-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YgD05u/kna6dTLDGo2Mq2nPYi/iWf7JSxyKSOD6nge8Mhj3nhWkgfKomf46d7oj+ iecl1A91whbS/xFBG06XFQ== 0000846030-94-000008.txt : 19940414 0000846030-94-000008.hdr.sgml : 19940414 ACCESSION NUMBER: 0000846030-94-000008 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR FUNDS CENTRAL INDEX KEY: 0000846030 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-26915 FILM NUMBER: 94522371 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TWR CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122886331 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 FORMER COMPANY: FORMER CONFORMED NAME: VALUE PLUS FUNDS DATE OF NAME CHANGE: 19890409 497 1 FORM DOCUMENT THE STELLAR FUND (A PORTFOLIO OF THE STAR FUNDS) INVESTMENT SHARES PROSPECTUS The Investment Shares offered by this prospectus represent interests in The Stellar Fund (the "Fund"), which is a diversified investment portfolio in the Star Funds (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to maximize total return, a combination of dividend income and capital appreciation. The Fund pursues this investment objective by investing in the following security categories: domestic equity securities, domestic fixed income securities, international securities (equity and fixed income), real estate securities, precious metal securities, and money market securities. THE INVESTMENT SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF STAR BANK, N.A., OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY STAR BANK, N.A., OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE INVESTMENT SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in Investment Shares of the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for Investment Shares dated April 5, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information or make inquiries about the Fund by writing to the Fund or calling 1-800-677-FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 5, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------- FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 2 - ------------------------------------- GENERAL INFORMATION 3 - ------------------------------------- INVESTMENT INFORMATION 3 - ------------------------------------- Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Repurchase Agreement 5 When-Issued and Delayed Delivery Transaction 5 Options Transactions 5 Writing Covered Options 5 The Fund May Only Write Covered Options 5 Purchasing Options 5 Options Trading Markets 5 Restricted and Illiquid Securities 5 Risk Considerations 6 Foreign Securities 6 Foreign Companies 6 U.S. Government Policies 6 Real Estate Securities 6 Precious Metal Securities and Precious Metals 7 Fixed Income Securities 7 Investment Limitations 7 STAR FUNDS INFORMATION 7 - ------------------------------------- Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Distribution of Investment Shares 8 Distribution Plan 8 Administrative Arrangements 9 Administration of the Fund 9 Administrative Services 9 Custodian 9 Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services 9 Legal Counsel 9 Independent Public Accountants 9 Brokerage Transactions 10 Expenses of the Fund and Investment Share 10 NET ASSET VALUE 10 - ------------------------------------- INVESTING IN INVESTMENT SHARES 10 - ------------------------------------- Minimum Investment Required 10 What Shares Cost 11 Purchases at Net Asset Value 11 Sales Charge Reallowance 11 Reducing the Sales Charge 11 Quantity Discounts and Accumulated Purchases 11 Letter of Intent 12 Reinvestment Privilege 12 Concurrent Purchases 12 Systematic Investment Plan 12 Share Purchases 12 Through Star Bank 12 By Mail 13 Exchanging Securities for Fund Shares 13 Certificates and Confirmations 13 Dividends and Capital Gains 13 EXCHANGE PRIVILEGE 13 - ------------------------------------- Star Funds 13 Exchanging Investment Shares 13 Exchange-by-Telephone 14 REDEEMING INVESTMENT SHARES 14 - ------------------------------------- By Telephone 14 By Mail 14 Signatures 15 Systematic Withdrawal Plan 15 Accounts with Low Balances 15 SHAREHOLDER INFORMATION 15 - ------------------------------------- Voting Rights 15 Massachusetts Partnership Law 16 EFFECT OF BANKING LAWS 16 - ------------------------------------- TAX INFORMATION 16 - ------------------------------------- Federal Income Tax 16 PERFORMANCE INFORMATION 17 - ------------------------------------- OTHER CLASSES OF SHARES 17 - ------------------------------------- FINANCIAL STATEMENTS 18 - ------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 30 - ------------------------------------- ADDRESSES Inside Back Cover - ------------------------------------- THE STELLAR FUND SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
INVESTMENT SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. 4.50% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).............................. None Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)............ None Redemption Fees (as a percentage of amount redeemed, if applica- ble)............................................................. None Exchange Fee...................................................... None ANNUAL INVESTMENT SHARES OPERATING EXPENSES* (As a percentage of average net assets) Management Fee................................................. 0.95% 12b-1 Fees........................................................ 0.25% Other Expenses.................................................... 0.50% Total Investment Shares Operating Expenses.................... 1.70%
* The Annual Investment Shares Operating Expenses were 1.45% for the fiscal year ended November 30, 1993. The Annual Investment Shares Operating Expenses in the table above are based on expenses expected during the fiscal year ending November 30, 1994, due to the activation of the 12b-1 distribution plan. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "STAR FUNDS INFORMATION" AND "INVESTING IN INVESTMENT SHARES."
EXAMPLE 1 year 3 years 5 years 10 years - ------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time pe- riod. As noted in the table above, the Fund charges no redemption fees for Investment Shares......................................... $62 $96 $133 $237
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Investment Shares of the Fund. The Fund also offers another class of shares called Trust Shares. Investment Shares and Trust Shares are subject to certain of the same expenses; however, Trust Shares are not subject to a 12b-1 fee or a sales charge. See "Other Classes of Shares." THE STELLAR FUND FINANCIAL HIGHLIGHTS--INVESTMENT SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 30.
YEAR ENDED NOVEMBER 30, ----------------------------- 1993 1992 1991* - ---------------------------------------------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $10.52 $ 9.80 $10.00 - ---------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------- Net investment income 0.24 0.2955 0.05 - ---------------------------------------------- Net realized and unrealized gain (loss) on 0.99 0.7387 (0.25) investments -------- -------- -------- - ---------------------------------------------- Total from investment operations 1.23 1.0342 (0.20) - ---------------------------------------------- LESS DISTRIBUTIONS - ---------------------------------------------- Dividends to shareholders from net investment income (0.28) (0.3120) -- - ---------------------------------------------- Distributions to shareholders from net real- ized gain on investment transactions (0.10) (0.0022) -- - ---------------------------------------------- Distributions in excess of net investment in- (0.03)(a) -- -- come -------- -------- -------- - ---------------------------------------------- Total distributions (0.41) (0.3142) -- - ---------------------------------------------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $11.34 $10.52 $ 9.80 - ---------------------------------------------- -------- -------- -------- TOTAL RETURN** 11.99% 10.68% (2.00%) - ---------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------- Expenses 1.45% 1.53% 1.44%(b) - ---------------------------------------------- Net investment income 1.87% 3.03% 5.32%(b) - ---------------------------------------------- Expense waiver/reimbursement (c) 0.25% 0.33% 0.29%(b) - ---------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------- Net assets, end of period (000 omitted) $73,197 $35,544 $13,942 - ---------------------------------------------- Portfolio turnover rate 87% 98% 18% - ----------------------------------------------
* Reflects operations for the period from October 18, 1991 (date of initial public investment) to November 30, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Distributions in excess of net investment income for the year ended November 30, 1993 were a result of certain book and tax differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended November 30, 1993. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) Further information about the Fund's performance is contained in the Fund's annual report dated January 31, 1994, which can be obtained free of charge. GENERAL INFORMATION - -------------------------------------------------------------------------------- Star Funds was established as a Massachusetts business trust under a Declaration of Trust dated January 23, 1989. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Board of Trustees ("Trustees") has established two classes of shares known as Investment Shares and Trust Shares. This prospectus relates only to Investment Shares ("Shares") of the Fund. Shares of the Fund are designed primarily for individual and private banking customers of StarBanc Corporation and its subsidiaries as a convenient means of accumulating an interest in a professionally managed, diversified portfolio of preferred and common stocks, bonds, notes, and short-term obligations. A minimum initial investment of $1,000 ($25 for Star Bank Connections Group Banking customers and Star Bank employees and members of their immediate family) is required. Except as otherwise noted in this prospectus, Shares are sold at net asset value plus an applicable sales charge and redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to maximize total return, a combination of dividend income and capital appreciation. The Fund pursues this investment objective by investing in the following securities categories: domestic equity securities, domestic fixed income securities, international securities (equity and fixed income), real estate securities, precious metal securities, and money market securities. As a non-fundamental policy, the Fund will attempt to minimize overall portfolio risk by limiting investments in any one securities category (as defined in this prospectus) to not more than 25% of net assets. The Fund's adviser also believes that by spreading the investment portfolio across multiple securities categories, the Fund can reduce the impact of drastic market movements affecting any one securities type. The Fund's adviser further attempts to reduce risk within each securities category through careful investment analysis including, but not limited to, the following: the employment of disciplined value measures (such as price/earnings ratios) when selecting equity securities; use of ratings assigned by nationally recognized statistical rating organizations (where applicable); credit research; review of issuer's historical performance; examination of issuer's dividend growth record; and consideration of market trends. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing approximately 20% of its assets, in roughly equal weightings, in each of the following securities categories: domestic equity securities, domestic fixed income securities, international securities, and real estate securities. The remaining 20% of its assets will be invested in money market instruments and/or precious metal securities. Positions in these categories of securities may vary from as high as 25% of its assets to as low as 15% of its assets depending on market factors. Unless indicated otherwise, the investment policies of the Fund may be changed by the Trustees without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest primarily in domestic equity securities, domestic fixed income securities, international securities, real estate securities, precious metal securities, and money market securities. Each category allocation will be made based on the definitions described below. . Domestic Equity Securities. The equity portion of the Fund will consist of U.S. common and preferred stocks. The stocks chosen will, in the opinion of the Fund's investment adviser, be undervalued relative to stocks contained in the Standard & Poor's 500 Composite Stock Price Index. Real estate and precious metal securities of domestic issuers will not be considered domestic equity securities for purposes of the asset allocation policy described above. . Domestic Fixed Income Securities. The fixed income portion of the Fund will include domestic corporate debt obligations, obligations of the United States, and notes, bonds, and discount notes of U.S. government agencies or instrumentalities. Bonds are selected based on the outlook for interest rates and their yield in relation to other bonds of similar quality and maturity. The Fund will only invest in bonds, including convertible bonds, which are rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("Standard & Poor's"), or which, if unrated, are deemed to be of comparable quality by the investment adviser. In the event that a bond which had an eligible rating when purchased is downgraded below BBB or Baa, the Fund's adviser will promptly reassess whether continued holding of the security is consistent with the Fund's objective. . International Securities. The international portion of the Fund will 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 in which the Fund invests include international stocks traded domestically or abroad through various stock exchanges, American Depositary Receipts, or International Depositary Receipts ("ADRs" and "IDRs," respectively). The international fixed income securities will include ADRs, IDRs, and government securities of other nations. No ratings for international fixed income securities are available from Moody's or Standard & Poor's; however, the Fund will invest in international fixed income securities which are deemed by the investment adviser to be of a quality comparable to domestic bonds rated at least Baa or BBB by Moody's or Standard & Poor's, respectively. The Fund may also invest in shares of open-end and closed-end management investment companies which invest primarily in international equity securities described above. . Real Estate Securities. The real estate portion of the Fund will include equity securities, including convertible debt securities, of real estate related companies, and real estate investment trusts. All real estate securities will be publicly traded, primarily on an exchange. Real estate securities are not considered domestic equity securities for purposes of the Fund's asset allocation limitation. . Precious Metal Securities. The precious metal securities in which the Fund invests include domestic and international equity securities of companies that explore for, extract, process, or deal in precious metals, such as gold, silver, palladium, and platinum. The Fund may also invest up to 5% of its net assets in domestic and international asset-based securities, including debt securities, preferred stock, or convertible securities for which the principal amount, redemption terms, or conversion terms are related to the market price of some precious metals, such as gold bullion. The Fund may purchase only asset-based securities that are rated Baa or better by Moody's or BBB or better by Standard & Poor's, or, if unrated, are of equal quality in the determination of the investment adviser. Precious metal securities of foreign issuers will not be aggregated with other international securities for purposes of calculating the Fund's investment in international securities under the allocation policy described above. . Money Market Securities. The Fund may invest in U.S. and foreign short- term money market instruments, including: --commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch Investors Service, Inc., and Europaper (dollar-denominated commercial paper issued outside the United States) rated A-1, A-2, Prime-1, or Prime-2. In the case where commercial paper or Europaper has received different ratings from different rating services, such commercial paper or Europaper is an acceptable temporary investment so long as at least one rating is in the two highest rating categories of the nationally recognized statistical rating organizations described above; --instruments of domestic and foreign banks and savings and loans (such as certificates of deposit, demand and time deposits, savings shares, and bankers' acceptances) if they have capital, surplus, and undivided profits of over $100,000,000, or if the principal amount of the instrument is insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"), or the Savings Association Insurance Fund ("SAIF"), which is also administered by the FDIC. These instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs"); --obligations of the U.S. government or its agencies or instrumentalities; --repurchase agreements; and --other short-term instruments which are not rated but are determined by the investment adviser to be of comparable quality to the other temporary obligations in which the Fund may invest. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. OPTIONS TRANSACTIONS WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put options. By writing a call option, the Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, the 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. The Fund also may write straddles (combinations of covered puts and calls on the same underlying security). THE FUND MAY ONLY WRITE "COVERED" OPTIONS. This means that, so long as the 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, the Fund might own substantially similar U.S. Treasury bills. 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 aggregate value of the obligations underlying the puts will not exceed 50% of the Fund's net assets. The principal reason for writing call or put options is 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 which it retains whether or not the option is exercised. By writing a call option, the 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 its current market price upon exercise. PURCHASING OPTIONS. The Fund may purchase call and put options for the purpose of offsetting previously written call and put options of the same series. If the 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. The Fund currently does not intend to invest more than 5% of its net assets in options transactions. Options on some securities are relatively new and it is impossible to predict the amount of trading interest that will exist in such options. There can be no assurance that viable markets will develop or continue. The failure of such markets to develop or continue could significantly impair the Fund's ability to use such options to achieve its investment objectives. OPTIONS TRADING MARKETS. Options which the Fund will trade must be listed on national securities exchanges. Exchanges on which such options currently are traded are the Chicago Board Options Exchange and the New York, American, Pacific and Philadelphia Stock Exchanges. RESTRICTED AND ILLIQUID SECURITIES The Fund intends to invest in restricted securities. Restricted securities are any securities in which the Fund may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. However, the Fund will limit investments in illiquid securities, including restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, over-the-counter options, and repurchase agreements providing for settlement in more than seven days after notice, to 15% of its net assets. 