-----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, Jo3tkrEtkIa8yUREsNXRsMdHHb475fg8Yr+IVvx0v5ZiY0VH1TYtK2HV9XLETKSE mFxCB96tR7pFpBrH8NfXGg== 0000898531-99-000175.txt : 19990518 0000898531-99-000175.hdr.sgml : 19990518 ACCESSION NUMBER: 0000898531-99-000175 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAR STELLAR FUNDS CENTRAL INDEX KEY: 0000846030 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251656946 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-26915 FILM NUMBER: 99626427 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-05762 FILM NUMBER: 99626428 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS STREET 2: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122886331 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS STREET 2: 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 485APOS 1 FIRSTAR STELLAR SCIENCE & TECHNOLOGY FUND Filed with the Securities and Exchange Commission on May 17, 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. ---45----- [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. ---46---- [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) ------- on --------------------- pursuant to paragraph (b) ------- 60 days after filing pursuant to paragraph (a)(1) ------- on March 31, 1999 pursuant to paragraph (a)(1) ------- 75 days after filing pursuant to paragraph (a)(2) ---X--- on August 1, 1999 pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: ------- This post-effective amendment designates a new effective date for a previously filed post-effective amendment. PROSPECTUS August 1, 1999 Firstar Stellar Science & Technology Fund FIRSTAR STELLAR FUNDS TABLE OF CONTENTS THE FUND Overview..................................................3 Science & Technology Fund.................................4 Performance and Expenses..................................6 Management of The Funds...................................7 Distribution of Shares....................................7 YOUR ACCOUNT INFORMATION Description of Classes....................................8 The Price of Shares.......................................9 Purchasing Shares........................................10 Selling Shares...........................................12 Exchanging Shares........................................13 Dividends, Capital Gain Distributions and Taxes..........14 ADDITIONAL INFORMATION Year 2000 Issue..........................................14 FOR MORE INFORMATION See the last page for more information. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. OVERVIEW GOAL AND STRATEGIES OF THE FUND The goal of the SCIENCE & TECHNOLOGY FUND is to maximize growth and capital appreciation by investing in securities of companies in the science and technology industries. Until it reaches an asset size of approximately $30 - $50 million, the fund will invest in derivatives or synthetic type securities. After the fund has reached this critical mass, the fund will invest directly in individual securities of companies in the science and technology industries. PRINCIPAL RISKS OF THE FUND The main risks of investing in the fund are: 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. o 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. o 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. o 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. In addition, technology and technology related companies may be subject to short product cycles and aggressive pricing which may increase their volatility. o PORTFOLIO TURNOVER RISKS: The adviser may engage in active trading of its portfolio securities to achieve its investment goals. This practice could result in the 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. 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. WHO MAY WANT TO INVEST This fund may be appropriate for people who: o wish to invest for a long term o want to diversify their portfolios o want to allocate some portion of their long-term investments to aggressive equity investing o are willing to accept a high degree of volatility and risk in exchange for the opportunity to realize greater financial gains in the future This fund may not be appropriate for people who: o are investing for short terms o are risk adverse SCIENCE & TECHNOLOGY FUND INVESTMENT GOAL The investment objective of the SCIENCE & TECHNOLOGY FUND is to maximize growth and capital appreciation by investing in securities of companies related to the science and technology industry. INVESTMENT POLICES AND PORTFOLIO SECURITIES The fund will initially pursue its investment objective by investing in derivatives or synthetic types of securities related to the science and/or technology sectors. Derivatives or synthetic securities are financial instruments whose value is based on and determined by another security or bench mark. The fund will concentrate on securities in the technology and science industry sectors. The fund considers these sectors to include companies that: o make or sell products used in health care; o own or run hospitals, nursing homes, health maintenance organizations and other companies specializing in health care services; 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 by using this strategy, the fund will achieve the greatest amount of growth in a relatively short period of time. Under normal circumstances, at least 80% of the value of the fund's total assets will be invested, directly or indirectly through derivatives of stocks of science or technology related companies. The fund will be managed passively, in that the adviser will not perform traditional management functions of economic, financial, and market analysis. Furthermore, a company's adverse financial circumstance will not trigger its elimination from the fund portfolio (whether shares of such company are held by the fund directly or through the fund ownership of derivatives), unless the company is no longer considered a top performing company. When the fund's assets exceed $30 - $50 million, the fund will invest directly in the individual securities that comprise the companies mentioned above. The adviser will manage the fund by using a statistical model that identifies which stocks should be purchased or sold in order to maximize, as much as possible, the growth of the fund. 