[Federal Register Volume 65, Number 218 (Thursday, November 9, 2000)]
[Notices]
[Pages 67424-67426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28795]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24727; 812-12244]


Firstar Funds, Inc., et al.; Notice of Application

November 3, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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    Summary of the Application: Applicants request an order to permit 
certain series of Firstar Funds, Inc. (``Firstar'') to acquire all of 
the assets and liabilities of all of the series of Firstar Stellar 
Funds (``Stellar''), Mercantile Mutual Funds, Inc. (``Mercantile''), 
and Firstar Select Funds (``Select'') (the ``Reorganizations''). 
Because of certain affiliations, applicants may not rely on rule 17a-8 
under the Act.

[[Page 67425]]

    Applicants: Firstar, Stellar, Mercantile, Select, Firstar 
Investment Research & Management Company, LLC (``FIRMCO''), and Firstar 
Bank, N.A. (``Firstar Bank'').
    Filing Dates: The application was filed on September 13, 2000. 
Applicants have agreed to file an amendment to the application during 
the notice period, the substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 24, 2000, and should be accompanied by proof of 
service on applicants in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: Firstar, Stellar, and Mercantile, 615 East 
Michigan Street, Milwaukee, WI 53201-3011; Select, 431 North 
Pennsylvania Street, Indianapolis, IN 46204; FIRMCO, Firstar Center, 
777 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202; and Firstar 
Bank, 425 Walnut Street, Cincinnati, OH 45202.