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 Fund believes that Section 4(2) commercial paper and possibly certain other restricted securities which meet the criteria for liquidity established by the Trustees are quite liquid. The Fund intends, therefore, to treat the restricted securities which meet the criteria for liquidity established by the Trustees, including Section 4(2) commercial paper, as determined by the Fund's investment adviser, as liquid and not subject to the investment limitations applicable to illiquid securities. In addition, because Section 4(2) commercial paper is liquid, the Fund intends to not subject such paper to the limitation applicable to restricted securities. RISK CONSIDERATIONS FOREIGN SECURITIES. Investing in foreign securities carries substantial risks in addition to those associated with domestic investments. Foreign securities may be denominated in foreign currencies. Therefore, the value in U.S. dollars of the Fund's assets and income may be affected by changes in exchange rates and regulations. Although considered separate securities categories for purposes of the Fund's investment policies, the Fund's investment in money market securities issued by foreign banks and international securities could result in up to 50% of the Fund's net assets being invested in securities of foreign issuers. In addition, the Fund's investment in precious metal securities of foreign issuers (when aggregated with the above) could result in greater than 50% of the Fund's net assets being invested in securities of foreign issuers. Although the Fund values its assets daily in U.S. dollars, it will not convert its holding of foreign currencies to U.S. dollars daily. When the Fund converts it 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. FOREIGN COMPANIES. Other differences between investing in foreign and U.S. companies include: . less publicly available information about foreign companies; . the lack of uniform financial accounting standards applicable to foreign companies; . less readily available market quotations on foreign companies; . differences in government regulation and supervision of foreign stock exchanges, brokers, listed companies, and banks; . generally lower foreign stock market volume; . the likelihood that foreign securities may be less liquid or more volatile; . generally higher foreign brokerage commissions; . possible difficulty in enforcing contractual obligations or obtaining court judgments abroad because of differences in the legal systems; . unreliable mail service between countries; and . political or financial changes which adversely affect investments in some countries. U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have discouraged or restricted certain investments abroad by investors such as the Fund. Although the Fund is unaware of any current restrictions which would materially adversely affect its ability to meet its investment objective and policies, investors are advised that these U.S. government policies could be reinstituted. REAL ESTATE SECURITIES. Although the Fund's investments in real estate will be limited to publicly traded securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, the Fund may be subject to risks associated with direct ownership of real estate. These include declines in the value of real estate, risks related to general and local economic conditions and increases in interest rates. Other risks associated with real estate investments include the fact that equity and mortgage real estate investment trusts are dependent upon management skill, are not diversified, and are, therefore, subject to the risk of financing single projects or a limited 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. PRECIOUS METAL SECURITIES AND PRECIOUS METALS. The prices of precious metal securities and precious metals have historically been subject to high volatility. The earnings and financial condition of precious metal companies may be adversely affected by volatile precious metal prices. FIXED INCOME SECURITIES. The prices of fixed income securities fluctuate inversely in relation to the direction of interest rates. The prices of longer term bonds fluctuate more widely in response to market interest rate changes. Bonds rated BBB by Standard & Poor's or Baa by Moody's have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. INVESTMENT LIMITATIONS The Fund will not: . borrow money, or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of its total assets to secure such borrowings; . invest more than 5% of its total assets in the securities of one issuer (except cash and cash items, repurchase agreements, and U.S. government securities); . invest more than 5% of its total assets in securities of issuers that have records of less than three years of continuous operations; . acquire more than 10% of the voting securities of any one issuer; or . invest more than 10% of its assets in securities of other investment companies. (It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment in these securities would be subject to duplicate expenses.) The above investment limitations cannot be changed without shareholder approval. STAR FUNDS INFORMATION - ------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank, N.A., the Fund's investment adviser (the "Adviser" or "Star Bank"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to 0.95 of 1% of the Fund's average daily net assets. The fee paid by the Fund, while higher than the advisory fee paid by other mutual funds in general, is comparable to fees paid by other mutual funds with similar objectives and policies. The Adviser has undertaken to reimburse the Fund, up to the amount of the advisory fee, for operating expenses in excess of limitations established by certain states. The Adviser may voluntarily choose to waive a portion of its fee or reimburse the Fund for certain operating expenses. ADVISER'S BACKGROUND. Star Bank, a national bank, was founded in 1863 and is the largest bank and trust organization of StarBanc Corporation. As of December 31, 1993, Star Bank had an asset base of $7.6 billion. Star Bank's expertise in trust administration, investments, and estate planning ranks it among the most predominant trust institutions in Ohio, with assets of $12.5 billion as of December 31, 1993. Star Bank has managed commingled funds since 1957. As of December 31, 1993, it manages 12 common trust funds and collective investment funds having a market value in excess of$394 million. Additionally, Star Bank has advised the portfolios of the Trust since 1989. As part of their regular banking operations, Star Bank may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Star Bank. The lending relationship will not be a factor in the selection of securities. Peter P. Baden has been employed by Star Bank as an Equity Analyst since March, 1992, and has been responsible for managing the real estate securities component of the Fund since that date. From 1987 through March, 1992, Mr. Baden was a Vice President of Pacholder Associates, an investment adviser located in Cincinnati, Ohio. B. Randolph Bateman is Senior Vice President and Chief Investment Officer of Star Bank's Trust Financial Services Group and Manager of its Capital Asset Management Division. Mr. Bateman has managed the international securities component of the Fund since May, 1993. Mr. Bateman joined Star Bank in 1988. Fred A. Brink has been a Fund Manager for the Capital Management Division of Star Bank since July, 1991, and has managed the cash equivalent securities component of the Fund since that date. Prior to July, 1991, Mr. Brink was in college. Donald L. Keller has served as a Vice President and the Director of Research of the Capital Management Division of Star Bank since October, 1993, and has managed the domestic equity securities component of the Fund since that date. From February, 1989, through October, 1993,Mr. Keller served as Director of Portfolio Management of Star Bank. Kirk F. Mentzer is a Fixed Income Manager for the Capital Management Division of Star Bank. He has managed the domestic fixed income component of the Fund since its inception inOctober, 1991. Mr. Mentzer joined Star Bank in May, 1989, as a micro systems analyst and has served as an investment analyst since June, 1990. From 1989 through June, 1990, Mr. Mentzer was employed by Star Bank as a systems analyst. From May, 1988, through 1989, Mr. Mentzer was employed by Great American Insurance as a management trainee. DISTRIBUTION OF INVESTMENT SHARES Federated Securities Corp. is the distributor for Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to Federated Securities Corp. an amount computed at an annual rate of 0.25 of 1% of the average daily net assets to finance any activity which is principally intended to result in the sale of Shares subject to the Plan. Federated Securities Corp. may from time to time, and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the Shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide sales and/or administrative services as agents for their clients or customers who beneficially own Shares. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various personnel (including clerical, supervisory, and computer) as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding the Fund; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Fund reasonably requests. Financial institutions will receive fees from the distributor based upon Shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act limits the ability of a depository institution (such as a commercial bank or a savings and loan association) to become an underwriter or distributor of securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state law. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares of the Fund owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. The current annual rate of such fees is up to 0.30 of 1% for the Fund. Any fees paid for these services by the distributor will be reimbursed by the Adviser. Payments made here are in addition to any payments made under the Fund's Rule 12b-1 Distribution Plan. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, provides the Fund with certain administrative personnel and services necessary to operate the Fund and the separate classes, such as legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS FEE OF THE TRUST -------------- ----------------------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000 per Fund. Federated Administrative Services may voluntarily waive a portion of its fee. CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, is transfer agent and dividend disbursing agent for the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. EXPENSES OF THE FUND AND INVESTMENT SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non- recurring and extraordinary items as may arise from time to time. The Fund expenses for which holders of Shares each pay their allocable portion include, but are not limited to: registering the Fund and Shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees, and such non-recurring and extraordinary items as may arise from time to time. At present, the only expenses allocated to the Shares as a class are expenses under the Fund's Rule 12b-1 Plan which relate to the Shares. However, the Trustees reserve the right to allocate certain other expenses to holders of Shares as they deem appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: distribution fees; transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per Share fluctuates. The net asset value for Shares is determined by adding the interest of Investment Shares in the market value of all securities and other assets of the Fund, subtracting the interest of Investment Shares in the liabilities of the Fund and those attributable to Investment Shares, and dividing the remainder by the number of Investment Shares outstanding. The net asset value for Trust Shares will differ from that of Investment Shares due to the variance in net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. INVESTING IN INVESTMENT SHARES - -------------------------------------------------------------------------------- MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund by an investor is $1,000 ($25 for Star Connections Group Banking customers and Star Bank employees and members of their immediate family). Subsequent investments may be in any amounts. For customers of Star Bank, an institutional investor's minimum investment will be calculated by combining all mutual fund accounts it maintains with Star Bank and invests with the Fund. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received, plus a sales charge, as follows:
SALES CHARGE SALES CHARGE AS A AS A PERCENTAGE OF PERCENTAGE PUBLIC OFFERING OF NET AMOUNT AMOUNT OF TRANSACTION PRICE INVESTED --------------------- --------------- ------------- Less than $100,000 4.50% 4.71% $100,000 but less than $250,000 3.75% 3.90% $250,000 but less than $500,000 2.50% 2.56% $500,000 but less than $750,000 2.00% 2.04% $750,000 but less than $1 million 1.00% 1.01% $1 million or more 0.25% 0.25%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. PURCHASES AT NET ASSET VALUE. Shareholders who are private banking or Star Connections Group Banking customers of StarBanc Corporation and its subsidiaries are exempt from sales charges. In addition, the following persons may purchase Shares at net asset value, without a sales charge: employees and retired employees of Star Bank, Federated Securities Corp., or their affiliates, or of any bank or investment dealer who has a sales agreement with Federated Securities Corp. with regard to the Fund, or of any correspondent bank of Star Bank, and members of the families (including parents, grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such employees or retired employees; trust customers of StarBanc Corporation and its subsidiaries and correspondent banks of Star Bank when investing non-trust assets; certain non-trust customers of correspondent banks of Star Bank; and non-trust customers of financial advisers. SALES CHARGE REALLOWANCE. For sales of Shares, Star Bank or any authorized dealer will normally receive up to 89% of the applicable sales charge. Any portion of the sales charge which is not paid to Star Bank or a dealer will be retained by the distributor. However, the distributor, in its sole discretion, may uniformly offer to pay all dealers selling Shares additional amounts, all or a portion of which may be paid from the sales charge it normally retains or any other source available to it. Such additional payments, if accepted by the dealer, may be in the form of cash or promotional incentives and will be predicated upon the amount of Shares sold by the dealer. The sales charge for Shares sold other than through Star Bank or registered broker/dealers will be retained by the distributor. The distributor may pay fees to banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the bank's customers in connection with the initiation of customer accounts and purchases of Shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Shares through: . quantity discounts and accumulated purchases; . signing a 13-month letter of intent; . using the reinvestment privilege; or . concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. If an additional purchase of Shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns Shares having a current value at the net asset value of $90,000 and he purchases $10,000 more at the current net asset value, the sales charge on the additional purchase according to the schedule now in effect would be 3.75%, not 4.50%. To receive the sales charge reduction, Star Bank or the distributor must be notified by the shareholder in writing at the time the purchase is made that Shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of Shares over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter of intent includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the Fund's custodian to hold 4.50% of the total amount intended to be purchased in escrow (in Shares) until such purchase is completed. The 4.50% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed Shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase Shares, but if the shareholder does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a one-time right, within 30 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Star Bank or the distributor must be notified by the shareholder in writing or by his financial institution of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his Shares, there may be tax consequences. Shareholders contemplating such transactions should consult their own tax advisers. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in Shares of this Fund, the sales charge would be reduced. To receive this sales charge reduction, Star Bank or the distributor must be notified by the shareholder in writing at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PLAN Once a Fund account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this plan, funds may be withdrawn periodically from the shareholder's checking account and invested in Shares at the net asset value next determined after an order is received by Star Bank, plus the applicable sales charge. A shareholder may apply for participation in this plan through Star Bank. SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. A customer of Star Bank may purchase Shares through Star Bank. Texas residents must purchase Shares through Federated Securities Corp. at 1-800-356-2805. In connection with the sale of Shares, the distributor may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. THROUGH STAR BANK. To place an order to purchase Shares, a customer of Star Bank may telephone Star Bank at 1-800-677-FUND or place the order in person. Purchase orders given by telephone may be electronically recorded. Payment may be made to Star Bank either by check or federal funds. When payment is made with federal funds, the order is considered received when federal funds are received by Star Bank. Purchase orders must be telephoned to Star Bank by 4:00 p.m. (Eastern time) and payment by federal funds must be received by Star Bank before 3:00 p.m. (Eastern time) on the following day. Orders are considered received after payment by check is converted into federal funds. This is normally the next business day after Star Bank receives the check. For purchases by employees, individual investors, or through registered broker/dealers, requests must be received by Star Bank by 4:00 p.m. (Eastern time) and payment is normally required in five business days. Shares cannot be purchased on days on which the New York Stock Exchange is closed or on federal holidays restricting wire transfers. BY MAIL. To purchase Shares by mail, individual investors may send a check made payable to The Stellar Fund--Investment Shares to Star Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135, Cincinnati, Ohio 45202. Orders by mail are considered received after payment by check is converted by Star Bank into federal funds. This is normally the next business day after Star Bank receives the check. 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 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, must be liquid, 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 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. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a Share account for each shareholder of record. Share certificates are not issued. Detailed confirmations of each purchase or redemption are sent to each shareholder and dividend confirmations are sent to each shareholder to report dividends paid. DIVIDENDS AND CAPITAL GAINS Dividends are declared and paid quarterly. Capital gains realized by the Fund, if any, will be distributed at least once every 12 months. Dividends and capital gains will be automatically reinvested in additional Shares on payment dates at the ex-dividend date net asset value, unless cash payments are requested by writing to the Fund or Star Bank. EXCHANGE PRIVILEGE - ------------------------------------------------------------------------------- STAR FUNDS All shareholders of the Fund are shareholders of the Star Funds. Star Funds currently consists of the Fund, Star Prime Obligations Fund, Star Treasury Fund, Star Relative Value Fund, Star Tax-Free Money Market Fund, and Star U.S. Government Income Fund. Until further notice, through a telephone exchange program, shareholders invested in the money market funds can exchange only among the other money market funds of the Trust, and shareholders invested in the non-money market funds can exchange only among the other non-money market funds of the Trust. Each portfolio in the Star Funds is advised by Star Bank and distributed by Federated Securities Corp. EXCHANGING INVESTMENT SHARES Shareholders of the Fund may exchange Shares for shares of the other Funds in the Star Funds. In addition, Shares may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by Star Bank, N.A. ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, call Star Bank at 1-800-677-FUND. Shareholders who exercise this exchange privilege must exchange Shares having a total net asset value of at least $1,000. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Fund's sales charge (if any) already paid and any sales charge of the fund into which Shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus, an exchange of such shares for shares of a fund with a sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, Shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instructions may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling Star Bank at 1-800-677-FUND. EXCHANGE-BY-TELEPHONE Instructions for exchanges between funds which are part of the Star Funds may be given by telephone to Star Bank at 1-800-677-FUND or to the distributor. Shares may be exchanged by telephone only between fund accounts having identical shareholder registrations. Exchange instructions given by telephone may be electronically recorded. Telephone exchange instructions must be received before 3:00 p.m. (Eastern time) in order for Shares to be exchanged the same day. The telephone exchange privilege may be modified or terminated at any time. Shareholders will be notified of such modification or termination. Shareholders of the Fund may have difficulty in making exchanges by telephone through brokers, banks, or other financial institutions during times of drastic economic or market changes. If a shareholder cannot contact his broker, bank, or financial institution by telephone, it is recommended that an exchange request be made in writing and sent by overnight mail. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING INVESTMENT SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at their net asset value next determined after Star Bank receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays restricting wire transfers. Requests for redemption can be made in person, by telephone through Star Bank, or by mail. BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem Shares by telephoning Star Bank at 1-800-677-FUND. Redemption requests given by telephone may be electronically recorded. For calls received by Star Bank before 4:00 p.m. (Eastern time), proceeds will normally be wired the following day to the shareholder's account at Star Bank or a check will be sent to the address of record. In no event will proceeds be wired or a check mailed more than seven days after a proper request for redemption has been received. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from Star Bank. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be considered. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Shareholders may also redeem Fund shares by sending a written request to Star Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135, Cincinnati, Ohio 45202. The written request must include the shareholder's name, the Fund name, the class of shares name, the account number, and the share or dollar amount requested. Shareholders may call the Fund for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: . a trust company or commercial bank whose deposits are insured by BIF, which is administered by the FDIC; . a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; . a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or . 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 Fund and its transfer agent have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and its transfer agent reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PLAN Under a Systematic Withdrawal Plan, accounts may arrange for regular monthly or quarterly fixed withdrawal payments. Each payment must be at least $100 and may be as much as 1.50% per month or 4.50% per quarter of the total net asset value of the Shares in the account when the Systematic Withdrawal Plan is opened. Depending upon the amount of the withdrawal payments and the amount of dividends paid with respect to Shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this plan should not be considered as yield or income on the shareholder's investment in the Fund. Due to the fact that Shares are sold with a sales charge, it is not advisable for shareholders to be purchasing Shares while participating in this plan. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem Shares in any account and pay the proceeds to the shareholder if the account balance falls below the required minimum value of $1,000 due to shareholder redemptions. Before Shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each Share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that, in matters affecting only a particular fund or class, only shares of that fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or the Fund's operation and for the election of Trustees under certain circumstances. As of January 6, 1994, Firstcinco, Cincinnati, Ohio, owned 36.59% of the voting securities of the Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented to a vote of shareholders. Trustees may be removed by a two-thirds vote of the number of Trustees prior to such removal or by a two-thirds vote of the shareholders of the Trust at a special meeting. A special meeting of shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the Trust's outstanding shares of all series entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable under Massachusetts law 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. EFFECT OF BANKING LAWS - ------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, selling, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or affiliate from acting as investment adviser, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's investment adviser, Star Bank, is subject to such banking laws and regulations. Star Bank believes that it may perform the investment advisory services for the Fund contemplated by its advisory agreements with the Trust without violating the Glass-Steagall Act or other applicable banking laws or regulations. Changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent Star Bank from continuing to perform all or a part of the above services for its customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by Star Bank, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser with equivalent abilities to Star Bank is found) as a result of any of these occurrences. TAX INFORMATION - ------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. 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. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield for Shares. Total return represents the change, over a specified period of time, in the value of an investment in Shares after reinvesting all income and capital gain distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of Shares is calculated by dividing the net investment income per Share (as defined by the Securities and Exchange Commission) earned by Shares over a thirty-day period by the maximum offering price per share of Shares on the last day of the period. This number is then annualized using semi-annual compounding. The yield does not necessarily reflect income actually earned by Shares and, therefore, may not correlate to the dividends or other distributions paid to shareholders. Total return and yield will be calculated separately for Investment Shares and Trust Shares. Because Investment Shares are subject to a Rule 12b-1 fee, the total return and yield for Trust Shares, for the same period, will exceed that of Investment Shares. The performance information for Shares normally reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. Occasionally, performance information for Shares which does not reflect the effect of the sales load may be quoted in advertising. From time to time the Fund may advertise the performance of Investment Shares using certain financial publications and/or compare the performance of Investment Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Trust Shares are sold primarily to trust customers of StarBanc Corporation and its subsidiaries. Trust Shares are sold at net asset value. Investments in Trust Shares are subject to a minimum initial investment of $1,000. Trust Shares are not sold pursuant to a Rule 12b-1 Plan. The amount of dividends payable to Trust Shares will exceed that of Investment Shares by the difference between Class Expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. THE STELLAR FUND PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1993 - --------------------------------------------------------------------------------
SHARES VALUE --------- --------------------------------- ----------- U.S. EQUITIES--17.9% ------------------------------------------- BASIC INDUSTRY--3.6% --------------------------------- BUILDING--0.8% --------------------------------- 30,700 Elcor Corp. (a) $ 575,625 --------------------------------- ----------- CHEMICALS & FERTILIZERS--0.6% --------------------------------- 8,500 duPont (E.I) de Nemours 404,813 --------------------------------- =========== METALS--0.6% --------------------------------- 26,600 Worthington Industries Inc. 458,850 --------------------------------- ----------- MINING--1.2% --------------------------------- 14,000 Newmont Mining Corp. 890,750 --------------------------------- ----------- TIMBER--0.4% --------------------------------- 6,400 Weyerhauser Co. 280,000 --------------------------------- =========== TOTAL BASIC INDUSTRY 2,610,038 --------------------------------- ----------- CAPITAL GOODS--3.9% --------------------------------- APPLIANCES--0.7% --------------------------------- 9,000 Whirlpool Corp. 534,375 --------------------------------- ----------- ELECTRONICS--1.9% --------------------------------- 12,300 Honeywell, Inc. 401,287 --------------------------------- 9,000 Intel Corp. 553,500 --------------------------------- 7,500 Raytheon Co. 459,375 --------------------------------- ----------- Total 1,414,162 --------------------------------- ----------- OFFICE & BUSINESS EQUIPMENT--1.3% --------------------------------- 7,100 Hewlett Packard Co. 523,625 --------------------------------- 18,000 Novell Inc. (a) 423,000 --------------------------------- =========== Total 946,625 --------------------------------- ----------- TOTAL CAPITAL GOODS 2,895,162 --------------------------------- =========== CONSUMER CYCLICAL--3.0% --------------------------------- AUTOMOTIVE & RELATED--1.9% --------------------------------- 10,400 Cummins Engine Inc. 491,400 --------------------------------- 10,000 Goodyear Tire & Rubber 445,000 --------------------------------- 9,000 Johnson Controls Inc. 479,250 --------------------------------- =========== Total 1,415,650 --------------------------------- ----------- RETAILING & APPAREL--1.1% --------------------------------- 5,000 Best Buy Co. Inc. (a) 248,750 --------------------------------- 10,600 Penney (J.C.), Inc. 565,775 --------------------------------- ----------- Total 814,525 --------------------------------- ----------- TOTAL CONSUMER CYCLICAL 2,230,175 --------------------------------- ===========
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE --------- -------------------------------------------------- ----------- U.S. EQUITIES--CONTINUED ------------------------------------------------------------ CONSUMER STAPLES--0.7% -------------------------------------------------- HOUSEHOLD--0.7% -------------------------------------------------- 9,900 Clorox Co. $ 514,800 -------------------------------------------------- =========== TOTAL CONSUMER STAPLES 514,800 -------------------------------------------------- =========== ENERGY--1.6% -------------------------------------------------- OIL--1.6% -------------------------------------------------- 4,500 Atlantic Richfield Co. 466,875 -------------------------------------------------- 17,400 Horsham Corp. 237,075 -------------------------------------------------- 5,700 Mobil Corp. 434,625 -------------------------------------------------- ----------- TOTAL ENERGY 1,138,575 -------------------------------------------------- =========== FINANCE--1.7% -------------------------------------------------- BANKS--1.2% -------------------------------------------------- 15,000 First Tenn National Corp. 558,750 -------------------------------------------------- 5,000 Morgan (J.P.) & Co., Inc. 354,375 -------------------------------------------------- ----------- Total 913,125 -------------------------------------------------- ----------- INSURANCE--0.5% -------------------------------------------------- 7,400 Aon Corp. 366,300 -------------------------------------------------- ----------- TOTAL FINANCE 1,279,425 -------------------------------------------------- =========== HEALTH CARE--1.1% -------------------------------------------------- HOSPITAL SUPPLY--0.4% -------------------------------------------------- 12,500 Allergan, Inc. 278,125 -------------------------------------------------- ----------- DRUGS--0.7% -------------------------------------------------- 8,100 Schering Plough Corp. 541,688 -------------------------------------------------- ----------- TOTAL HEALTH CARE 819,813 -------------------------------------------------- =========== UTILITIES--2.3% -------------------------------------------------- ELECTRIC--0.8% -------------------------------------------------- 13,000 Southern Co. 562,250 -------------------------------------------------- ----------- MISCELLANEOUS--0.6% -------------------------------------------------- 13,500 Pentair Inc. 475,875 -------------------------------------------------- ----------- TELECOMMUNICATIONS--0.9% -------------------------------------------------- 11,600 American Telephone & Telegraph Co. 633,650 -------------------------------------------------- ----------- TOTAL UTILITIES 1,671,775 -------------------------------------------------- =========== TOTAL U.S. EQUITIES (IDENTIFIED COST $13,376,298) 13,159,763 -------------------------------------------------- =========== INTERNATIONAL SECURITIES--20.3% ------------------------------------------------------------ BASIC INDUSTRY--0.5% -------------------------------------------------- 17,000 Alcan Aluminum Ltd. 352,750 -------------------------------------------------- ----------- TOTAL BASIC INDUSTRY 352,750 -------------------------------------------------- =========== CONSUMER CYCLICAL--2.1% -------------------------------------------------- ENTERTAINMENT & LEISURE--0.4% -------------------------------------------------- 8,400 PolyGram N.V. 324,450 -------------------------------------------------- -----------
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE ------ -------------------------------- ---------- INTERNATIONAL SECURITIES--CONTINUED --------------------------------------- PUBLISHING--1.3% -------------------------------- 11,000 News Corp. Ltd. $ 565,125 -------------------------------- 4,700 Reuters Holdings PLC 356,025 -------------------------------- ---------- Total 921,150 -------------------------------- ---------- RETAILING & APPAREL--0.4% -------------------------------- 10,000 Luxottica Group SPA 255,000 -------------------------------- ---------- TOTAL CONSUMER CYCLICAL 1,500,600 -------------------------------- ========== CONSUMER STAPLES--1.8% -------------------------------- FOOD & BEVERAGE--1.4% -------------------------------- 25,000 Sara Lee Corp. 650,000 -------------------------------- 12,500 Seagram, Ltd. 345,313 -------------------------------- ---------- Total 995,313 -------------------------------- ---------- HOUSEHOLD PRODUCTS--0.4% -------------------------------- 2,800 Unilever N.V. 313,950 -------------------------------- ---------- TOTAL CONSUMER STAPLES 1,309,263 -------------------------------- ========== ENERGY--3.4% -------------------------------- ENERGY SERVICE & EQUIPMENT--0.3% -------------------------------- 3,600 Schlumberger, Ltd. 207,000 -------------------------------- ---------- INTERNATIONAL OIL--1.4% -------------------------------- 5,000 Chevron Corp. 434,375 -------------------------------- 11,700 Repsol SA 334,912 -------------------------------- 2,800 Royal Dutch Petroleum 282,800 -------------------------------- ---------- Total 1,052,087 -------------------------------- ========== NATURAL GAS--1.7% -------------------------------- 7,300 Burlington Northern Inc. 418,838 -------------------------------- 17,000 Enron Corp. 529,125 -------------------------------- 22,000 TransCanada Pipelines Ltd. 327,250 -------------------------------- ---------- Total 1,275,213 -------------------------------- ========== TOTAL ENERGY 2,534,300 -------------------------------- ========== HEALTHCARE--1.5% -------------------------------- DRUGS--1.5% -------------------------------- 18,500 Rhone-Poulenc Rorer, Inc. 703,000 -------------------------------- 15,600 SmithKline Beecham PLC 413,400 -------------------------------- ---------- TOTAL HEALTH CARE 1,116,400 -------------------------------- ========== UTILITIES--2.0% -------------------------------- TELECOMMUNICATIONS--2.0% -------------------------------- 20,000 *Cable & Wireless Ltd. 437,500 -------------------------------- 10,000 Hong Kong Telecommunications 556,250 -------------------------------- 9,000 *Telefonos de Mexico 501,750 -------------------------------- ---------- TOTAL UTILITIES 1,495,500 -------------------------------- ==========
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE ------ ------------------------------------------------ ----------- INTERNATIONAL SECURITIES--CONTINUED ------------------------------------------------------- MISCELLANEOUS--9.0% ------------------------------------------------ DIVERSIFIED--6.0% ------------------------------------------------ 16,250 Asia Pacific Fund, Inc. $ 296,563 ------------------------------------------------ 21,000 Canadian Pacific, Ltd. 341,250 ------------------------------------------------ 8,000 Chile Fund, Inc. 283,000 ------------------------------------------------ 5,333 Emerging Mexico Fund, Inc. 118,659 ------------------------------------------------ 15,000 First Philippine Fund, Inc. 251,250 ------------------------------------------------ 33,000 France Growth Fund, Inc. 363,000 ------------------------------------------------ 10,000 Future Germany Fund, Inc. 143,750 ------------------------------------------------ 12,000 Greater China Fund, Inc. (a) 237,000 ------------------------------------------------ 26,000 Japan Equity Fund, Inc. (a) 315,250 ------------------------------------------------ 15,000 Latin America Equity Fund, Inc. 313,125 ------------------------------------------------ 13,424 Mexico Fund, Inc. 411,110 ------------------------------------------------ 15,000 New Germany Fund, Inc. 180,000 ------------------------------------------------ 26,600 Philips Electronics (a) 518,700 ------------------------------------------------ 24,000 Swiss Helvetia Fund, Inc. 450,000 ------------------------------------------------ 10,000 Thai Capital Fund, Inc. 160,000 ------------------------------------------------ ----------- Total Diversified 4,382,657 ------------------------------------------------ ----------- OTHER--3.0% ------------------------------------------------ 3,800 British Airways 239,875 ------------------------------------------------ 4,300 British Petroleum 254,775 ------------------------------------------------ 5,000 Fuji Photo Film Co., Ltd. 210,000 ------------------------------------------------ 3,500 Hitachi Ltd. 245,437 ------------------------------------------------ 10,400 National Australia Bank Ltd. 412,100 ------------------------------------------------ 9,000 Pioneer Electric Corp. 191,250 ------------------------------------------------ 10,000 Thomson CSF 263,750 ------------------------------------------------ 5,000 Vodaphone Group PLC 405,000 ------------------------------------------------ ----------- Total Other 2,222,187 ------------------------------------------------ ----------- TOTAL MISCELLANEOUS 6,604,844 ------------------------------------------------ =========== TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST $13,187,447) 14,913,657 ------------------------------------------------ ----------- REAL ESTATE--18.7% ------------------------------------------------------- INVESTMENT TRUST--16.9% ------------------------------------------------ 20,100 American Health Properties, Inc. 515,063 ------------------------------------------------ 21,500 Avalon Property, Inc. 419,250 ------------------------------------------------ 14,000 BRE Properties Inc. 491,750 ------------------------------------------------ 15,900 Burnham Pacific Properties, Inc. 282,225 ------------------------------------------------ 18,500 Camden Property, Inc. 444,000 ------------------------------------------------ 14,000 Chateau Property, Inc. 269,500 ------------------------------------------------ 18,000 Developers Diversified 486,000 ------------------------------------------------ 29,000 Federal Realty Investment Trust 764,875 ------------------------------------------------
THE STELLAR FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ---------- ---------------------------------------------------- ----------- REAL ESTATE SECURITIES--CONTINUED --------------------------------------------------------------- 22,000 Health Care Property Investment, Inc. $ 610,500 ---------------------------------------------------- 23,500 Kimco Realty Corp. 749,062 ---------------------------------------------------- 47,000 LTC Properties 599,250 ---------------------------------------------------- 10,000 Manufactured Home Communities Inc. 398,750 ---------------------------------------------------- 20,000 Meditrust 652,500 ---------------------------------------------------- 23,000 Merry Land & Investment Co. 428,375 ---------------------------------------------------- 16,000 Nationwide Health Properties Inc. 604,000 ---------------------------------------------------- 9,100 Omega Healthcare investors 222,950 ---------------------------------------------------- 19,000 Pennsylvania Real Estate Inc. 465,500 ---------------------------------------------------- 29,800 Santa Anita Realty Enterprises 536,400 ---------------------------------------------------- 53,500 Sizeler Property Investments Inc. 688,812 ---------------------------------------------------- 60,000 Southwestern Properties 765,000 ---------------------------------------------------- 48,300 Taubman Centers, Inc. 609,788 ---------------------------------------------------- 47,200 United Dominion Realty Trust Inc. 649,000 ---------------------------------------------------- 11,000 Webb Del Corp. 143,000 ---------------------------------------------------- 16,000 Weingarten Realty Investment 610,000 ---------------------------------------------------- ----------- Total 12,405,550 ---------------------------------------------------- ----------- HOMEBUILDERS--1.8% ---------------------------------------------------- 33,350 Kaufman & Broad Home Corp. 671,169 ---------------------------------------------------- 17,500 Pulte Corp. 647,500 ---------------------------------------------------- ----------- Total 1,318,669 ---------------------------------------------------- ----------- TOTAL REAL ESTATE (IDENTIFIED COST $11,837,787) 13,724,219 ---------------------------------------------------- =========== FIXED INCOME OBLIGATIONS--20.0% --------------------------------------------------------------- U.S. GOVERNMENT--11.5% ---------------------------------------------------- $5,900,000 U.S. Treasury Notes, 3.88%-8.63%, 8/15/94-08/15/2001 6,254,664 ---------------------------------------------------- 1,850,000 U.S. Treasury Bonds, 7.88%-8.13%, 08/15/2019- 02/15/2021 2,190,067 ---------------------------------------------------- ----------- Total U.S. Government 8,444,731 ---------------------------------------------------- ----------- U.S. AGENCY--3.9% ---------------------------------------------------- 250,000 Federal Home Loan Mortgage Corp. 254,535 ---------------------------------------------------- 1,300,000 Federal National Mortgage Association 1,323,335 ---------------------------------------------------- 255,000 FNMA Pool 256,912 ---------------------------------------------------- 1,000,000 Student Loan Marketing Association 998,140 ---------------------------------------------------- ----------- Total U.S. Agency 2,832,922 ---------------------------------------------------- =========== AUTOMOTIVE & RELATED--0.8% ---------------------------------------------------- 500,000 Cincinnati Gas & Electric Co. 569,430 ---------------------------------------------------- ----------- TOBACCO--0.6% ---------------------------------------------------- 400,000 Phillip Morris Cos., Inc. 453,008 ---------------------------------------------------- ----------- INDUSTRIAL--0.4% ---------------------------------------------------- 250,000 Motorola, Inc. 297,755 ---------------------------------------------------- -----------
THE STELLAR FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ---------- ------------------------------------------------- ----------- FIXED INCOME OBLIGATIONS--CONTINUED ------------------------------------------------------------ OIL--0.7% ------------------------------------------------- 500,000 Union Pacific Corp. $ 486,610 ------------------------------------------------- ----------- ELECTRIC--0.7% ------------------------------------------------- 500,000 Georgia Power Co. 505,325 ------------------------------------------------- ----------- FINANCE--1.0% ------------------------------------------------- 250,000 General Electric Capital Corp. 276,325 ------------------------------------------------- 250,000 International Lease Finance Co. 258,758 ------------------------------------------------- 150,000 Morgan JP & Co. Inc. 162,381 ------------------------------------------------- ----------- Total 697,464 ------------------------------------------------- ----------- RETAIL--0.6% ------------------------------------------------- 250,000 Kmart Corp. 275,212 ------------------------------------------------- 130,000 Wal Mart Stores Inc. 146,212 ------------------------------------------------- ----------- Total 421,424 ------------------------------------------------- ----------- TOTAL FIXED INCOME OBLIGATIONS (IDENTIFIED COST $14,625,355) 14,708,669 ------------------------------------------------- =========== **CASH EQUIVALENT & REPURCHASE AGREEMENT--23.3% ------------------------------------------------------------ 17,088,000 Donaldson, Lufkin & Jenrette Securities Corp., 3.22%, dated 11/30/93, due 12/01/93 (at amortized cost) 17,088,000 ------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST, $70,114,887) $73,594,308+ ------------------------------------------------- ===========