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 U.S. and foreign short-term money market instruments. The fund may invest up to 35% of its assets in these securities to maintain liquidity. Some of the short-term money 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 To the extent the fund engages in this temporary, defensive strategy, the fund may not achieve its investment objective. INVESTMENT RISKS The following risks are specific to this fund in addition to the risks mentioned in the Overview section. MORTGAGE AND ASSET-BACKED SECURITIES RISKS The fund can invest in mortgage and asset-backed securities. The main risk of mortgage and asset-backed securities is that the borrower will prepay some or all of the principal owed to the issuer. If that happens, the fund may have to replace the security by investing the proceeds in a less attractive security. This could reduce the fund's share price and its income distributions. 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. FOREIGN SECURITIES RISKS The fund can invest in foreign securities, which can carry higher returns, but involve more risks than those associated with domestic investments. Additional risks include currency fluctuations, political and economic instability, differences in financial reporting standards, and less stringent regulation of securities markets. SMALL- AND MEDIUM-SIZE COMPANIES RISKS The fund may invest in the stocks of small- to medium-sized companies. Small- and medium-size companies often have narrower markets and more limited managerial and financial resources than larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure, which could increase the volatility of the fund's portfolio. 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. Because the fund has just recently been organized, it has no performance history to provide. FUND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B CLASS Y - ------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (as a percentage of offering price) None None MAXIMUM DEFERRED SALES CHARGE (LOAD) (as a percentage of offering price) 5.00% None MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None None REDEMPTION FEE None None EXCHANGE FEE None None ESTIMATED ANNUAL FUND OPERATING EXPENSES(1) (EXPENSES DEDUCTED FROM FUND ASSETS) CLASS B CLASS Y - ------------------------------------------------------------------------------ MANAGEMENT FEES 0.90% 0.90% DISTRIBUTION AND SERVICE (12B-1) FEES (2) 1.00% None OTHER EXPENSES3 0.79% 0.79% TOTAL ANNUAL FUND OPERATING EXPENSES 2.69% 1.69% 1 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 The B shares are subject to a 12b-1 fee of 1.00% of average daily net assets. The adviser has agreed to waive 0.75% of the fee and therefore the class will only accrue and pay 0.25% of average daily net assets under the 12b-1 plan. The adviser may change the waiver amount at any time. The Y shares are not subject to a Rule 12b-1 plan. 3 "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. EXAMPLE The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. This example assumes that: 1.You invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods, 2.Your investment has a 5% return each year, and 3.The fund 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 $772 $1,135 CLASS Y $172 $ 533 If you did not redeem your shares, you would pay the following expenses: 1 YEAR 3 YEARS - -------------------------------------------- CLASS B $272 $835 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 on August 1,1999 and has managed other 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 0.25% of the average daily net asset value of shares to Edgewood. Edgewood uses this fee to finance activities that promote the sale of the fund's shares. Such activities include, but are not necessarily limited to, advertising, printing and mailing prospectuses to persons other than current shareholders, printing and mailing sales literature, and compensating underwriters, dealers and sales personnel. Whenever Edgewood deems it appropriate, Edgewood may, from time to time, voluntarily reduce its compensation under the Rule 12b-1 Plan to the extent expenses of the shares exceed a certain limit. Rule 12b-1 fees are paid out of fund assets on an on-going basis. Over time, these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Edgewood may select financial institutions such as banks, fiduciaries, custodians for public 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 may be imposed if you redeem your shares within a certain time period. If you redeem your class B shares within five full years of the date you purchased, a contingent deferred sales charge (CDSC) may be charged by the funds' distributor. Certain class B shares also impose a Rule 12b-1 fee. 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 other classes, the class Y shares do pay investment management fees and other fees. 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: o days on which there are insignificant changes in the value of a fund's portfolio securities to materially affect the net asset value o days during which no shares are purchased or redeemed o the following holidays o New Year's Day o Good Friday o Labor Day o Martin Luther King Jr.'s Day o Memorial Day o Thanksgiving Day o Presidents' Day o Independence Day o Christmas Day DETERMINING MARKET VALUE OF SECURITIES Market or fair values of the fund's portfolio securities are determined as follows: 1.For equity securities: according to the last sale price on a national securities exchange, if applicable. 