FOR FURTHER INFORMATION CONTACT: Susan K. Pascocello, Senior Counsel, 
at (202) 942-0674, or Michael W. Mundt, Branch Chief, at (202) 942-0578 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Stellar, a Massachusetts business, Select, an Ohio business 
trust, and Mercantile, a Maryland corporation, are registered under the 
Act as open-end management investment companies and are comprised of 
12, 1 and 19 series respectively (the ``Acquired Funds''). Firstar, a 
Wisconsin corporation, is registered under the Act as an open-end 
management investment company. Firstar is comprised of 36 series, 27 of 
which will participate in the Reorganizations. Sixteen of the 
participating series are currently operating (the ``Existing Acquiring 
Funds'') and eleven are newly organized shell series (the ``Shell 
Acquiring Funds,'' and together with the Existing Acquiring Funds, the 
``Acquiring Funds''). \1\ The Acquiring Funds and the Acquired Funds 
are collectively referred to as the ``Funds.''
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    \1\ A registration statement for the Shell Acquiring Funds was 
filed with the Commission on September 20, 2000, and it is 
anticipated that it will be declared effective on November 17, 2000.
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    2. FIRMCO is registered under the Investment Advisers Act of 1940 
(``Advisers Act'') and is the investment adviser for Stellar, 
Mercantile and the Existing Acquiring Funds, and will serve as the 
investment adviser to the Shell Acquiring Funds. Firstar Bank, N.A. 
(``Firstar Bank'') serves as investment adviser to Select's series, the 
Select REIT-Plus Fund (the ``Select Fund''), and is exempt from 
registration under the Advisers Act. FIRMCO and Firstar Bank are 
subsidiaries of Firstar Corporation.
    3. FIRMCO, Firstar Bank and certain of their affiliated companies 
that are under common control with Firstar Corporation (the ``Firstar 
Group''), hold of record in their name, and in the names of their 
nominees, more than 5% (and with respect to certain Funds more than 
25%) of the outstanding voting securities of certain of the Funds.\2\ 
All of these securities are held for the benefit of others in a trust, 
agency, custodial, or other fiduciary or representative capacity, 
except that certain of the companies of the Firstar Group may, at 
times, own economic interests in certain money market Funds for their 
own account. Some of these securities are held for the benefit of 
employee benefit plans for employees of Firstar Corporation and its 
affiliates.
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    \2\ The Firstar Group does not hold more than 5% of the 
outstanding voting securities of the Mercantile Conning Money Market 
Portfolio and the Firstar Conning Money Market Fund. Applicants will 
rely on Rule 17a-8 under the Act and not the requested order for the 
merger of these Funds.
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    4. On June 6, 7, 13, 16, July 11, 13, 20, and August 15, 2000, the 
boards of directors or trustees of Firstar, Stellar, Select and 
Mercantile (together, the ``Boards''), including the directors or 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (``Independent Directors''), unanimously approved 
Plans of Reorganization (each a ``Plan'' and collectively, the 
``Plans'') between Firstar and Stellar, Select and Mercantile. Pursuant 
to the Plans, each Acquiring Fund will acquire all of the assets and 
liabilities of the corresponding Acquired Fund in exchange for shares 
of the Acquiring Fund.\3\
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    \3\ The Acquired Funds and their corresponding Acquiring Funds 
are: (1) Stellar Treasury Fund, Mercantile Treasury Money Market 
Portfolio and Firstar U.S. Treasury Money Market Fund; (2) Stellar 
Tax-Free Money Market Fund, Mercantile Tax-Exempt Money Market 
Portfolio and Firstar Tax-Exempt Money Market Fund; (3) Mercantile 
Bond Index Portfolio, Mercantile Government & Corporate Bond 
Portfolio and Firstar Aggregate Bond Fund; (4) Stellar U.S. 
Government Income Fund, Mercantile U.S. Government Securities 
Portfolio and Firstar U.S. Government Securities Fund; (5) Stellar 
Insured Tax-Free Bond Fund, Mercantile National Municipal Bond 
Portfolio and Firstar National Municipal Bond Fund; (6) Mercantile 
Money Market Portfolio and Firstar Money Market Fund; (7) Mercantile 
Intermediate Corporate Bond Portfolio and Firstar Intermediate Bond 
Market Fund; (8) Mercantile Short-Intermediate Municipal Portfolio 
and Firstar Tax-Exempt Intermediate Bond Fund; (9) Mercantile 
Balanced Portfolio and Firstar Balanced Growth Fund; (10) Mercantile 
Equity Index Portfolio and Firstar Equity Index Fund; (11) 
Mercantile Growth & Income Equity Portfolio and Firstar Growth & 
Income Fund; (12) Mercantile Growth Equity Portfolio and Firstar 
Growth Fund; (13) Mercantile Small Cap Equity Portfolio and Firstar 
Emerging Growth Fund; (14) Mercantile International Equity Portfolio 
and Firstar Core International Equity Fund; (15) Stellar Fund and 
Firstar Balanced Income Fund; (16) Stellar Capital Appreciation Fund 
and Firstar MidCap Index Fund; (17) Mercantile Conning Money Market 
Portfolio and Firstar Conning Money Market Fund; (18) Mercantile 
Missouri Tax-Exempt Bond Portfolio and Firstar Missouri Tax-Exempt 
Bond Fund; (19) Mercantile Equity Income Portfolio and Firstar 
Equity Income Fund (shell); (20) Mercantile Small Cap Equity Index 
Portfolio and Firstar Small Cap Index Fund (shell); (21) Stellar 
Ohio Tax-Free Money Market Fund and Firstar Ohio Tax-Exempt Money 
Market Fund (shell); (22) Stellar Strategic Income Fund and Firstar 
Strategic Income Fund (shell); (23) Stellar Growth Equity Fund and 
Firstar Large Cap Growth Fund (shell); (24) Stellar Relative Value 
Fund and Firstar Relative Value Fund (shell); (25) Stellar Science & 
Technology Fund and Firstar Science & Technology Fund (shell); (26) 
Stellar International Equity Fund and Firstar Global Equity Fund 
(shell); and (27) Select Fund and Firstar REIT Fund (shell).
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    5. The various Funds have multiple classes of shares. The number of 
Acquiring Fund shares to be issued to shareholders of the Acquired Fund 
will be determined by dividing the aggregate net assets of each 
Acquired Fund class by the net asset value per share of the 
corresponding Acquiring Fund class, each computed as of the close of 
business immediately prior to the effective time of the Reorganization 
(``Effective Time''). Applicants state that the matching of classes was 
done in a way that provides the closest alignment between distribution 
channels and/or servicing and distribution-related expenses of each 
Acquired Fund and Acquiring Fund share class. In addition, Applicants 
represent that the rights and obligations of each class of shares of 
the Acquired Funds are substantially