(a) Non-income producing. * American Depository Receipts. ** The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of the portfolio. + The cost for federal tax purposes amounts to $70,137,736. The net unrealized appreciation of investments on a federal tax basis amounts to $3,456,572 which is comprised of $4,504,327 appreciation and $1,047,755 depreciation at November 30, 1993. Note: The categories of investments are shown as a percentage of total net assets ($73,196,884) at November 30, 1993. (See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- ASSETS: - ---------------------------------------------- Investments in securities $56,506,308 - ---------------------------------------------- Investments in repurchase agreements (Note 2B) 17,088,000 - ---------------------------------------------- ----------- Total investments, at amortized cost and value (identified cost, $70,114,887 and tax cost, $70,137,736) (Note 2A) $73,594,308 - ----------------------------------------------------------- Cash 732 - ----------------------------------------------------------- Receivable for Fund shares sold 1,859,636 - ----------------------------------------------------------- Receivable for investment sold 879,551 - ----------------------------------------------------------- Dividends and interest receivable 323,385 - ----------------------------------------------------------- Receivable from administrator 7,985 - ----------------------------------------------------------- Deferred expenses (Note 2F) 2,653 - ----------------------------------------------------------- ----------- Total assets 76,668,250 - ----------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------- Payable for investments purchased 3,381,003 - ---------------------------------------------- Options written, at value (premium received, $50,978) (Note 2H) 36,189 - ---------------------------------------------- Payable for Fund shares repurchased 4,530 - ---------------------------------------------- Accrued expenses 49,644 - ----------------------------------------------------------- Total liabilities 3,471,366 - ----------------------------------------------------------- ----------- NET ASSETS for 6,457,063 shares of beneficial interest $73,196,884 outstanding ----------- - ----------------------------------------------------------- NET ASSETS CONSIST OF: - ----------------------------------------------------------- Paid-in capital $69,202,605 - ----------------------------------------------------------- Unrealized appreciation of investments and options (in- cludes $14,789 on options) 3,494,210 - ----------------------------------------------------------- Accumulated net realized gain on investments 714,412 - ----------------------------------------------------------- Accumulated distributions in excess of net investment in- come (214,343) - ----------------------------------------------------------- ----------- Total $73,196,884 - ----------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Price Per Share: ($73,196,884 / 6,457,063 shares of beneficial interest outstanding) $11.34 - ----------------------------------------------------------- ----------- Computation of Offering Price: Offering Price Per Share (100/95.5) of $11.34* $11.87 - ----------------------------------------------------------- -----------
* On sales of $100,000 or more, the offering price is reduced as stated under "What Shares Cost" in the prospectus. (See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF OPERATIONS YEAR ENDED NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------- Interest income (Note 2C) $1,009,091 - ------------------------------------------------------------- Dividend income (Note 2C) 615,646 - ------------------------------------------------------------- ---------- Total investment income 1,624,737 - ------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------- Investment advisory fee (Note 5) $465,417 - ---------------------------------------------------- Trustees' fees 1,729 - ---------------------------------------------------- Administrative personnel and services (Note 5) 62,298 - ---------------------------------------------------- Custodian fees (Note 5) 12,248 - ---------------------------------------------------- Recordkeeping, transfer and dividend disbursing agent fees (Note 5) 66,937 - ---------------------------------------------------- Fund share registration costs 22,881 - ---------------------------------------------------- Legal fees 7,164 - ---------------------------------------------------- Printing and postage 42,581 - ---------------------------------------------------- Distribution fees (Note 5) 122,478 - ---------------------------------------------------- Insurance premiums 5,413 - ---------------------------------------------------- Auditing fees 18,505 - ---------------------------------------------------- Miscellaneous 3,840 - ---------------------------------------------------- -------- Total expenses 831,491 - ---------------------------------------------------- Deduct-- - ---------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 1,248 - ------------------------------------------ Waiver of distribution fees (Note 5) 122,478 123,726 - ------------------------------------------ -------- -------- Net expenses 707,765 - ------------------------------------------------------------- ---------- Net investment income 916,972 - ------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - ------------------------------------------------------------- Net realized gain on investment transactions (identified cost basis)-- 722,961 - ------------------------------------------------------------- Net change in unrealized appreciation/(depreciation) of in- 2,975,694 vestments and options ---------- - ------------------------------------------------------------- Net realized and unrealized gain on investments 3,698,655 - ------------------------------------------------------------- ---------- Change in net assets resulting from operations $4,615,627 - ------------------------------------------------------------- ----------
(See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, ------------------------ 1993 1992 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------- OPERATIONS-- - ---------------------------------------------------- Net investment income $ 916,972 $ 749,915 - ---------------------------------------------------- Net realized gain on investment transactions ($737,312 and $366,379 net gain, respectively, as computed for federal income tax purposes) (Note 2D) 722,961 357,882 - ---------------------------------------------------- Change in unrealized appreciation of investments & 2,975,694 884,031 options ----------- ----------- - ---------------------------------------------------- Change in net assets resulting from operations 4,615,627 1,991,828 - ---------------------------------------------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ---------------------------------------------------- Dividends to shareholders from net investment income (1,062,322) (689,243) - ---------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (366,287) (3,361) - ---------------------------------------------------- Distributions in excess of net investment income (214,343) -- - ---------------------------------------------------- ----------- ----------- Change in net assets resulting from distributions (1,642,952) (692,604) to shareholders ----------- ----------- - ---------------------------------------------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ---------------------------------------------------- Proceeds from sale of shares 45,217,754 23,246,223 - ---------------------------------------------------- Net asset value of shares issued to shareholders electing to receive payment of distribution in Fund shares 1,594,012 691,507 - ---------------------------------------------------- Cost of shares redeemed (12,132,012) (3,634,928) - ---------------------------------------------------- ----------- ----------- Change in net assets from Fund share transactions 34,679,754 20,302,802 - ---------------------------------------------------- ----------- ----------- Change in net assets 37,652,429 21,602,026 - ---------------------------------------------------- NET ASSETS: - ---------------------------------------------------- Beginning of period 35,544,455 13,942,429 - ---------------------------------------------------- ----------- ----------- End of period (including undistributed net invest- ment income of $0 and $145,350, respectively) $73,196,884 $35,544,455 - ---------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the financial statements) THE STELLAR FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Star Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust consists of six portfolios. The financial statements included herein present only those of The Stellar Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Effective on or about April 5, 1994 (the effective date for the Trust Shares of The Stellar Fund), The Stellar Fund will provide two classes of shares ("Trust Shares" and "Investment Shares"). Trust Shares will be identical in all respects to Investment Shares except that Investment Shares will be sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund may pay Federated Securities Corp. (the "distributor") a fee at an annual rate up to .25 of 1% of the average net asset value of Investment Shares to finance any activity which is principally intended to result in the sale of Investment Shares. In addition, Investment Shares are sold subject to a sales charge of up to 4.50%. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--Listed securities are valued at the last sale price reported on national security exchanges. Unlisted securities, or securities in which there are no sales, and private placement securities are valued on the basis of prices provided by independent pricing services. Short-term obligations are valued at the mean between the bid and asked prices as furnished by an independent pricing service; however, such issues with maturities of sixty days or less are valued at amortized cost, which approximates market value. Although the Fund has invested 20.3% of its securities internationally, the Fund's management believes that there is no significant concentration of investments in any one country. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. 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. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. C. INCOME--Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Interest income includes interest, and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code. Dividends to shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code, as amended, applicable to investment companies and to distribute to shareholders each year all of its net taxable income, including any net realized gains on investments. Accordingly, no provision for federal tax is necessary. THE STELLAR FUND - ------------------------------------------------------------------------------- E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when- issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. EXPENSES--Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative daily average net assets or as deemed appropriate by the administrator. H. OPTION CONTRACTS--The Fund may write or purchase option contracts. Purchased options are accounted for as investment securities. A written option obligates the Fund to deliver (a call), or to receive (a put), the contract amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. The following covered call options were written and outstanding as of November 30, 1993:
STRIKE EXPIRATION SHARE VALUE PRICE DATE Best Buy Co. Inc. 5000 $14,064 60 3-19-94 Telefonos de Mexico 9000 9,000 60 1-22-94 J.P. Morgan & Co. 5000 13,125 70 1-22-94
J. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid quarterly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all dividends or interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. The amounts shown in the financial statements for net investment income for the year ended November 30, 1993 differ from those determined for tax purposes because of certain book and tax differences. This resulted in distributions to shareholders in excess of net investment income. These distributions did not represent a return of capital for federal income tax purposes for the year ended November 30, 1993. THE STELLAR FUND - -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED NOVEMBER 30, --------------------- 1993 1992 - ------------------------------------------------------ ---------- --------- Shares outstanding, beginning of period 3,377,871 1,423,154 - ------------------------------------------------------ Shares sold 4,030,527 2,236,543 - ------------------------------------------------------ Shares issued to shareholders electing to receive pay- ments of distribution in Fund shares 147,387 67,376 - ------------------------------------------------------ Shares redeemed (1,098,722) (349,202) - ------------------------------------------------------ ---------- --------- Shares outstanding, end of period 6,457,063 3,377,871 - ------------------------------------------------------ ---------- ---------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Star Bank, N.A., the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .95 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund. For the year ended November 30, 1993, the Adviser earned an investment advisory fee of $465,417, of which $1,248 was voluntarily waived. Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services at an annual rate of .15 of 1% on the first $250 million of average aggregate daily net assets of the Trust; .125 of 1% on the next $250 million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate daily net assets in excess of $750 million. FAS may voluntarily waive a portion of its fee. For the year ended November 30, 1993, FAS earned $62,298, none of which was voluntarily waived. Expenses of organizing the Fund ($23,641) were borne initially by FAS. The Fund has agreed to pay FAS, at an annual rate of .005 of 1% of average daily net assets, until the organization expenses are reimbursed, or five years from July 31, 1991, the date the Trust's portfolio became effective, whichever occurs earlier. Pursuant to this agreement, the Fund reimbursed $2,306 in organization expenses for the year ended November 30, 1993. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended. The Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's shares. The Plan provides that the Fund will incur distribution expenses up to .25 of 1% of the average daily net assets of the Fund annually to pay commissions, maintenance fees and to compensate the distributor. FSC may voluntarily waive all or a portion of its fee. For the year ended November 30, 1993, FSC earned $122,478 in distribution fees, all of which were voluntarily waived. Star Bank, N.A., is the Fund's custodian. Federated Services Company, is the Fund's transfer and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are also Officers and Directors of the above corporations. (6) INVESTMENT TRANSACTIONS Purchases, and sales excluding securities subject to repurchase agreements, of investments for the year ended November 30, 1993, were as follows: - ---------- PURCHASES: $60,342,773 - ---------- ----------- SALES $33,125,046 - ---------- -----------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of STAR FUNDS (The Stellar Fund): We have audited the accompanying statement of assets and liabilities of The Stellar Fund (an investment portfolio of STAR Funds, a Massachusetts business trust), including the schedule of portfolio investments, as of November 30, 1993, the related statement of operations for the year then ended, and the statement of changes in net assets and financial highlights (see page 2 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 1993 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Stellar Fund, an investment portfolio of STAR Funds, as of November 30, 1993 and the results of its operations for the year then ended, and the changes in its net assets, and financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania January 14, 1994 [This Page Intentionally Left Blank] [This Page Intentionally Left Blank] [This Page Intentionally Left Blank] ADDRESSES - -------------------------------------------------------------------------------- The Stellar Fund Investment Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Investment Adviser Star Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 - --------------------------------------------------------------------------------- Custodian Star Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 - --------------------------------------------------------------------------------- Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------
--------------------------- STAR BANK, N.A. Investment Adviser --------------------------- FEDERATED SECURITIES CORP. Distributor 1072404A-R (4/94) THE STELLAR FUND (A PORTFOLIO OF THE STAR FUNDS) TRUST SHARES PROSPECTUS The Trust Shares offered by this prospectus represent interests in The Stellar Fund (the "Fund"), which is a diversified investment portfolio in the Star Funds (the "Trust"), an open-end management investment company (a mutual fund). The investment objective of the Fund is to maximize total return, a combination of dividend income and capital appreciation. The Fund pursues this investment objective by investing in the following security categories: domestic equity securities, domestic fixed income securities, international securities (equity and fixed income), real estate securities, precious metal securities, and money market securities. THE TRUST SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF STAR BANK, N.A., OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY STAR BANK, N.A., OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE TRUST SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in Trust Shares of the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information for Trust Shares dated April 5, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information or make inquiries about the Fund by writing to the Fund or calling 1-800-677-FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 5, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------- GENERAL INFORMATION 2 - ------------------------------------- INVESTMENT INFORMATION 2 - ------------------------------------- Investment Objective 2 Investment Policies 2 Acceptable Investments 2 Repurchase Agreements 4 When-Issued and Delayed Delivery Transaction 4 Options Transactions 4 Writing Covered Options 4 The Fund May Only Write Covered Options 4 Purchasing Options 4 Options Trading Markets 4 Restricted and Illiquid Securities 4 Risk Considerations 5 Foreign Securities 5 Foreign Companies 5 U.S. Government Policies 5 Real Estate Securities 5 Precious Metal Securities and Precious Metals 6 Fixed Income Securities 6 Investment Limitations 6 STAR FUNDS INFORMATION 6 - ------------------------------------- Management of the Trust 6 Board of Trustees 6 Investment Adviser 6 Advisory Fees 6 Adviser's Background 6 Distribution of Trust Shares 7 Administrative Arrangement 7 Administration of the Fund 7 Administrative Services 7 Custodian 8 Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services 8 Legal Counsel 8 Independent Public Accountants 8 Brokerage Transactions 8 Expenses of the Fund and Trust Share 8 NET ASSET VALUE 8 - ------------------------------------- INVESTING IN TRUST SHARES 9 - ------------------------------------- Minimum Investment Required 9 What Shares Cost 9 Share Purchases 9 Through Star Bank 9 Exchanging Securities for Fund Shares 9 Certificates and Confirmations 10 Dividends and Capital Gains 10 EXCHANGE PRIVILEGE 10 - ------------------------------------- Star Funds 10 Exchanging Trust Shares 10 Exchange-by-Telephone 10 REDEEMING TRUST SHARES 11 - ------------------------------------- By Telephone 11 Mail 11 Signatures 11 Accounts with Low Balances 12 SHAREHOLDER INFORMATION 12 - ------------------------------------- Voting Rights 12 Massachusetts Partnership Law 12 EFFECT OF BANKING LAWS 12 - ------------------------------------- TAX INFORMATION 13 - ------------------------------------- Federal Income Tax 13 PERFORMANCE INFORMATION 13 - ------------------------------------- OTHER CLASSES OF SHARES 13 - ------------------------------------- Financial Highlights-- Investment Shares 14 FINANCIAL STATEMENTS 15 - ------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 27 - ------------------------------------- ADDRESSES Inside Back Cover - ------------------------------------- THE STELLAR FUND SUMMARY OF FUND EXPENSES - --------------------------------------------------------------------------------
TRUST SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................................. None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................. None Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)................ None Redemption Fees (as a percentage of amount redeemed, if applicable)... None Exchange Fee.......................................................... None ANNUAL TRUST SHARES OPERATING EXPENSES* (As a percentage of projected average net assets) Management Fee........................................................ 0.95% 12b-1 Fees............................................................ None Other Expenses........................................................ 0.50% Total Trust Shares Operating Expenses............................. 1.45%
*The Annual Trust Shares Operating Expenses are estimated based on estimated average expenses expected during the fiscal year ending November 30, 1994. During the course of this period, expenses may be more or less than the estimated average amount shown. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "STAR FUNDS INFORMATION" AND "INVESTING IN TRUST SHARES."