2.In the absence of recorded sales for listed equity securities: according to the mean between the last closing bid and asked prices. 3.For unlisted equity securities: latest bid prices. 4.For bonds and other fixed-income securities: as determined by an independent pricing service. 5.For short-term obligations: according to the mean between bid and asked prices as furnished by an independent pricing service. 6.For short-term obligations with remaining maturities of 60 days or less at the time of purchase: at amortized cost. 7.For all other securities: at fair value as determined in good faith by the 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 5.00% YEAR 2 4.00% YEAR 3 3.00% YEAR 4 2.00% YEAR 5 1.00% YEAR 6 0.00% In computing the amount of CDSC you could be charged, redemptions are deemed to have occurred in the following order: 1.shares of the fund you purchased by reinvesting your dividends and long-term capital gains 2.shares of a fund you held for more than five full years from the date of purchase 3.shares of a fund you held for fewer than five full years on a first-in, first-out basis 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 five full years after purchase o redemptions made following death or disability (as defined by the IRS) o redemptions made as minimum required distributions under an IRA or other retirement plan to a shareholder who is 701/2 years old or older o redemptions made in shareholder accounts that do not have the required minimum balance PURCHASING SHARES OPENING AN ACCOUNT To open an account, first determine if you are buying class 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 and the Federal Reserve wire system are open for business. Your order will be considered received after your check is converted into federal funds and received by Firstar Bank (usually the next business day). If you are paying with federal funds (wire), your order will be considered received when Firstar Bank receives the federal funds. 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 next 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 - ------------------------------------------------------------------------------------------------------------------------------------ TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT - ------------------------------------------------------------------------------------------------------------------------------------ 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 __. - ------------------------------------------------------------------------------------------------------------------------------------
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. - -------------------------------------------------------------------------------- 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 You will need your signature guaranteed if: o you are redeeming shares from an IRA account o you request a redemption to be made payable to a person not on record with the funds, or o you request that a redemption be mailed to an address other than that on record with the funds You may obtain signature guarantees from most trust companies, commercial banks or other eligible guarantor institutions. EXCHANGING SHARES You can exchange shares between the Firstar Stellar Funds within the same class. You also may exchange class C shares (no-load money market funds) for class A or B shares of any Firstar Stellar Fund. However, you may not exchange shares from class B to class C and then to class A. 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. 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. 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 JULY 30, 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://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 1, 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 1, 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. is the investment adviser of the Trust. After the merger, Star Bank changed its name to Firstar Bank, N.A. On February 11, 1999, the Board of Trustees of the Trust approved changing the Trust's name to "Firstar Stellar Funds" 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 - A, 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 The investment objective below is a fundamental objective and therefore cannot be changed without the approval of shareholders. The goal of the SCIENCE & TECHNOLOGY FUND is to maximize growth and capital appreciation by investing in quality securities of companies in the science and technology industries. Until it reaches an asset size of approximately $30 - $50 million, the fund will invest in derivatives or synthetic type securities. After the fund has reached this critical mass, the fund will invest directly in individual 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. 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 become obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, a fund becomes obligated during the term of the option to purchase the securities underlying the option at the exercise price if the option is exercised. All options written by the 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 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. SELLING SHORT The fund will not sell any securities short. 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. 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. 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. 