of collateral securities. C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Interest income and expenses are accrued daily. Dividend income is recorded on the ex-dividend date. Net investment income, other than class specific expenses, and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current day's capital share activity of the respective class). Distributions to shareholders are recorded on the ex-dividend date. D. FEDERAL TAXES It is each Fund's policy to comply with the provisions of the Internal Revenue Code, as amended, (the "Code") applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal taxes are necessary. The character of distributions made during the year from net investment income or net realized gain may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain items for financial statement and tax purposes. Where appropriate, reclassifications between net asset accounts are made for such differences that are permanent in nature. Accordingly, at November 30, 1999, reclassifications were recorded to increase (decrease) accumulated undistributed net investment income by $(106,744) and $22,913; undistributed net realized gain (loss) on investments and options by $0 and $121,487; and paid in capital by $106,744 and $(144,400) for the U.S. Government Income Fund and the Strategic Income Fund, respectively. There were no adjustments required for the Stellar Tax-Free Bond Fund. At November 30, 1999, the U.S. Government Income Fund and Strategic Income Fund for federal tax purposes, had capital loss carryforwards, as noted below, which will reduce the Funds' taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Funds of any liability for federal tax. TOTAL CAPITAL-LOSS FUND CARRYFORWARD - --------------------------- ------------------ U.S. Government Income Fund $1,255,773 Strategic Income Fund $21,689,538 Pursuant to the Code, the capital loss carryforward for the U.S. Government Income Fund of $451,531 will expire in the year 2004 and $804,242 will expire in the year 2007. The capital loss carryforward for the Strategic Income Fund of $2,607,161 will expire in the year 2006 and $19,082,377 will expire in the year 2007. E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Funds may engage in when-issued or delayed delivery transactions. The Funds record when-issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. OPTION CONTRACTS WRITTEN The Strategic Income Fund and U.S. Government Income Fund may write "covered" call option contracts. The Strategic Income Fund may also write "covered" put options. A written option obligates the Funds to deliver (a call) or to receive (a put) the contract amount upon exercise by the holder of the option. The principal reason for writing call or put options is to obtain, through receipt of premiums, a greater current return than would be realized on underlying securities alone. By writing call options, the Fund may forego potential gains on the underlying security. By writing a put option, the Fund risks becoming obligated to purchase the underlying security for more than its current market price upon exercise. Premiums received from writing options are recorded as a liability and an unrealized gain or loss is measured by the difference between the current value and the premium received. For the year ended November 30, 1999, the U.S. Government Income Fund and Strategic Income Fund had net realized gain (loss) on option contracts both written and purchased of $(91,223) and $708,020, respectively. The following is a summary of the U.S. Government Income Fund and Strategic Income Fund written options activity: U.S. GOVERNMENT INCOME FUND ------------------------------ NUMBER OF CONTRACTS PROCEEDS* --------- -------------- Outstanding at November 30, 1998 -- -- Contracts opened 1,000 $163,341 Contracts closed (900) (136,242) ------ -------- Outstanding at November 30, 1999 100 $27,099 ------ -------- ------ -------- STRATEGIC INCOME FUND ------------------------------ NUMBER OF CONTRACTS PROCEEDS* --------- -------------- Outstanding at November 30, 1998 1,100 $147,161 Contracts opened 8,012 1,280,920 Contracts expired (3,319) (437,194) Contracts exercised (1,194) (189,026) Contracts closed (4,199) (754,300) ------ -------- Outstanding at November 30, 1999 400 $47,561 ------ -------- ------ -------- * Represents premium received less commissions paid. G. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements. Actual results could differ from those estimates. H. OTHER Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows: STELLAR TAX-FREE BOND FUND ------------------------------------------ YEAR ENDED YEAR ENDED A SHARES NOVEMBER 30, 1999 NOVEMBER 30, 1998 - ------------------------------------------------------------------- ----------------- ----------------- Shares sold 3,637,652 3,500,206 Shares issued to shareholders in payment of distributions declared 15,627 10,504 Shares redeemed (2,004,702) (1,545,029) ----------- ----------- Net change resulting from A Share transactions 1,648,577 1,965,681 ----------- ----------- ----------- ----------- U.S. GOVERNMENT INCOME FUND ------------------------------------------------------- YEAR ENDED YEAR ENDED NOVEMBER 30, 1999 NOVEMBER 30, 1998 ------------------------- ------------------------- A SHARES SHARES DOLLARS SHARES DOLLARS - ------------------------------------------------------------------- --------- ----------- --------- ----------- Shares sold 6,289,821 $61,288,573 3,907,526 $39,183,622 Shares issued to shareholders in payment of distributions declared 305,559 2,976,521 290,731 2,911,014 Shares redeemed (3,955,245) (38,262,406) (3,518,765) (35,148,883) ---------- ----------- ---------- ----------- Net change resulting from A Share transactions 2,640,135 $26,002,688 679,492 $6,945,753 ---------- ----------- ---------- ----------- U.S. GOVERNMENT INCOME FUND ------------------------------------------------------- YEAR ENDED PERIOD ENDED NOVEMBER 30, 1999 NOVEMBER 30, 1998* ------------------------- ------------------------- B SHARES SHARES DOLLARS SHARES DOLLARS - ------------------------------------------------------------------- --------- ----------- --------- ----------- Shares sold 87,005 $859,200 40,004 $395,142 Shares issued to shareholders in payment of distributions declared 3,161 30,581 630 6,378 Shares redeemed (10,742) (103,304) (10,675) (108,846) --------- ----------- --------- ---------- Net change resulting from B Share transactions 79,424 786,477 29,959 292,674 --------- ----------- --------- ---------- Net change resulting from Fund Share transactions 2,719,559 $26,789,165 709,451 $7,238,427 --------- ----------- --------- ---------- --------- ----------- --------- ---------- * For the period from April 27, 1998 (date of initial public investment) to November 30, 1998. STRATEGIC INCOME FUND ------------------------------------------ YEAR ENDED YEAR ENDED B SHARES NOVEMBER 30, 1999 NOVEMBER 30, 1998 - ------------------------------------------------------------------- ----------------- ----------------- Shares sold 4,275,874 8,201,112 Shares issued to shareholders in payment of distributions declared 423,835 509,914 Shares redeemed (6,898,912) (4,485,446) ----------- ----------- Net change resulting from B Share transactions (2,199,203) 4,225,580 ----------- ----------- ----------- -----------
(4) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES A. GENERAL Certain officers of Firstar Bank, N.A. and Firstar Mutual Fund Services, LLC ("Firstar") serve as officers of the Trust. Firstar Bank, N.A. and Firstar are related by virtue of each being a subsidiary of Firstar Corporation. B. INVESTMENT ADVISORY FEES Firstar Bank, N.A., the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee based on a percentage of each Fund's average daily net assets as follows: FUND ANNUAL RATE - --------------------------- ----------- Stellar Tax-Free Bond Fund 0.75% U.S. Government Income Fund 0.60% Strategic Income Fund 0.95% The Adviser may voluntarily choose to waive a portion of its fee. The Adviser may modify or terminate this voluntary waiver of its advisory fees at any time at its sole discretion. C. ADMINISTRATIVE FEES Firstar provides the Funds with certain administrative personnel and services. Firstar receives a fee at an annual rate of 0.11% of the average daily net assets of each Fund for the period. D. DISTRIBUTION SERVICES FEES Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), A Shares and B Shares of the Trust may pay to the distributor of the Funds an amount computed at an annual rate of 0.25% of the average daily net assets to finance any activity which is principally intended to result in the sale of shares subject to the Plan. Effective April 1, 1999, Edgewood Services, Inc. became the distributor of the Funds. Prior to that date, B.C. Ziegler and Company served as the distributor of the Funds. The Stellar Tax-Free Bond Fund, U.S. Government Income Fund and Strategic Income Fund are currently not accruing or paying any distribution expenses pursuant to the Plan. E. SHAREHOLDER SERVICES FEES Under the terms of the Shareholder Services Agreement with Firstar Bank, N.A., each Fund may pay Firstar Bank, N.A. up to 0.25% of average daily net assets of the Funds for the period. Prior to March 1, 1999, Firstar Bank, N.A. limited the shareholder servicing fee to 0.05% of average daily net assets. As of March 1, 1999, the shareholder servicing fee was changed to 0.10% of average daily net assets. The fee paid to Firstar Bank, N.A. is used to finance certain services for shareholders and to maintain shareholder accounts. Firstar Bank, N.A. can modify or terminate this limitation at any time at its sole discretion. F. TRANSFER