EXAMPLE 1 year 3 years - ------- ------ ------- You would pay the following expenses on a $1,000 investment as- suming (1) 5% annual return and (2) redemption at the end of each time period. As noted in the table above, the Fund charges no redemption fees for Trust Shares............................. $15 $46
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the foregoing table and example relates only to Trust Shares of the Fund. The Fund also offers another class of shares called Investment Shares. Trust Shares and Investment Shares are subject to certain of the same expenses; however, Investment Shares are subject to a 12b-1 fee of up to 0.25% and a sales charge. See "Other Classes of Shares." GENERAL INFORMATION - -------------------------------------------------------------------------------- Star Funds was established as a Massachusetts business trust under a Declaration of Trust dated January 23, 1989. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. With respect to the Fund, as of the date of this prospectus, the Board of Trustees ("Trustees") has established two classes of shares known as Trust Shares and Investment Shares. This prospectus relates only to Trust Shares ("Shares") of the Fund. Shares of the Fund are designed primarily for trust customers of StarBanc Corporation and its subsidiaries as a convenient means of accumulating an interest in a professionally managed, diversified portfolio of preferred and common stocks, bonds, notes, and short-term obligations. A minimum initial investment of $1,000 is required. Shares are sold and redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to maximize total return, a combination of dividend income and capital appreciation. The Fund pursues this investment objective by investing in the following securities categories: domestic equity securities, domestic fixed income securities, international securities (equity and fixed income), real estate securities, precious metal securities, and money market securities. As a non-fundamental policy, the Fund will attempt to minimize overall portfolio risk by limiting investments in any one securities category (as defined in this prospectus) to not more than 25% of net assets. The Fund's adviser also believes that by spreading the investment portfolio across multiple securities categories, the Fund can reduce the impact of drastic market movements affecting any one securities type. The Fund's adviser further attempts to reduce risk within each securities category through careful investment analysis including, but not limited to, the following: the employment of disciplined value measures (such as price/earnings ratios) when selecting equity securities; use of ratings assigned by nationally recognized statistical rating organizations (where applicable); credit research; review of issuer's historical performance; examination of issuer's dividend growth record; and consideration of market trends. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing approximately 20% of its assets, in roughly equal weightings, in each of the following securities categories: domestic equity securities, domestic fixed income securities, international securities, and real estate securities. The remaining 20% of its assets will be invested in money market instruments and/or precious metal securities. Positions in these categories of securities may vary from as high as 25% of its assets to as low as 15% of its assets depending on market factors. Unless indicated otherwise, the investment policies of the Fund may be changed by the Trustees without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest primarily in domestic equity securities, domestic fixed income securities, international securities, real estate securities, precious metal securities, and money market securities. Each category allocation will be made based on the definitions described below. . Domestic Equity Securities. The equity portion of the Fund will consist of U.S. common and preferred stocks. The stocks chosen will, in the opinion of the Fund's investment adviser, be undervalued relative to stocks contained in the Standard & Poor's 500 Composite Stock Price Index. Real estate and precious metal securities of domestic issuers will not be considered domestic equity securities for purposes of the asset allocation policy described above. . Domestic Fixed Income Securities. The fixed income portion of the Fund will include domestic corporate debt obligations, obligations of the United States, and notes, bonds, and discount notes of U.S. government agencies or instrumentalities. Bonds are selected based on the outlook for interest rates and their yield in relation to other bonds of similar quality and maturity. The Fund will only invest in bonds, including convertible bonds, which are rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation ("Standard & Poor's"), or which, if unrated, are deemed to be of comparable quality by the investment adviser. In the event that a bond which had an eligible rating when purchased is downgraded below BBB or Baa, the Fund's adviser will promptly reassess whether continued holding of the security is consistent with the Fund's objective. . International Securities. The international portion of the Fund will 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 in which the Fund invests include international stocks traded domestically or abroad through various stock exchanges, American Depositary Receipts, or International Depositary Receipts ("ADRs" and "IDRs," respectively). The international fixed income securities will include ADRs, IDRs, and government securities of other nations. No ratings for international fixed income securities are available from Moody's or Standard & Poor's; however, the Fund will invest in international fixed income securities which are deemed by the investment adviser to be of a quality comparable to domestic bonds rated at least Baa or BBB by Moody's or Standard & Poor's, respectively. The Fund may also invest in shares of open-end and closed-end management investment companies which invest primarily in international equity securities described above. . Real Estate Securities. The real estate portion of the Fund will include equity securities, including convertible debt securities, of real estate related companies, and real estate investment trusts. All real estate securities will be publicly traded, primarily on an exchange. Real estate securities are not considered domestic equity securities for purposes of the Fund's asset allocation limitation. . Precious Metal Securities. The precious metal securities in which the Fund invests include domestic and international equity securities of companies that explore for, extract, process, or deal in precious metals, such as gold, silver, palladium, and platinum. The Fund may also invest up to 5% of its net assets in domestic and international asset-based securities, including debt securities, preferred stock, or convertible securities for which the principal amount, redemption terms, or conversion terms are related to the market price of some precious metals, such as gold bullion. The Fund may purchase only asset-based securities that are rated Baa or better by Moody's or BBB or better by Standard & Poor's, or, if unrated, are of equal quality in the determination of the investment adviser. Precious metal securities of foreign issuers will not be aggregated with other international securities for purposes of calculating the Fund's investment in international securities under the allocation policy described above. . Money Market Securities. The Fund may invest in U.S. and foreign short- term money market instruments, including: --commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch Investors Service, Inc., and Europaper (dollar-denominated commercial paper issued outside the United States) rated A-1, A-2, Prime-1, or Prime-2. In the case where commercial paper or Europaper has received different ratings from different rating services, such commercial paper or Europaper is an acceptable temporary investment so long as at least one rating is in the two highest rating categories of the nationally recognized statistical rating organizations described above; --instruments of domestic and foreign banks and savings and loans (such as certificates of deposit, demand and time deposits, savings shares, and bankers' acceptances) if they have capital, surplus, and undivided profits of over $100,000,000, or if the principal amount of the instrument is insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"), or the Savings Association Insurance Fund ("SAIF"), which is also administered by the FDIC. These instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs"); --obligations of the U.S. government or its agencies or instrumentalities; --repurchase agreements; and --other short-term instruments which are not rated but are determined by the investment adviser to be of comparable quality to the other temporary obligations in which the Fund may invest. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. OPTIONS TRANSACTIONS WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put options. By writing a call option, the Fund becomes obligated during the term of the option to deliver the securities underlying the option upon payment of the exercise price. By writing a put option, the 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. The Fund also may write straddles (combinations of covered puts and calls on the same underlying security). THE FUND MAY ONLY WRITE "COVERED" OPTIONS. This means that, so long as the 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, the Fund might own substantially similar U.S. Treasury bills. 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 aggregate value of the obligations underlying the puts will not exceed 50% of the Fund's net assets. The principal reason for writing call or put options is 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 which it retains whether or not the option is exercised. By writing a call option, the 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 its current market price upon exercise. PURCHASING OPTIONS. The Fund may purchase call and put options for the purpose of offsetting previously written call and put options of the same series. If the 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. The Fund currently does not intend to invest more than 5% of its net assets in options transactions. Options on some securities are relatively new and it is impossible to predict the amount of trading interest that will exist in such options. There can be no assurance that viable markets will develop or continue. The failure of such markets to develop or continue could significantly impair the Fund's ability to use such options to achieve its investment objectives. OPTIONS TRADING MARKETS. Options which the Fund will trade must be listed on national securities exchanges. Exchanges on which such options currently are traded are the Chicago Board Options Exchange and the New York, American, Pacific and Philadelphia Stock Exchanges. RESTRICTED AND ILLIQUID SECURITIES The Fund intends to invest in restricted securities. Restricted securities are any securities in which the Fund may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. However, the Fund will limit investments in illiquid securities, including restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, over-the-counter options, and repurchase agreements providing for settlement in more than seven days after notice, to 15% of its net assets. 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 Fund believes that Section 4(2) commercial paper and possibly certain other restricted securities which meet the criteria for liquidity established by the Trustees are quite liquid. The Fund intends, therefore, to treat the restricted securities which meet the criteria for liquidity established by the Trustees, including Section 4(2) commercial paper, as determined by the Fund's investment adviser, as liquid and not subject to the investment limitations applicable to illiquid securities. In addition, because Section 4(2) commercial paper is liquid, the Fund intends to not subject such paper to the limitation applicable to restricted securities. RISK CONSIDERATIONS FOREIGN SECURITIES. Investing in foreign securities carries substantial risks in addition to those associated with domestic investments. Foreign securities may be denominated in foreign currencies. Therefore, the value in U.S. dollars of the Fund's assets and income may be affected by changes in exchange rates and regulations. Although considered separate securities categories for purposes of the Fund's investment policies, the Fund's investment in money market securities issued by foreign banks and international securities could result in up to 50% of the Fund's net assets being invested in securities of foreign issuers. In addition, the Fund's investment in precious metal securities of foreign issuers (when aggregated with the above) could result in greater than 50% of the Fund's net assets being invested in securities of foreign issuers. Although the Fund values its assets daily in U.S. dollars, it will not convert its holding of foreign currencies to U.S. dollars daily. When the Fund converts it 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. FOREIGN COMPANIES. Other differences between investing in foreign and U.S. companies include: . less publicly available information about foreign companies; . the lack of uniform financial accounting standards applicable to foreign companies; . less readily available market quotations on foreign companies; . differences in government regulation and supervision of foreign stock exchanges, brokers, listed companies, and banks; . generally lower foreign stock market volume; . the likelihood that foreign securities may be less liquid or more volatile; . generally higher foreign brokerage commissions; . possible difficulty in enforcing contractual obligations or obtaining court judgments abroad because of differences in the legal systems; . unreliable mail service between countries; and . political or financial changes which adversely affect investments in some countries. U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have discouraged or restricted certain investments abroad by investors such as the Fund. Although the Fund is unaware of any current restrictions which would materially adversely affect its ability to meet its investment objective and policies, investors are advised that these U.S. government policies could be reinstituted. REAL ESTATE SECURITIES. Although the Fund's investments in real estate will be limited to publicly traded securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, the Fund may be subject to risks associated with direct ownership of real estate. These include declines in the value of real estate, risks related to general and local economic conditions and increases in interest rates. Other risks associated with real estate investments include the fact that equity and mortgage real estate investment trusts are dependent upon management skill, are not diversified, and are, therefore, subject to the risk of financing single projects or a limited 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. PRECIOUS METAL SECURITIES AND PRECIOUS METALS. The prices of precious metal securities and precious metals have historically been subject to high volatility. The earnings and financial condition of precious metal companies may be adversely affected by volatile precious metal prices. FIXED INCOME SECURITIES. The prices of fixed income securities fluctuate inversely in relation to the direction of interest rates. The prices of longer term bonds fluctuate more widely in response to market interest rate changes. Bonds rated BBB by Standard & Poor's or Baa by Moody's have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. INVESTMENT LIMITATIONS The Fund will not: . borrow money, or pledge securities except, under certain circumstances, the Fund may borrow up to one-third of the value of its total assets and pledge up to 10% of the value of its total assets to secure such borrowings; . invest more than 5% of its total assets in the securities of one issuer (except cash and cash items, repurchase agreements, and U.S. government securities); . invest more than 5% of its total assets in securities of issuers that have records of less than three years of continuous operations; . acquire more than 10% of the voting securities of any one issuer; or . invest more than 10% of its assets in securities of other investment companies. (It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment in these securities would be subject to duplicate expenses.) The above investment limitations cannot be changed without shareholder approval. STAR FUNDS INFORMATION - ------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank, N.A., the Fund's investment adviser (the "Adviser" or "Star Bank"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase or sale of portfolio instruments, for which it receives an annual fee from the Fund. ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to 0.95 of 1% of the Fund's average daily net assets. The fee paid by the Fund, while higher than the advisory fee paid by other mutual funds in general, is comparable to fees paid by other mutual funds with similar objectives and policies. The Adviser has undertaken to reimburse the Fund, up to the amount of the advisory fee, for operating expenses in excess of limitations established by certain states. The Adviser may voluntarily choose to waive a portion of its fee or reimburse the Fund for certain operating expenses. ADVISER'S BACKGROUND. Star Bank, a national bank, was founded in 1863 and is the largest bank and trust organization of StarBanc Corporation. As of December 31, 1993, Star Bank had an asset base of $7.6 billion. Star Bank's expertise in trust administration, investments, and estate planning ranks it among the most predominant trust institutions in Ohio, with assets of $12.5 billion as of December 31, 1993. Star Bank has managed commingled funds since 1957. As of December 31, 1993, it manages 12 common trust funds and collective investment funds having a market value in excess of$394 million. Additionally, Star Bank has advised the portfolios of the Trust since 1989. As part of their regular banking operations, Star Bank may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Star Bank. The lending relationship will not be a factor in the selection of securities. Peter P. Baden has been employed by Star Bank as an Equity Analyst since March, 1992, and has been responsible for managing the real estate securities component of the Fund since that date. From 1987 through March, 1992, Mr. Baden was a Vice President of Pacholder Associates, an investment adviser located in Cincinnati, Ohio. B. Randolph Bateman is Senior Vice President and Chief Investment Officer of Star Bank's Trust Financial Services Group and Manager of its Capital Asset Management Division. Mr. Bateman has managed the international securities component of the Fund since May, 1993. Mr. Bateman joined Star Bank in 1988. Fred A. Brink has been a Fund Manager for the Capital Management Division of Star Bank since July, 1991, and has managed the cash equivalent securities component of the Fund since that date. Prior to July, 1991, Mr. Brink was in college. Donald L. Keller has served as a Vice President and the Director of Research of the Capital Management Division of Star Bank since October, 1993, and has managed the domestic equity securities component of the Fund since that date. From February, 1989, through October, 1993,Mr. Keller served as Director of Portfolio Management of Star Bank. Kirk F. Mentzer is a Fixed Income Manager for the Capital Management Division of Star Bank. He has managed the domestic fixed income component of the Fund since its inception inOctober, 1991. Mr. Mentzer joined Star Bank in May, 1989, as a micro systems analyst and has served as an investment analyst since June, 1990. From 1989 through June, 1990, Mr. Mentzer was employed by Star Bank as a systems analyst. From May, 1988, through 1989, Mr. Mentzer was employed by Great American Insurance as a management trainee. DISTRIBUTION OF TRUST SHARES Federated Securities Corp. is the distributor for Shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to provide distribution and administrative services. The distributor may also select administrators (including depository institutions such as commercial banks and savings and loan associations) to provide administrative services. These administrative services include distributing prospectuses and other information, providing accounting assistance, and communicating or facilitating purchases and redemptions of Shares. Brokers, dealers, and administrators will receive fees from the distributor based upon Shares of the Fund owned by their clients or customers. The fees are calculated as a percentage of the average aggregate net asset value of shareholder accounts during the period for which the brokers, dealers, and administrators provide services. The current annual rate of such fees is up to 0.30 of 1% for the Fund. Any fees paid for these services by the distributor will be reimbursed by the Adviser. ADMINISTRATION OF THE FUND ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, provides the Fund with certain administrative personnel and services necessary to operate the Fund and the separate classes, such as legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS FEE OF THE TRUST -------------- ----------------------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000 per Fund. Federated Administrative Services may voluntarily waive a portion of its fee. CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, is transfer agent and dividend disbursing agent for the Fund. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. EXPENSES OF THE FUND AND TRUST SHARES Holders of Shares pay their allocable portion of Fund and Trust expenses. The Trust expenses for which holders of Shares pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust with federal and state securities authorities; Trustees' fees; auditor's fees; the cost of meetings of Trustees; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise from time to time. The Fund expenses for which holders of Shares each pay their allocable portion include, but are not limited to: registering the Fund and Shares of the Fund; investment advisory services; taxes and commissions; custodian fees; insurance premiums; auditors' fees; and such non-recurring and extraordinary items as may arise from time to time. In addition, the Trustees reserve the right to allocate certain other expenses to holders of Shares as they deem appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: distribution fees; transfer agent fees as identified by the transfer agent as attributable to holders of Shares; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders; registration fees paid to the Securities and Exchange Commission and to state securities commissions; expenses related to administrative personnel and services as required to support holders of Shares; legal fees relating solely to Shares; and Trustees' fees incurred as a result of issues relating solely to Shares. NET ASSET VALUE - ------------------------------------------------------------------------------- The Fund's net asset value per Share fluctuates. The net asset value for Shares is determined by adding the interest of Trust Shares in the market value of all securities and other assets of the Fund, subtracting the interest of Trust Shares in the liabilities of the Fund and those attributable to Trust Shares, and dividing the remainder by the number of Trust Shares outstanding. The net asset value for Trust Shares will differ from that of Investment Shares due to the variance in net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. INVESTING IN TRUST SHARES - -------------------------------------------------------------------------------- MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund by an investor is $1,000. Subsequent investments may be in any amounts. For customers of Star Bank, an institutional investor's minimum investment will be calculated by combining all mutual fund accounts it maintains with Star Bank and invests with the Fund. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed on Shares. The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no Shares are tendered for redemption and no orders to purchase Shares are received; and (iii) the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. SHARE PURCHASES Shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. A customer of Star Bank may purchase Shares through Star Bank. Texas residents must purchase Shares through Federated Securities Corp. at 1-800-356-2805. In connection with the sale of Shares, the distributor may from time to time offer certain items of nominal value to any shareholder or investor. The Fund reserves the right to reject any purchase request. THROUGH STAR BANK. To place an order to purchase Shares, a customer of Star Bank may telephone Star Bank at 1-800-677-FUND or place the order in person. Purchase orders given by telephone may be electronically recorded. Payment may be made to Star Bank either by check or federal funds. When payment is made with federal funds, the order is considered received when federal funds are received by Star Bank. Purchase orders must be telephoned to Star Bank by 4:00 p.m. (Eastern time) and payment by federal funds must be received by Star Bank before 3:00 p.m. (Eastern time) on the following day. Orders are considered received after payment by check is converted into federal funds. This is normally the next business day after Star Bank receives the check. Shares cannot be purchased on days on which the New York Stock Exchange is closed or on federal holidays restricting wire transfers. 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 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, must be liquid, 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 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. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder of record. Share certificates are not issued. Detailed confirmations of each purchase or redemption are sent to each shareholder and dividend confirmations are sent to each shareholder to report dividends paid. DIVIDENDS AND CAPITAL GAINS Dividends are declared and paid quarterly. Capital gains realized by the Fund, if any, will be distributed at least once every 12 months. Dividends and capital gains will be automatically reinvested in additional Shares on payment dates at the ex-dividend date net asset value, unless cash payments are requested by writing to the Fund or Star Bank. EXCHANGE PRIVILEGE - ------------------------------------------------------------------------------- STAR FUNDS All shareholders of the Fund are shareholders of the Star Funds. Star Funds currently consists of the Fund, Star Prime Obligations Fund, Star Treasury Fund, Star Relative Value Fund, Star Tax-Free Money Market Fund, and Star U.S. Government Income Fund. Until further notice, through a telephone exchange program, shareholders invested in the money market funds can exchange only among the other money market funds of the Trust, and shareholders invested in the non-money market funds can exchange only among the other non-money market funds of the Trust. Each portfolio in the Star Funds is advised by Star Bank and distributed by Federated Securities Corp. EXCHANGING TRUST SHARES Shareholders of the Fund may exchange Shares for shares of the other Funds in the Star Funds. In addition, Shares may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by Star Bank, N.A. ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, call Star Bank at 1-800-677-FUND. Shareholders who exercise this exchange privilege must exchange Shares having a total net asset value of at least $1,000. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Fund's sales charge (if any) already paid and any sales charge of the fund into which Shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus, an exchange of such shares for shares of a fund with a sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, Shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instructions may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling Star Bank at 1-800-677-FUND. EXCHANGE-BY-TELEPHONE Instructions for exchanges between funds which are part of the Star Funds may be given by telephone to Star Bank at 1-800-677-FUND or to the distributor. Shares may be exchanged by telephone only between fund accounts having identical shareholder registrations. Exchange instructions given by telephone may be electronically recorded. Telephone exchange instructions must be received before 3:00 p.m. (Eastern time) in order for Shares to be exchanged the same day. The telephone exchange privilege may be modified or terminated at any time. Shareholders will be notified of such modification or termination. Shareholders of the Fund may have difficulty in making exchanges by telephone through brokers, banks, or other financial institutions during times of drastic economic or market changes. If a shareholder cannot contact his broker, bank, or financial institution by telephone, it is recommended that an exchange request be made in writing and sent by overnight mail. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING TRUST SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at their net asset value next determined after Star Bank receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays restricting wire transfers. Requests for redemption can be made in person, by telephone through Star Bank, or by mail. BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem Shares by telephoning Star Bank at 1-800-677-FUND. Redemption requests given by telephone may be electronically recorded. For calls received by Star Bank before 4:00 p.m. (Eastern time), proceeds will normally be wired the following day to the shareholder's account at Star Bank or a check will be sent to the address of record. In no event will proceeds be wired or a check mailed more than seven days after a proper request for redemption has been received. If, at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from Star Bank. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be considered. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Shareholders may also redeem Fund shares by sending a written request to Star Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135, Cincinnati, Ohio 45202. The written request must include the shareholder's name, the Fund name, the class of shares name, the account number, and the share or dollar amount requested. Shareholders may call the Fund for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than that on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: . a trust company or commercial bank whose deposits are insured by BIF, which is administered by the FDIC; . a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; . a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or . 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 Fund and its transfer agent have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and its transfer agent reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem Shares in any account and pay the proceeds to the shareholder if the account balance falls below the required minimum value of $1,000 due to shareholder redemptions. Before Shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each Share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All shares of all classes of each portfolio in the Trust have equal voting rights, except that, in matters affecting only a particular fund or class, only shares of that fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or the Fund's operation and for the election of Trustees under certain circumstances. As of January 6, 1994, Firstcinco, Cincinnati, Ohio, owned 36.59% of the voting securities of the Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented to a vote of shareholders. Trustees may be removed by a two-thirds vote of the number of Trustees prior to such removal or by a two-thirds vote of the shareholders of the Trust at a special meeting. A special meeting of shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the Trust's outstanding shares of all series entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable under Massachusetts law 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. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, selling, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or affiliate from acting as investment adviser, transfer agent, or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's investment adviser, Star Bank, is subject to such banking laws and regulations. Star Bank believes that it may perform the investment advisory services for the Fund contemplated by its advisory agreements with the Trust without violating the Glass-Steagall Act or other applicable banking laws or regulations. Changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent Star Bank from continuing to perform all or a part of the above services for its customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by Star Bank, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser with equivalent abilities to Star Bank is found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios will not be combined for tax purposes with those realized by the Fund. 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. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield for Shares. Total return represents the change, over a specified period of time, in the value of an investment in Shares after reinvesting all income and capital gain distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of Shares is calculated by dividing the net investment income per Share (as defined by the Securities and Exchange Commission) earned by Shares over a thirty-day period by the maximum offering price per share of Shares on the last day of the period. This number is then annualized using semi-annual compounding. The yield does not necessarily reflect income actually earned by Shares and, therefore, may not correlate to the dividends or other distributions paid to shareholders. Total return and yield will be calculated separately for Trust Shares and Investment Shares. Because Investment Shares are subject to a Rule 12b-1 fee, the total return and yield for Trust Shares, for the same period, will exceed that of Investment Shares. From time to time the Fund may advertise the performance of Trust Shares using certain financial publications and/or compare the performance of Trust Shares to certain indices. OTHER CLASSES OF SHARES - -------------------------------------------------------------------------------- Investment Shares are sold primarily to individual and private banking customers of StarBanc Corporation and its subsidiaries. Investment Shares are sold at net asset value with a maximum sales charge of 4.50%. Investments in Investment Shares are subject to a minimum initial investment of $1,000 ($25 for Star Bank Connections Group Banking customers and Star Bank employees and members of their immediate family). Investment Shares are distributed pursuant to a Rule 12b-1 Plan adopted by the Trust whereby the distributor is paid a fee of up to 0.25 of 1% of the average daily net asset value of Investment Shares. The amount of dividends payable to Trust Shares will exceed that of Investment Shares by the difference between Class Expenses and distribution expenses borne by shares of each respective class. The stated advisory fee is the same for both classes of shares. THE STELLAR FUND FINANCIAL HIGHLIGHTS--INVESTMENT SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 27.
YEAR ENDED NOVEMBER 30, ----------------------------- 1993 1992 1991* - ------------------------------------------- ------- -------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $10.52 $ 9.80 $10.00 - ------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------- Net investment income 0.24 0.2955 0.05 - ------------------------------------------- Net realized and unrealized gain (loss) on 0.99 0.7387 (0.25) investments ------- -------- ------- - ------------------------------------------- Total from investment operations 1.23 1.0342 (0.20) - ------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------- Dividends to shareholders from net invest- ment income (0.28) (0.3120) -- - ------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (0.10) (0.0022) -- - ------------------------------------------- Distributions in excess of net investment (0.03)(a) -- -- income ------- -------- ------- - ------------------------------------------- Total distributions (0.41) (0.3142) -- - ------------------------------------------- ------- -------- ------- NET ASSET VALUE, END OF PERIOD $11.34 $10.52 $ 9.80 - ------------------------------------------- ------- -------- ------- TOTAL RETURN** 11.99% 10.68% (2.00%) - ------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------- Expenses 1.45% 1.53% 1.44%(b) - ------------------------------------------- Net investment income 1.87% 3.03% 5.32%(b) - ------------------------------------------- Expense waiver/reimbursement (c) 0.25% 0.33% 0.29%(b) - ------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------- Net assets, end of period (000 omitted) $73,197 $35,544 $13,942 - ------------------------------------------- Portfolio turnover rate 87% 98% 18% - -------------------------------------------
* Reflects operations for the period from October 18, 1991 (date of initial public investment) to November 30, 1991. ** Based on net asset value which does not reflect the sales load or redemption fee, if applicable. (a) Distributions in excess of net investment income for the year ended November 30, 1993 were a result of certain book and tax differences. These distributions did not represent a return of capital for federal income tax purposes for the year ended November 30, 1993. (b) Computed on an annualized basis. (c) The voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) Further information about the Fund's performance is contained in the Fund's annual report dated January 31, 1994, which can be obtained free of charge. THE STELLAR FUND PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1993 - --------------------------------------------------------------------------------
SHARES VALUE --------- --------------------------------- ----------- U.S. EQUITIES--17.9% ------------------------------------------- BASIC INDUSTRY--3.6% --------------------------------- BUILDING--0.8% --------------------------------- 30,700 Elcor Corp. (a) $ 575,625 --------------------------------- ----------- CHEMICALS & FERTILIZERS--0.6% --------------------------------- 8,500 duPont (E.I) de Nemours 404,813 --------------------------------- ----------- METALS--0.6% --------------------------------- 26,600 Worthington Industries Inc. 458,850 --------------------------------- ----------- MINING--1.2% --------------------------------- 14,000 Newmont Mining Corp. 890,750 --------------------------------- ----------- TIMBER--0.4% --------------------------------- 6,400 Weyerhauser Co. 280,000 --------------------------------- ----------- TOTAL BASIC INDUSTRY 2,610,038 --------------------------------- ----------- CAPITAL GOODS--3.9% --------------------------------- APPLIANCES--0.7% --------------------------------- 9,000 Whirlpool Corp. 534,375 --------------------------------- ----------- ELECTRONICS--1.9% --------------------------------- 12,300 Honeywell, Inc. 401,287 --------------------------------- 9,000 Intel Corp. 553,500 --------------------------------- 7,500 Raytheon Co. 459,375 --------------------------------- ----------- Total 1,414,162 --------------------------------- ----------- OFFICE & BUSINESS EQUIPMENT--1.3% --------------------------------- 7,100 Hewlett Packard Co. 523,625 --------------------------------- 18,000 Novell Inc. (a) 423,000 --------------------------------- =========== Total 946,625 --------------------------------- ----------- TOTAL CAPITAL GOODS 2,895,162 --------------------------------- =========== CONSUMER CYCLICAL--3.0% --------------------------------- AUTOMOTIVE & RELATED--1.9% --------------------------------- 10,400 Cummins Engine Inc. 491,400 --------------------------------- 10,000 Goodyear Tire & Rubber 445,000 --------------------------------- 9,000 Johnson Controls Inc. 479,250 --------------------------------- =========== Total 1,415,650 --------------------------------- ----------- RETAILING & APPAREL--1.1% --------------------------------- 5,000 Best Buy Co. Inc. (a) 248,750 --------------------------------- 10,600 Penney (J.C.), Inc. 565,775 --------------------------------- ----------- Total 814,525 --------------------------------- ----------- TOTAL CONSUMER CYCLICAL 2,230,175 --------------------------------- ===========
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE --------- -------------------------------------------------- ----------- U.S. EQUITIES--CONTINUED ------------------------------------------------------------ CONSUMER STAPLES--0.7% -------------------------------------------------- HOUSEHOLD--0.7% -------------------------------------------------- 9,900 Clorox Co. $ 514,800 -------------------------------------------------- =========== TOTAL CONSUMER STAPLES 514,800 -------------------------------------------------- =========== ENERGY--1.6% -------------------------------------------------- OIL--1.6% -------------------------------------------------- 4,500 Atlantic Richfield Co. 466,875 -------------------------------------------------- 17,400 Horsham Corp. 237,075 -------------------------------------------------- 5,700 Mobil Corp. 434,625 -------------------------------------------------- ----------- TOTAL ENERGY 1,138,575 -------------------------------------------------- =========== FINANCE--1.7% -------------------------------------------------- BANKS--1.2% -------------------------------------------------- 15,000 First Tenn National Corp. 558,750 -------------------------------------------------- 5,000 Morgan (J.P.) & Co., Inc. 354,375 -------------------------------------------------- ----------- Total 913,125 -------------------------------------------------- ----------- INSURANCE--0.5% -------------------------------------------------- 7,400 Aon Corp. 366,300 -------------------------------------------------- ----------- TOTAL FINANCE 1,279,425 -------------------------------------------------- =========== HEALTH CARE--1.1% -------------------------------------------------- HOSPITAL SUPPLY--0.4% -------------------------------------------------- 12,500 Allergan, Inc. 278,125 -------------------------------------------------- ----------- DRUGS--0.7% -------------------------------------------------- 8,100 Schering Plough Corp. 541,688 -------------------------------------------------- ----------- TOTAL HEALTH CARE 819,813 -------------------------------------------------- =========== UTILITIES--2.3% -------------------------------------------------- ELECTRIC--0.8% -------------------------------------------------- 13,000 Southern Co. 562,250 -------------------------------------------------- ----------- MISCELLANEOUS--0.6% -------------------------------------------------- 13,500 Pentair Inc. 475,875 -------------------------------------------------- ----------- TELECOMMUNICATIONS--0.9% -------------------------------------------------- 11,600 American Telephone & Telegraph Co. 633,650 -------------------------------------------------- ----------- TOTAL UTILITIES 1,671,775 -------------------------------------------------- =========== TOTAL U.S. EQUITIES (IDENTIFIED COST $13,376,298) 13,159,763 -------------------------------------------------- =========== INTERNATIONAL SECURITIES--20.3% ------------------------------------------------------------ BASIC INDUSTRY--0.5% -------------------------------------------------- 17,000 Alcan Aluminum Ltd. 352,750 -------------------------------------------------- ----------- TOTAL BASIC INDUSTRY 352,750 -------------------------------------------------- =========== CONSUMER CYCLICAL--2.1% -------------------------------------------------- ENTERTAINMENT & LEISURE--0.4% -------------------------------------------------- 8,400 PolyGram N.V. 324,450 -------------------------------------------------- -----------