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. DIVERSIFICATION OF INVESTMENTS With respect to securities comprising 75% of the value of their respective total assets, the fund will not purchase securities issued by any one issuer (other than cash, cash items, or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities, and repurchase agreements collateralized by such securities and securities of other investment companies) if, as a result, more than 5% of the value of their respective total assets would be invested in the securities of that issuer. The fund will not acquire more than 10% of the outstanding voting securities of any one issuer. CONCENTRATION OF INVESTMENTS The fund will not invest 25% or more of the value of their respective total assets in any one industry (other than investment companies and securities issued by the U.S. government, its agencies or instrumentalities). 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. 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. 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. 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. 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. 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. PURCHASING SECURITIES TO EXERCISE CONTROL The fund will not purchase securities of a company for the purpose of exercising control or management. 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, birthdates, present positions with the Trust and principal occupations. - ---------------------------------------------------------------------------------------------------------------------------------- POSITION AND PRINCIPAL OCCUPATION NAME AND ADDRESS BIRTHDATE OFFICE WITH THE TRUST DURING THE PAST FIVE YEARS - ---------------------------------------------------------------------------------------------------------------------------------- Thomas L. Conlan, Jr.* May 20, 1938 Trustee President and Chief Executive Officer, c/o Firstar Corporation Student Loan Funding Resources, Inc., June 425 Walnut Street 1998 to Present; President and Chief Cincinnati, Ohio 45202 Executive Officer, Student Loan Funding Corporation, 1981 to June 1998; President and Chief Executive Officer, SLFC, Inc., 1991 to June 1998. - ---------------------------------------------------------------------------------------------------------------------------------- Alfred Gottschalk, Ph.D. March 7, 1930 Trustee Chancellor (January 1996 to present), 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. January 13, 1959 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 September 12, 1963 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 March 23, 1947 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 December 19, 1953 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 November 23, 1959 President Executive Vice President, Firstar Firstar Corporation Corporation since 1987. 425 Walnut Street Cincinnati, OH 45202 - ---------------------------------------------------------------------------------------------------------------------------------- Joseph C. Neuberger April 4, 1962 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 March 3, 1965 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 April 8, 1968 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. - ----------------------------------------------------------------------------------------------------------------------------------
* This trustee is deemed to be an "interested person," as defined in the 1940 Act, of the Trust by virtue of his business relationship with the fund's investment adviser, and certain of its affiliates. The Student Loan Funding Corporation and SLFC, Inc., of which Mr. Conlan is President and Chief Executive Officer, purchase student loans from various financial institutions, including the 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. 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. AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION COMPENSATION BENEFITS ACCRUED AS ANNUAL BENEFITS FROM TRUST AND FUND NAME AND POSITION FROM TRUST** PART OF TRUST EXPENSES UPON RETIREMENT COMPLEX PAID TO TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------------- Thomas L. Conlan, Jr.* 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
*This trustee is deemed to be an interested person as defined in the 1940 Act. **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 shares: O Employees and retired employees of Firstar Bank (or Star Bank), or their affiliates and members of their families (including parents, grandparents, siblings, spouses, children, and in-laws) of such employees or retired employees; O FirstarTrust customers of Firstar Corporation and its subsidiaries; and O non-trust customers of financial advisers. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES CONTROL PERSON For certain purposes, Firstar Bank, N.A. may be deemed to control the fund because it owns over 25% of the voting shares of the Fund and, as a result, will be able to affect the outcome of certain matters presented for a vote of each of the fund's shareholders. Firstar Bank serves as the investment adviser for the Fund and also serves as custodian. Firstar Bank is located at 425 Walnut Street, Cincinnati, Ohio 45202. Firstar Bank is a national association and is wholly-owned by Firstar Corporation. The table below shows the approximate percentage of the Fund owned by Firstar Bank, N.A. as of ________, 1999. PERCENTAGE OWNED BY FIRSTAR BANK, N.A. B Shares Y Shares Science & Technology Fund _____ _____ PRINCIPAL HOLDERS As of ________, 1999, no one is deemed to be 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. MANAGEMENT OWNERSHIP As of ________, 1999, the officers and Trustees of the Trust own less than 1% of the outstanding shares of any 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. Firstar Bank, N.A. was known as Star Bank, N.A. prior to the merger. The merger has produced no significant changes to the management of the Adviser. Together, the two banks have become the 21st largest bank in the United States and have blended an expertise of trust administration and investments together with extensive knowledge in the mutual fund industry. Firstar Bank'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. 