[[Page 67426]]

similar to those of the corresponding class of shares of the Acquiring 
Funds into which they will be reorganized.\4\ For purposes of 
calculating the deferred sales charges of shares of Acquiring Fund 
classes that charge a contingent deferred sales load, shareholders of 
the Acquired Funds will be deemed to have held the shares of the 
corresponding Acquiring Fund since the date the shareholders initially 
purchased the shares of the Acquired Fund.
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    \4\ The two classes of Select Fund will be reorganized into one 
class of Firstar REIT Fund, which, unlike the classes of Select 
Fund, is not subject to a distribution or shareholder servicing 
plan.
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    6. Applicants state that the investment objectives, policies, and 
restrictions of each Acquiring Fund are substantially similar to those 
of its corresponding Acquired Fund. No sales charge will be imposed in 
connection with the Reorganizations. The Plans provide that Acquiring 
Fund shares will be distributed pro rata to the shareholders of record 
in the applicable Acquired Fund class, determined as of the close of 
business immediately prior to the Effective Time, in complete 
liquidation of each Acquired Fund. Applicants anticipate that the 
Reorganizations will be completed on or about November 27, 2000.
    7. The Boards, including the Independent Directors, unanimously 
found that participation in the Reorganizations is in the best interest 
of each Fund and its shareholders and that the interests of existing 
shareholders of the Funds will not be diluted as a result of the 
Reorganizations. In approving the Reorganizations, the Boards 
considered, among other things, (a) the potential effect of the 
Reorganizations; (b) the expense ratios of the Acquiring Funds and the 
Acquired Funds; (c) the compatibility of the investment objectives and 
investment strategies of the Acquiring Funds and the Acquired Funds; 
(d) the terms and conditions of the Plans; and (e) the tax-free nature 
of the Reorganizations. FIRMCO or one of its affiliates (not the Funds) 
will assume all expenses incurred by the Funds in connection with the 
Reorganizations.
    8. The Plans may be terminated by mutual written consent of the 
Acquiring Funds and Acquired Funds at any time prior to the Effective 
Time. In addition, either party may terminate the Plans in writing 
without liability to the terminating party if certain conditions are 
not satisfied prior to the Effective Time.
    9. The registration statement on Form N-14 for Firstar (which 
contains a combined prospectus/proxy statement for each of Stellar and 
Mercantile) was filed with the Commission on September 7, 2000, and the 
registration statement was declared effective on October 7, 2000. The 
combined prospectus/proxy statements contained in the N-14 registration 
statement were mailed to shareholders of Stellar and Mercantile on 
October 23, 2000. The definitive proxy materials for Select were filed 
with the Commission on October 6, 2000, and were sent to the 
shareholders of Select on October 11, 2000. A special meeting of 
shareholders of Select to consider the Reorganizations is to be held on 
November 8, 2000, and special meetings of the shareholders of Stellar 
and Mercantile are to be held on November 24, 2000.
    10. The consummation of the Reorganizations is subject to certain 
conditions, including: (a) A registration statement under the 
Securities Act of 1933 for the Acquiring Funds will have become 
effective; (b) the Acquired Fund shareholders will have approved the 
Plans; (c) applicants will have received exemptive relief from the 
Commission to permit the Reorganizations; (d) the Funds will have 
received an opinion of counsel concerning the tax-free nature of the 
Reorganizations; and (e) each Acquired Fund that is not reorganizing 
into a corresponding Shell Acquiring Fund will have declared a dividend 
to distribute substantially all of its investment company taxable 
income and net capital gain, if any, to its shareholders. Applicants 
agree not to make any material changes to the Plans that affect the 
application without prior Commission approval.

Applicants' Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include (a) any 
person that directly or indirectly owns, controls, or holds with power 
to vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; and (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person.
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors/trustees, and/or common officers, provided that certain 
conditions set forth in the rule are satisfied.
    3. Applicants state that the Firstar Group holds of record more 
than 5% (and in some cases more than 25%) of the outstanding voting 
securities of certain Funds. Because of this ownership, applicants 
state that these Funds may be deemed affiliated persons for reasons 
other than those set forth in rule 17a-8 and therefore unable to rely 
on the rule. Applicants request an order pursuant to section 17(b) of 
the Act exempting them from section 17(a) to the extent necessary to 
consummate the Reorganizations.
    4. Section 17(b) of the Act provides that the Commission may exempt 
a transaction from the provisions of section 17(a) if evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants submit that the terms of the Reorganizations satisfy 
the standards set forth in section 17(b). Applicants note that the 
Boards, including all of the Independent Directors, found that 
participation in the Reorganizations is in the best interests of each 
Fund and its shareholders and that the interests of the existing 
shareholders of each Fund will not be diluted as result of the 
Reorganizations. Applicants also note that the Reorganizations will be 
based on the Funds' relative net asset value.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-28795 Filed 11-8-00; 8:45 am]
BILLING CODE 8010-01-M