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE ------ -------------------------------- ---------- INTERNATIONAL SECURITIES--CONTINUED --------------------------------------- PUBLISHING--1.3% -------------------------------- 11,000 News Corp. Ltd. $ 565,125 -------------------------------- 4,700 Reuters Holdings PLC 356,025 -------------------------------- ---------- Total 921,150 -------------------------------- ---------- RETAILING & APPAREL--0.4% -------------------------------- 10,000 Luxottica Group SPA 255,000 -------------------------------- ---------- TOTAL CONSUMER CYCLICAL 1,500,600 -------------------------------- ========== CONSUMER STAPLES--1.8% -------------------------------- FOOD & BEVERAGE--1.4% -------------------------------- 25,000 Sara Lee Corp. 650,000 -------------------------------- 12,500 Seagram, Ltd. 345,313 -------------------------------- ---------- Total 995,313 -------------------------------- ---------- HOUSEHOLD PRODUCTS--0.4% -------------------------------- 2,800 Unilever N.V. 313,950 -------------------------------- ---------- TOTAL CONSUMER STAPLES 1,309,263 -------------------------------- ========== ENERGY--3.4% -------------------------------- ENERGY SERVICE & EQUIPMENT--0.3% -------------------------------- 3,600 Schlumberger, Ltd. 207,000 -------------------------------- ---------- INTERNATIONAL OIL--1.4% -------------------------------- 5,000 Chevron Corp. 434,375 -------------------------------- 11,700 Repsol SA 334,912 -------------------------------- 2,800 Royal Dutch Petroleum 282,800 -------------------------------- ---------- Total 1,052,087 -------------------------------- ========== NATURAL GAS--1.7% -------------------------------- 7,300 Burlington Northern Inc. 418,838 -------------------------------- 17,000 Enron Corp. 529,125 -------------------------------- 22,000 TransCanada Pipelines Ltd. 327,250 -------------------------------- ---------- Total 1,275,213 -------------------------------- ========== TOTAL ENERGY 2,534,300 -------------------------------- ========== HEALTHCARE--1.5% -------------------------------- DRUGS--1.5% -------------------------------- 18,500 Rhone-Poulenc Rorer, Inc. 703,000 -------------------------------- 15,600 SmithKline Beecham PLC 413,400 -------------------------------- ---------- TOTAL HEALTH CARE 1,116,400 -------------------------------- ========== UTILITIES--2.0% -------------------------------- TELECOMMUNICATIONS--2.0% -------------------------------- 20,000 *Cable & Wireless Ltd. 437,500 -------------------------------- 10,000 Hong Kong Telecommunications 556,250 -------------------------------- 9,000 *Telefonos de Mexico 501,750 -------------------------------- ---------- TOTAL UTILITIES 1,495,500 -------------------------------- ==========
THE STELLAR FUND - --------------------------------------------------------------------------------
SHARES VALUE ------ ------------------------------------------------ ----------- INTERNATIONAL SECURITIES--CONTINUED ------------------------------------------------------- MISCELLANEOUS--9.0% ------------------------------------------------ DIVERSIFIED--6.0% ------------------------------------------------ 16,250 Asia Pacific Fund, Inc. $ 296,563 ------------------------------------------------ 21,000 Canadian Pacific, Ltd. 341,250 ------------------------------------------------ 8,000 Chile Fund, Inc. 283,000 ------------------------------------------------ 5,333 Emerging Mexico Fund, Inc. 118,659 ------------------------------------------------ 15,000 First Philippine Fund, Inc. 251,250 ------------------------------------------------ 33,000 France Growth Fund, Inc. 363,000 ------------------------------------------------ 10,000 Future Germany Fund, Inc. 143,750 ------------------------------------------------ 12,000 Greater China Fund, Inc. (a) 237,000 ------------------------------------------------ 26,000 Japan Equity Fund, Inc. (a) 315,250 ------------------------------------------------ 15,000 Latin America Equity Fund, Inc. 313,125 ------------------------------------------------ 13,424 Mexico Fund, Inc. 411,110 ------------------------------------------------ 15,000 New Germany Fund, Inc. 180,000 ------------------------------------------------ 26,600 Philips Electronics (a) 518,700 ------------------------------------------------ 24,000 Swiss Helvetia Fund, Inc. 450,000 ------------------------------------------------ 10,000 Thai Capital Fund, Inc. 160,000 ------------------------------------------------ ----------- Total Diversified 4,382,657 ------------------------------------------------ ----------- OTHER--3.0% ------------------------------------------------ 3,800 British Airways 239,875 ------------------------------------------------ 4,300 British Petroleum 254,775 ------------------------------------------------ 5,000 Fuji Photo Film Co., Ltd. 210,000 ------------------------------------------------ 3,500 Hitachi Ltd. 245,437 ------------------------------------------------ 10,400 National Australia Bank Ltd. 412,100 ------------------------------------------------ 9,000 Pioneer Electric Corp. 191,250 ------------------------------------------------ 10,000 Thomson CSF 263,750 ------------------------------------------------ 5,000 Vodaphone Group PLC 405,000 ------------------------------------------------ ----------- Total Other 2,222,187 ------------------------------------------------ ----------- TOTAL MISCELLANEOUS 6,604,844 ------------------------------------------------ =========== TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST $13,187,447) 14,913,657 ------------------------------------------------ ----------- REAL ESTATE--18.7% ------------------------------------------------------- INVESTMENT TRUST--16.9% ------------------------------------------------ 20,100 American Health Properties, Inc. 515,063 ------------------------------------------------ 21,500 Avalon Property, Inc. 419,250 ------------------------------------------------ 14,000 BRE Properties Inc. 491,750 ------------------------------------------------ 15,900 Burnham Pacific Properties, Inc. 282,225 ------------------------------------------------ 18,500 Camden Property, Inc. 444,000 ------------------------------------------------ 14,000 Chateau Property, Inc. 269,500 ------------------------------------------------ 18,000 Developers Diversified 486,000 ------------------------------------------------ 29,000 Federal Realty Investment Trust 764,875 ------------------------------------------------
THE STELLAR FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ---------- ---------------------------------------------------- ----------- REAL ESTATE SECURITIES--CONTINUED --------------------------------------------------------------- 22,000 Health Care Property Investment, Inc. $ 610,500 ---------------------------------------------------- 23,500 Kimco Realty Corp. 749,062 ---------------------------------------------------- 47,000 LTC Properties 599,250 ---------------------------------------------------- 10,000 Manufactured Home Communities Inc. 398,750 ---------------------------------------------------- 20,000 Meditrust 652,500 ---------------------------------------------------- 23,000 Merry Land & Investment Co. 428,375 ---------------------------------------------------- 16,000 Nationwide Health Properties Inc. 604,000 ---------------------------------------------------- 9,100 Omega Healthcare investors 222,950 ---------------------------------------------------- 19,000 Pennsylvania Real Estate Inc. 465,500 ---------------------------------------------------- 29,800 Santa Anita Realty Enterprises 536,400 ---------------------------------------------------- 53,500 Sizeler Property Investments Inc. 688,812 ---------------------------------------------------- 60,000 Southwestern Properties 765,000 ---------------------------------------------------- 48,300 Taubman Centers, Inc. 609,788 ---------------------------------------------------- 47,200 United Dominion Realty Trust Inc. 649,000 ---------------------------------------------------- 11,000 Webb Del Corp. 143,000 ---------------------------------------------------- 16,000 Weingarten Realty Investment 610,000 ---------------------------------------------------- ----------- Total 12,405,550 ---------------------------------------------------- ----------- HOMEBUILDERS--1.8% ---------------------------------------------------- 33,350 Kaufman & Broad Home Corp. 671,169 ---------------------------------------------------- 17,500 Pulte Corp. 647,500 ---------------------------------------------------- ----------- Total 1,318,669 ---------------------------------------------------- ----------- TOTAL REAL ESTATE (IDENTIFIED COST $11,837,787) 13,724,219 ---------------------------------------------------- =========== FIXED INCOME OBLIGATIONS--20.0% --------------------------------------------------------------- U.S. GOVERNMENT--11.5% ---------------------------------------------------- $5,900,000 U.S. Treasury Notes, 3.88%-8.63%, 8/15/94-08/15/2001 6,254,664 ---------------------------------------------------- 1,850,000 U.S. Treasury Bonds, 7.88%-8.13%, 08/15/2019- 02/15/2021 2,190,067 ---------------------------------------------------- ----------- Total U.S. Government 8,444,731 ---------------------------------------------------- ----------- U.S. AGENCY--3.9% ---------------------------------------------------- 250,000 Federal Home Loan Mortgage Corp. 254,535 ---------------------------------------------------- 1,300,000 Federal National Mortgage Association 1,323,335 ---------------------------------------------------- 255,000 FNMA Pool 256,912 ---------------------------------------------------- 1,000,000 Student Loan Marketing Association 998,140 ---------------------------------------------------- ----------- Total U.S. Agency 2,832,922 ---------------------------------------------------- =========== AUTOMOTIVE & RELATED--0.8% ---------------------------------------------------- 500,000 Cincinnati Gas & Electric Co. 569,430 ---------------------------------------------------- ----------- TOBACCO--0.6% ---------------------------------------------------- 400,000 Phillip Morris Cos., Inc. 453,008 ---------------------------------------------------- ----------- INDUSTRIAL--0.4% ---------------------------------------------------- 250,000 Motorola, Inc. 297,755 ---------------------------------------------------- -----------
THE STELLAR FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ---------- ------------------------------------------------- ----------- FIXED INCOME OBLIGATIONS--CONTINUED ------------------------------------------------------------ OIL--0.7% ------------------------------------------------- 500,000 Union Pacific Corp. $ 486,610 ------------------------------------------------- ----------- ELECTRIC--0.7% ------------------------------------------------- 500,000 Georgia Power Co. 505,325 ------------------------------------------------- ----------- FINANCE--1.0% ------------------------------------------------- 250,000 General Electric Capital Corp. 276,325 ------------------------------------------------- 250,000 International Lease Finance Co. 258,758 ------------------------------------------------- 150,000 Morgan JP & Co. Inc. 162,381 ------------------------------------------------- ----------- Total 697,464 ------------------------------------------------- ----------- RETAIL--0.6% ------------------------------------------------- 250,000 Kmart Corp. 275,212 ------------------------------------------------- 130,000 Wal Mart Stores Inc. 146,212 ------------------------------------------------- ----------- Total 421,424 ------------------------------------------------- ----------- TOTAL FIXED INCOME OBLIGATIONS (IDENTIFIED COST $14,625,355) 14,708,669 ------------------------------------------------- ----------- **CASH EQUIVALENT & REPURCHASE AGREEMENT--23.3% ------------------------------------------------------------ 17,088,000 Donaldson, Lufkin & Jenrette Securities Corp., 3.22%, dated 11/30/93, due 12/01/93 (at amortized cost) 17,088,000 ------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST, $70,114,887) $73,594,308+ ------------------------------------------------- ===========
(a) Non-income producing. * American Depository Receipts. ** The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of the portfolio. + The cost for federal tax purposes amounts to $70,137,736. The net unrealized appreciation of investments on a federal tax basis amounts to $3,456,572 which is comprised of $4,504,327 appreciation and $1,047,755 depreciation at November 30, 1993. Note: The categories of investments are shown as a percentage of total net assets ($73,196,884) at November 30, 1993. (See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- ASSETS: - ---------------------------------------------- Investments in securities $56,506,308 - ---------------------------------------------- Investments in repurchase agreements (Note 2B) 17,088,000 - ---------------------------------------------- ----------- Total investments, at amortized cost and value (identified cost, $70,114,887 and tax cost, $70,137,736) (Note 2A) $73,594,308 - ----------------------------------------------------------- Cash 732 - ----------------------------------------------------------- Receivable for Fund shares sold 1,859,636 - ----------------------------------------------------------- Receivable for investment sold 879,551 - ----------------------------------------------------------- Dividends and interest receivable 323,385 - ----------------------------------------------------------- Receivable from administrator 7,985 - ----------------------------------------------------------- Deferred expenses (Note 2F) 2,653 - ----------------------------------------------------------- ----------- Total assets 76,668,250 - ----------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------- Payable for investments purchased 3,381,003 - ---------------------------------------------- Options written, at value (premium received, $50,978) (Note 2H) 36,189 - ---------------------------------------------- Payable for Fund shares repurchased 4,530 - ---------------------------------------------- Accrued expenses 49,644 - ----------------------------------------------------------- Total liabilities 3,471,366 - ----------------------------------------------------------- ----------- NET ASSETS for 6,457,063 shares of beneficial interest $73,196,884 outstanding ----------- - ----------------------------------------------------------- NET ASSETS CONSIST OF: - ----------------------------------------------------------- Paid-in capital $69,202,605 - ----------------------------------------------------------- Unrealized appreciation of investments and options (in- cludes $14,789 on options) 3,494,210 - ----------------------------------------------------------- Accumulated net realized gain on investments 714,412 - ----------------------------------------------------------- Accumulated distributions in excess of net investment in- (214,343) come ----------- - ----------------------------------------------------------- Total $73,196,884 - ----------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Price Per Share: ($73,196,884 / 6,457,063 shares of beneficial interest $11.34 outstanding) ----------- - ----------------------------------------------------------- Computation of Offering Price: Offering Price Per Share (100/95.5) of $11.34* $11.87 - ----------------------------------------------------------- -----------
* On sales of $100,000 or more, the offering price is reduced as stated under "What Shares Cost" in the prospectus. (See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF OPERATIONS YEAR ENDED NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------- Interest income (Note 2C) $1,009,091 - ------------------------------------------------------------- Dividend income (Note 2C) 615,646 - ------------------------------------------------------------- ---------- Total investment income 1,624,737 - ------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------- Investment advisory fee (Note 5) $465,417 - ---------------------------------------------------- Trustees' fees 1,729 - ---------------------------------------------------- Administrative personnel and services (Note 5) 62,298 - ---------------------------------------------------- Custodian fees (Note 5) 12,248 - ---------------------------------------------------- Recordkeeping, transfer and dividend disbursing agent fees (Note 5) 66,937 - ---------------------------------------------------- Fund share registration costs 22,881 - ---------------------------------------------------- Legal fees 7,164 - ---------------------------------------------------- Printing and postage 42,581 - ---------------------------------------------------- Distribution fees (Note 5) 122,478 - ---------------------------------------------------- Insurance premiums 5,413 - ---------------------------------------------------- Auditing fees 18,505 - ---------------------------------------------------- Miscellaneous 3,840 - ---------------------------------------------------- -------- Total expenses 831,491 - ---------------------------------------------------- Deduct-- - ---------------------------------------------------- Waiver of investment advisory fee (Note 5) $ 1,248 - ------------------------------------------ Waiver of distribution fees (Note 5) 122,478 123,726 - ------------------------------------------ -------- -------- Net expenses 707,765 - ------------------------------------------------------------- ---------- Net investment income 916,972 - ------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - ------------------------------------------------------------- Net realized gain on investment transactions (identified cost basis)-- 722,961 - ------------------------------------------------------------- Net change in unrealized appreciation/(depreciation) of in- 2,975,694 vestments and options ---------- - ------------------------------------------------------------- Net realized and unrealized gain on investments 3,698,655 - ------------------------------------------------------------- ---------- Change in net assets resulting from operations $4,615,627 - ------------------------------------------------------------- ----------