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. As of April 1, 1999, Edgewood Services, Inc., Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, became the distributor for the fund. 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 sale price on a national securities exchange, if applicable. 2.In the absence of recorded sales for listed equity securities: according to the mean between the last closing bid and asked prices. 3.For unlisted equity securities: latest bid prices. 4.For bonds and other fixed-income securities: as determined by an independent pricing service. 5.For short-term obligations: according to the mean between bid and asked prices as furnished by an independent pricing service. 6.For short-term obligations with remaining maturities of 60 days or less at the time of purchase: at amortized cost. 7.For all other securities: at fair value as determined in good faith by the Trustees. Prices provided by independent pricing services may be determined without relying exclusively on quoted prices and may reflect institutional trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. 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. 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. FREQUENT INVESTOR PROGRAM The Frequent Investor Program is a program that allows investors to win a free round-trip airline ticket. If investors earn 50,000 points, they win a round- trip airline ticket to any of the 50 states on any U.S. carrier. The terms and conditions regarding the program are as follows: O Investors must purchase Class A or B shares of any of the Firstar Stellar Funds. O Investors will earn one point for every dollar invested (gross of sales charges) in Class A or B shares after August 12, 1996. O The program does not apply to shares obtained without a sales charge or a CDSC. It also does not apply to shares acquired through reinvested dividends or capital gain distributions. O The program does not apply to Class A or B shares acquired by exchange. O Investors may redeem shares at any time without losing points. O Investors may earn up to 100,000 points (2 airline tickets) in any 12-month period. O All unused points will expire one year from the latest purchase of shares of $100 or more. O Points are not transferable. Regarding the airline tickets: O The ticket will be for a non-refundable coach seat. O The price of the ticket may not exceed $500 (including taxes and destination charges), however, investors may choose to pay any overage. O All travel must be within the 50 United States. O Interim stopovers may not exceed four hours. O Tickets will be mailed to the investor's account address, although overnight shipping is available at the investor's expense. O There are no "blackout" dates. O Investors must purchase their tickets 21 days in advance, and a Saturday night stay is required. O Tickets may be purchased in any individual's name. NOTE: Firstar Stellar Funds may modify or terminate the frequent investor program at any time. Firstar Bank may create special offering periods featuring bonus points or other temporary enhancement to the program. Existing and prospective shareholders will be given notice of such special offering periods. CONVERSION TO FEDERAL 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 is filed with this POST-EFFECTIVE Amendment No. 45 (b) BY-LAWS filed February 3, 1989 is incorporated by reference to Registrant's Initial Registration statement. (c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS. See Article VIII and X of the Articles of Incorporation incorporated by reference to Registrant's Post-Effective Amendment No. 19 to the Registration Statement filed July 2, 1993. (d) INVESTMENT ADVISORY CONTRACT between Registrant and Firstar Bank, N.A through and including Exhibit G is incorporated by reference to Registrant's Post-Effective Amendment No. 16 to the Registration Statement filed November 20, 1992. (1) EXHIBIT H TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 23 to the Registration Statement filed May 13, 1994. (2) EXHIBIT I TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 24 to the Registration Statement filed September 15, 1994. (3) EXHIBIT J TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 25 to the Registration Statement Form N-1A filed January 26, 1995. (4) EXHIBIT K TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 33 to the Registration Statement filed March 25, 1997. (5) EXHIBIT L TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 37 to the Registration Statement filed November 24, 1997. (6) EXHIBIT M TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 37 to the Registration Statement filed November 24, 1997. (7) EXHIBIT N TO INVESTMENT ADVISORY CONTRACT of the Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 37 to the Registration Statement filed November 24, 1997. (e) DISTRIBUTION AGREEMENT between Registrant and Edgewood Services, Inc. dated as of April 1, 1999 with respect to Treasury Fund, Tax-Free Money Market Fund, Ohio Tax-Free Money Market Fund, The Stellar Fund, Growth Equity Fund, International Equity Fund, Market Capitalization Fund, Relative Value Fund, Capital Appreciation Fund, Stellar Insured Tax-Free Bond Fund, Strategic Income Fund, and U.S. Government Income Fund is incorporated by reference to Registrant's Post-Effective Amendment No. 44. to the Registration Statement filed April 1, 1999. (f) BONUS OR PROFIT SHARING CONTRACTS. Not Applicable. (g) CUSTODIAN CONTRACT between Registrant and Firstar Bank, N.A. dated October 1, 1992 is incorporated by reference to Registrant's Post-Effective Amendment No. 19 to the Registration Statement filed July 2, 1993. (1) FEE SCHEDULES OF CUSTODIAN CONTRACT of the Registrant is incorporated by reference TO Registrant's Post-Effective Amendment No. 37 to the Registration Statement filed November 