AND DIVIDEND DISBURSING AGENT FEES Firstar Bank, N.A. serves as transfer and dividend disbursing agent for the Funds. The fee paid to Firstar Bank, N.A. is based on the size, type and number of accounts and transactions made by shareholders. G. PORTFOLIO ACCOUNTING FEES Firstar is the Funds' accounting services agent. Firstar is responsible for maintaining the Funds' accounting records for which it receives a fee. The fee is based on the level of each Fund's average daily net assets for the period, subject to an annual minimum of $39,000 per Fund, plus out-of-pocket expenses. H. CUSTODIAN FEES Firstar Bank, N.A. is the Funds' custodian for which it receives a fee. The fee is based on the level of each Fund's average daily net assets for the period, plus out-of-pocket expenses. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended November 30, 1999, were as follows: PURCHASES SALES U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER ---------------- ----- --------------- ----- Stellar Tax-Free Bond Fund -- $36,393,312 -- $22,455,760 U.S. Government Income Fund $182,148,071 35,624,332 $154,523,996 35,610,423 Strategic Income Fund 15,181,318 119,252,530 22,674,044 126,375,779
NET UNREALIZED GROSS GROSS COST OF APPRECIATION UNREALIZED UNREALIZED INVESTMENTS (DEPRECIATION) APPRECIATION DEPRECIATION FOR FEDERAL FOR FEDERAL FOR FEDERAL FOR FEDERAL TAX PURPOSES TAX PURPOSES TAX PURPOSES TAX PURPOSES ------------ ------------ ------------ ------------ Stellar Tax-Free Bond Fund $157,209,091 $250,269 $2,801,212 $2,550,943 U.S. Government Income Fund 166,638,414 (5,370,993) 371,607 5,742,600 Strategic Income Fund 175,490,304 (16,468,186) 111,893 16,580,079
(6) DISTRIBUTIONS TO SHAREHOLDERS (UNAUDITED) Net investment income and net realized gains, if any, are distributed to shareholders. For the fiscal year ended November 30, 1999, the Stellar Tax-Free Bond Fund designated $92,300 as long-term capital gains for purposes of the dividends paid deduction. During the year ended November 30, 1999, all of the dividends derived from net investment income paid by the Stellar Tax-Free Bond Fund were "tax-exempt dividends," excludable from gross income for Federal income tax purposes. Report of Independent Public Accountants To the Board of Trustees of the Firstar Stellar Funds and the Shareholders of the Firstar Stellar Insured Tax-Free Bond Fund, Firstar Stellar U.S. Government Income Fund, and Firstar Stellar Strategic Income Fund: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of the Firstar Stellar Insured Tax-Free Bond Fund, Firstar Stellar U.S. Government Income Fund, and Firstar Stellar Strategic Income Fund (three of the portfolios constituting the Firstar Stellar Funds, a Massachusetts business trust (the "Trust")) as of November 30, 1999, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 1999, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Firstar Stellar Insured Tax-Free Bond Fund, Firstar Stellar U.S. Government Income Fund, and Firstar Stellar Strategic Income Fund of the Firstar Stellar Funds as of November 30, 1999, and the results of their operations for the year then ended, the changes in their net assets for the two years in the period then ended, and their financial highlights for the periods indicated, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Cincinnati, Ohio January 7, 2000 Trustees Officers - -------- -------- Thomas L. Conlan Jr. Daniel B. Benhase PRESIDENT Dr. Alfred Gottschalk Joseph C. Neuberger VICE PRESIDENT Dr. Robert J. Hill Michael T. Karbouski TREASURER Dawn M. Hornback Cheryl L. King ASSISTANT TREASURER Lawrence M. Turner Elaine E. Richards SECRETARY William H. Zimmer III Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government or the Federal Deposit Insurance Corporation. Investment in mutual funds involves investment risks, including the possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Trust's prospectus which contains facts concerning its objectives and policies, management fees, expenses and other information. FIRSTAR STELLAR FUNDS ARE AVAILABLE THROUGH: o THE FIRSTAR FUNDS CENTER, o FINANCIAL CONSULTANTS WHO ARE EITHER REGISTERED REPRESENTATIVES OF FIRSTAR INVESTMENT SERVICES, INC., A REGISTERED BROKER/DEALER, NASD AND SIPC MEMBER, OR REGISTERED REPRESENTATIVES OF MDS SECURITIES, A DIVISION OF CONSECO FINANCIAL SERVICES, INC., A REGISTERED BROKER/DEALER, NASD AND SIPC MEMBER, o AND THROUGH SELECTED SHAREHOLDER ORGANIZATIONS. This report is authorized for distribution only when preceded or accompanied by a current prospectus. FOR ACCOUNT BALANCE AND INVESTOR SERVICES INFORMATION 1-800-677-FUND 1-414-287-3808 FIRSTAR STELLAR FUNDS 615 EAST MICHIGAN STREET P.O. BOX 701 MILWAUKEE, WI 53201-0701 WWW.FIRSTARSTELLARFUNDS.COM (FIRSTAR STELLAR FUNDS LOGO) FORM # SFBFANN-00 -----END PRIVACY-ENHANCED MESSAGE-----