24, 1997. (h) OTHER MATERIAL CONTRACTS (1) SHAREHOLDER RECORDKEEPING AGREEMENT between Registrant and Firstar Bank, N.A. dated as of January 26, 1998 is incorporated by reference to Registrant's Post-Effective Amendment No. 41 to the Registration Statement filed March 23, 1998. (2) FUND ADMINISTRATION SERVICING AGREEMENT between Registrant and Firstar Mutual Fund Services, LLC dated October 1, 1998 filed January 29, 1999 is incorporated by reference to Registrant's Post-Effective Amendment No. 42. (3) AMENDED AND RESTATED SHAREHOLDER SERVICES PLAN is incorporated by reference to Registrant's Post-Effective 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 Post-Effective 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 Post-Effective Amendment No. 42. (i) LEGAL OPINION. Not applicable. (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 Post-Effective Amendment No. 44 to the Registration Statement filed April 1, 1999. (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 Post-Effective Amendment No. 42. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT Registrant is controlled by its Board of Trustees. ITEM 25. INDEMNIFICATION Response is incorporated by reference to Registrant's Post-Effective Amendment No. 1 to the Registration Statement filed July 26, 1989. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER: 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 open-end investment companies, including the Registrant: o Deutsche Portfolios o Deutsche Funds, Inc. o Excelsior Funds o Excelsior Funds, Inc. (formerly, UST Master Funds, Inc.), o Excelsior Institutional Trust o Excelsior Tax-Exempt Funds, Inc. o FTI Funds o FundManger Portfolios o Great Plains Funds o Old Westbury Funds, Inc. o The Riverfront Funds o Robertsons Stephens Investment Trust o WesMark Funds o WCT Funds (b) To the best of Registrant's knowledge, the directors and executive officers of Edgewood Services, Inc. are as follows: NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITIONS AND OFFICES BUSINESS ADDRESS EDGEWOOD SERVICES, INC. WITH REGISTRANT - -------------------------------------------------------------------------------- Lawrence Caracciolo Director, President None Arthur L. Cherry Director None J. Christopher Donahue Director None Thomas P. Sholes Vice President None Ernest L. Linane Assistant Vice President None Christine T. Johnson Assistant Vice President None Denis McAuley Treasurer None Leslie K. Rose Secretary None Amanda J. Reed Assistant Secretary None The address of each of the foregoing is 5800 Corporate Drive, Pittsburgh PA 15237-5829. (c) None. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS: All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at the following locations: 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(a) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Milwaukee and State of Wisconsin, on the 17th day of May, 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 - ---- ----- ---- */s/ Thomas L. Conlan, Jr. Trustee May 17, 1999 - ------------------------------ Thomas L. Conlan, Jr. */s/ Dr. Alfred Gottschalk Trustee May 17, 1999 - ------------------------------ Dr. Alfred Gottschalk */s/ Dr. Robert J. Hill Trustee May 17, 1999 - ------------------------------ Dr. Robert J. Hill */s/ William H. Zimmer, III Trustee May 17, 1999 - ------------------------------ William H. Zimmer, III */s/ Dawn M. Hornback Trustee May 17, 1999 - ------------------------------ Dawn M. Hornback */s/ Lawrence M. Turner Trustee May 17, 1999 - ------------------------------ Lawrence M. Turner * By /s/ Elaine E. Richards -------------------------- Elaine E. Richards Attorney-in-fact EX-99.A 2 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 6 ---------- ----------------------------- 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 10 ---------- ------------------- 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 15 ---------- --------------------- SECTION 2. TRUSTEE COMPENSATION 15 ---------- -------------------- ARTICLE VII INVESTMENT ADVISER, ADMINISTRATIVE SERVICES, PRINICIPAL 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 LIMITAION OF LIABILITY AND INDEMNIFICATION 21 SECTION 1. LIMITATION OF PERSONAL LIABILITY AND INDEMNIFICATION OF ---------- ------------------------------------------------------- SHAREHOLDERS 21 ------------ SECTION 2. LIMITATION OF PERSONAL LIABILITY OF TRUSTEES, ---------- --------------------------------------------- OFFICERS, EMPLOYEES OR AGENTS OR THE TRUST 21 ------------------------------------------ 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. ESTABLISHMENTOOFTRECORD DATES 23 ---------- ----------------------------- SECTION 5. OFFICES OF THE TRUST, FILING OF COPIES, ---------- --------------------------------------- HEADINGS, COUNTERPARTS 24 ---------------------- SECTION 6. APPLICABLE LAW 24 ---------- -------------- SECTION 7. AMENDMENDTS - 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 who shall serve until the election of the Trustees at a Meeting of Shareholders subsequent to the initial public offering of Shares shall be Joan F. Donahue, Edward C. Gonzales, William J. Copeland, James S. Dowd, Lawrence D. Ellis, M.D., Edward L. Elaherty, Jr., J. Joseph Maloney Jr. Gregor L. Meyer, Marjorie. P. Smuts, and Westly W. Posyar. 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, th4e 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, ------------------------------------------- PRINICIPAL 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 designat4ed 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 ---------- LIMITAION 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. Offices of the Trust, Filing of Copies, Headings, Counterparts - ---------- -------------------------------------------------------------- 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 -----END PRIVACY-ENHANCED MESSAGE-----