(See Notes which are an integral part of the financial statements) THE STELLAR FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, ------------------------ 1993 1992 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------- OPERATIONS-- - ---------------------------------------------------- Net investment income $ 916,972 $ 749,915 - ---------------------------------------------------- Net realized gain on investment transactions ($737,312 and $366,379 net gain, respectively, as computed for federal income tax purposes) (Note 2D) 722,961 357,882 - ---------------------------------------------------- Change in unrealized appreciation of investments & 2,975,694 884,031 options ----------- ----------- - ---------------------------------------------------- Change in net assets resulting from operations 4,615,627 1,991,828 - ---------------------------------------------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ---------------------------------------------------- Dividends to shareholders from net investment income (1,062,322) (689,243) - ---------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (366,287) (3,361) - ---------------------------------------------------- Distributions in excess of net investment income (214,343) -- - ---------------------------------------------------- ----------- ----------- Change in net assets resulting from distributions (1,642,952) (692,604) to shareholders ----------- ----------- - ---------------------------------------------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ---------------------------------------------------- Proceeds from sale of shares 45,217,754 23,246,223 - ---------------------------------------------------- Net asset value of shares issued to shareholders electing to receive payment of distribution in Fund shares 1,594,012 691,507 - ---------------------------------------------------- Cost of shares redeemed (12,132,012) (3,634,928) - ---------------------------------------------------- ----------- ----------- Change in net assets from Fund share transactions 34,679,754 20,302,802 - ---------------------------------------------------- ----------- ----------- Change in net assets 37,652,429 21,602,026 - ---------------------------------------------------- NET ASSETS: - ---------------------------------------------------- Beginning of period 35,544,455 13,942,429 - ---------------------------------------------------- ----------- ----------- End of period (including undistributed net invest- ment income of $0 and $145,350, respectively) $73,196,884 $35,544,455 - ---------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the financial statements) THE STELLAR FUND NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1993 - -------------------------------------------------------------------------------- (1) ORGANIZATION Star Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Trust consists of six portfolios. The financial statements included herein present only those of The Stellar Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Effective on or about April 5, 1994 (the effective date for the Trust Shares of The Stellar Fund), The Stellar Fund will provide two classes of shares ("Trust Shares" and "Investment Shares"). Trust Shares will be identical in all respects to Investment Shares except that Investment Shares will be sold pursuant to a distribution plan ("Plan") adopted in accordance with Investment Company Act Rule 12b-1. Under the Plan, the Fund may pay Federated Securities Corp. (the "distributor") a fee at an annual rate up to .25 of 1% of the average net asset value of Investment Shares to finance any activity which is principally intended to result in the sale of Investment Shares. In addition, Investment Shares are sold subject to a sales charge of up to 4.50%. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--Listed securities are valued at the last sale price reported on national security exchanges. Unlisted securities, or securities in which there are no sales, and private placement securities are valued on the basis of prices provided by independent pricing services. Short-term obligations are valued at the mean between the bid and asked prices as furnished by an independent pricing service; however, such issues with maturities of sixty days or less are valued at amortized cost, which approximates market value. Although the Fund has invested 20.3% of its securities internationally, the Fund's management believes that there is no significant concentration of investments in any one country. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. 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. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. C. INCOME--Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Interest income includes interest, and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code. Dividends to shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code, as amended, applicable to investment companies and to distribute to shareholders each year all of its net taxable income, including any net realized gains on investments. Accordingly, no provision for federal tax is necessary. THE STELLAR FUND - ------------------------------------------------------------------------------- E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when- issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. EXPENSES--Expenses incurred by the Trust which do not specifically relate to an individual Fund are allocated among all Funds based on a Fund's relative daily average net assets or as deemed appropriate by the administrator. H. OPTION CONTRACTS--The Fund may write or purchase option contracts. Purchased options are accounted for as investment securities. A written option obligates the Fund to deliver (a call), or to receive (a put), the contract amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. The following covered call options were written and outstanding as of November 30, 1993:
STRIKE EXPIRATION SHARE VALUE PRICE DATE Best Buy Co. Inc. 5000 $14,064 60 3-19-94 Telefonos de Mexico 9000 9,000 60 1-22-94 J.P. Morgan & Co. 5000 13,125 70 1-22-94
J. OTHER--Investment transactions are accounted for on the date of the transaction. (3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid quarterly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all dividends or interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. The amounts shown in the financial statements for net investment income for the year ended November 30, 1993 differ from those determined for tax purposes because of certain book and tax differences. This resulted in distributions to shareholders in excess of net investment income. These distributions did not represent a return of capital for federal income tax purposes for the year ended November 30, 1993. (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED NOVEMBER 30, --------------------- 1993 1992 - ------------------------------------------------------ ---------- --------- Shares outstanding, beginning of period 3,377,871 1,423,154 - ------------------------------------------------------ Shares sold 4,030,527 2,236,543 - ------------------------------------------------------ Shares issued to shareholders electing to receive pay- ments of distribution in Fund shares 147,387 67,376 - ------------------------------------------------------ Shares redeemed (1,098,722) (349,202) - ------------------------------------------------------ ---------- --------- Shares outstanding, end of period 6,457,063 3,377,871 - ------------------------------------------------------ ---------- ---------
THE STELLAR FUND - -------------------------------------------------------------------------------- (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Star Bank, N.A., the Fund's investment adviser ("Adviser"), receives for its services an annual investment advisory fee equal to .95 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund. For the year ended November 30, 1993, the Adviser earned an investment advisory fee of $465,417, of which $1,248 was voluntarily waived. Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services at an annual rate of .15 of 1% on the first $250 million of average aggregate daily net assets of the Trust; .125 of 1% on the next $250 million; .10 of 1% on the next $250 million; and .075 of 1% on average aggregate daily net assets in excess of $750 million. FAS may voluntarily waive a portion of its fee. For the year ended November 30, 1993, FAS earned $62,298, none of which was voluntarily waived. Expenses of organizing the Fund ($23,641) were borne initially by FAS. The Fund has agreed to pay FAS, at an annual rate of .005 of 1% of average daily net assets, until the organization expenses are reimbursed, or five years from July 31, 1991, the date the Trust's portfolio became effective, whichever occurs earlier. Pursuant to this agreement, the Fund reimbursed $2,306 in organization expenses for the year ended November 30, 1993. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended. The Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the assets of the Fund, for fees it paid which relate to the distribution and administration of the Fund's shares. The Plan provides that the Fund will incur distribution expenses up to .25 of 1% of the average daily net assets of the Fund annually to pay commissions, maintenance fees and to compensate the distributor. FSC may voluntarily waive all or a portion of its fee. For the year ended November 30, 1993, FSC earned $122,478 in distribution fees, all of which were voluntarily waived. Star Bank, N.A., is the Fund's custodian. Federated Services Company, is the Fund's transfer and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are also Officers and Directors of the above corporations. (6) INVESTMENT TRANSACTIONS Purchases, and sales excluding securities subject to repurchase agreements, of investments for the year ended November 30, 1993, were as follows: - -------------------------------------- PURCHASES: $60,342,773 - ------------------------- ----------- SALES $33,125,046 - ------------------------- -----------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Board of Trustees of STAR FUNDS (The Stellar Fund): We have audited the accompanying statement of assets and liabilities of The Stellar Fund (an investment portfolio of STAR Funds, a Massachusetts business trust), including the schedule of portfolio investments, as of November 30, 1993, the related statement of operations for the year then ended, and the statement of changes in net assets and financial highlights (see page 14 of the prospectus) for the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 1993 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Stellar Fund, an investment portfolio of STAR Funds, as of November 30, 1993 and the results of its operations for the year then ended, and the changes in its net assets, and financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Pittsburgh, Pennsylvania January 14, 1994 [This Page Intentionally Left Blank] [This Page Intentionally Left Blank] [This Page Intentionally Left Blank] ADDRESSES - -------------------------------------------------------------------------------- The Stellar Fund Trust Shares Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Investment Adviser Star Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 - --------------------------------------------------------------------------------- Custodian Star Bank, N.A. 425 Walnut Street Cincinnati, Ohio 45202 - --------------------------------------------------------------------------------- Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - --------------------------------------------------------------------------------- Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - --------------------------------------------------------------------------------- Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - --------------------------------------------------------------------------------- Independent Public Accountants Arthur Andersen & Co. 2100 One PPG Place Pittsburgh, Pennsylvania 15222 - ---------------------------------------------------------------------------------
--------------------------- STAR BANK, N.A. Investment Adviser --------------------------- FEDERATED SECURITIES CORP. Distributor 1072404A-I (4/94) THE STELLAR FUND INVESTMENT SHARES TRUST SHARES (A PORTFOLIO OF THE STAR FUNDS) COMBINED STATEMENT OF ADDITIONAL INFORMATION This Combined Statement of Additional Information should be read with the respective prospectus for Investment Shares and Trust Shares of The Stellar Fund (the "Fund") dated April 5, 1994. This Combined Statement is not a prospectus itself. To receive a copy of either prospectus, write to the Fund or call 1-800-677-FUND. FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 Statement dated April 5, 1994 - ---------------------- STAR BANK, N.A. Investment Adviser - ---------------------- FEDERATED SECURITIES CORP. Distributor TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - -------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - -------------------------------------- Types of Investments 1 Convertible Securities 1 When-Issued and Delayed Delivery Transactions 2 Repurchase Agreements 2 Reverse Repurchase Agreements 2 Portfolio Turnover 2 INVESTMENT LIMITATIONS 2 - -------------------------------------- TRUST MANAGEMENT 4 - -------------------------------------- Officers and Trustees 4 The Funds 6 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 7 - -------------------------------------- Adviser to the Fund 7 Advisory Fees 7 ADMINISTRATIVE SERVICES 8 - -------------------------------------- CUSTODIAN 8 - -------------------------------------- BROKERAGE TRANSACTIONS 8 - -------------------------------------- PURCHASING SHARES 8 - -------------------------------------- Distribution Plan (Investment Shares Only) 9 Administrative Arrangements 9 Conversion to Federal Funds 9 DETERMINING NET ASSET VALUE 9 - -------------------------------------- Determining Market Value of Securities 9 Trading in Foreign Securities 9 EXCHANGE PRIVILEGE 10 - -------------------------------------- Requirements for Exchange 10 Making an Exchange 10 REDEEMING SHARES 10 - -------------------------------------- Redemption in Kind 10 TAX STATUS 10 - -------------------------------------- The Fund's Tax Status 10 Shareholders' Tax Status 10 TOTAL RETURN 11 - -------------------------------------- YIELD 11 - -------------------------------------- PERFORMANCE COMPARISONS 11 - -------------------------------------- APPENDIX 13 - -------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio of the Star Funds (the "Trust"). The Trust was established as a Massachusetts business trust under a Declaration of Trust dated January 23, 1989. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. On May 1, 1993, the Board of Trustees (the "Trustees") approved changing the name of the Trust, effective May 1, 1993, from Losantiville Funds to Star Funds. Shares of the Fund are offered in two classes, Investment Shares and Trust Shares (individually and collectively referred to as "Shares" as the context may require). This Combined Statement of Additional Information relates to both classes of the above-mentioned Shares of the Fund. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to maximize total return, a combination of dividend income and capital appreciation. The investment objective cannot be changed without the approval of shareholders. The policies described below may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. TYPES OF INVESTMENTS Below are securities in which the Fund may invest from time to time. 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 full faith and credit of the U.S. Treasury; . the issuer's right to borrow from the U.S. Treasury; . the discretionary authority of the U.S. government to purchase certain obligations of agencies or instrumentalities; or . the credit of the agency or instrumentality issuing the obligations. Examples of agencies and instrumentalities which may not always receive financial support from the U.S. government are: . Federal Farm Credit Banks; . Federal Home Loan Banks; . Federal National Mortgage Association; . Student Loan Marketing Association; and . Federal Home Loan Mortgage Corporation. CONVERTIBLE 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 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. Convertible securities are senior to equity securities and, therefore, have a claim to assets of the corporation prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar nonconvertible securities of the same company. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. The 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 its investment objective. 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. - -------------------------------------------------------------------------------- WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. 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. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. REPURCHASE AGREEMENTS 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 the Fund, the 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 the 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 Trustees. REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the 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. 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. When effecting reverse repurchase agreements, liquid assets of the 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, but only to the extent necessary to assure completion of the reverse repurchase agreements, the Fund will restrict the purchase of portfolio instruments to money market instruments maturing on or before the expiration date of the reverse repurchase agreement. PORTFOLIO TURNOVER Although the Fund does not intend to invest for the purpose of seeking short- term profits, securities in its portfolio will be sold whenever the Fund's adviser believes it is appropriate to do so in light of the Fund's investment objective, without regard to the length of time a particular security may have been held. For the fiscal years ended November 30, 1993, and 1992, the Fund's portfolio turnover rates were 87% and 98%, respectively. INVESTMENT LIMITATIONS - -------------------------------------------------------------------------------- The Fund will not change any of the investment limitations described below without approval of shareholders. SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin, but may obtain such short-term credits as may be necessary for clearance of purchases and sales of portfolio securities. BORROWING MONEY The Fund will not borrow money except as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of 5% of the value of its total assets or in an amount up to one- third of the value of its total assets, including the amount borrowed, in order to meet redemption requests without immediately selling portfolio securities. This borrowing provision is not for investment leverage but solely to - -------------------------------------------------------------------------------- facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities would be inconvenient or disadvantageous. Interest paid on borrowed funds will not be available for investment. The Fund will liquidate any such borrowings as soon as possible and may not purchase any portfolio securities while any borrowings are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate assets having a market value not exceeding 10% of the value of total assets at the time of the borrowing. DIVERSIFICATION OF INVESTMENTS The Fund will not invest more than 5% of its total assets in the securities of any one issuer, except in cash or cash investments, securities guaranteed by the U.S. government, its agencies or instrumentalities and repurchase agreements collateralized by such securities nor will it purchase more than 10% of any class of voting securities of any one issuer. PURCHASING SECURITIES TO EXERCISE CONTROL The Fund will not purchase securities of a company for the purpose of exercising control or management. However, the Fund will acquire no more than 10% of the voting securities of an issuer and may exercise its voting power in the Fund's best interest. From time to time, the Fund, together with other investment companies advised by affiliates or subsidiaries of Star Bank, may together buy and hold substantial amounts of a company's voting stock. All such stock may be voted together. In some cases, the Fund and the other investment companies might collectively be considered to be in control of the company in which they have invested. Officers or affiliates of the Fund might possibly become directors of companies in which the Fund holds stock. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers with records of less than three years of continuous operations, including the operation of any predecessor. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or the Fund's investment adviser owning individually more than 1/2 of 1% of the issuer's securities together own more than 5% of the issuer's securities. 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 invest in real estate, although it may invest in securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES OR MINERALS The Fund will not purchase or sell commodities or commodity contracts. The Fund will not purchase or sell oil, gas, or other mineral development programs, except for precious metal securities as described in the prospectus. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except that it may purchase or hold corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities permitted by its investment objective and policies. CONCENTRATION OF INVESTMENTS IN ONE INDUSTRY The Fund will not invest 25% or more of the value of its total assets in any one industry. ISSUING SENIOR SECURITIES The Fund will not issue senior securities except as permitted by its investment objective and policies. DEALING IN PUTS AND CALLS The Fund will not sell puts, calls, straddles or spreads or any combination of them, except as permitted by its investment policies as described in the prospectus. - -------------------------------------------------------------------------------- RESTRICTED SECURITIES The Fund will not invest more than 10% of the value of its net assets in securities subject to restrictions on resale under the Securities Act of 1933 except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain other restricted securities which meet the criteria for liquidity as established by the Trustees. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, invest no more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will not purchase or acquire any security issued by a registered closed-end investment company if immediately after the purchase or acquisition 10% or more of the voting securities of the closed-end investment company would be owned by the Fund and other investment companies having the same adviser and companies controlled by these investment companies. The Fund will purchase securities of closed- end investment companies only in open market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, reorganization, or acquisition of assets. It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment by the Fund in these securities would be subject to duplicate expenses. The following investment limitations may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, non-negotiable fixed time deposits with maturities over seven days, over-the-counter options, and certain restricted securities not determined by the Trustees to be liquid. INVESTING IN WARRANTS The Fund will not invest more than 5% of the value of its net assets in warrants. No more than 2% of this 5% may be warrants which are not listed on the New York Stock Exchange or the American Stock Exchange. 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 did not borrow money in excess of 5% of the value of its net assets during the last fiscal year. Additionally, the Fund does not expect to borrow money, pledge securities, or purchase restricted securities in excess of 5% of the value of its total assets in the coming fiscal year. In connection with investing in shares of other investment companies, it should be noted that investment companies incur certain expenses such as management fees, and, therefore, any investment by the Fund in such shares would be subject to customary expenses. In addition, to comply with requirements of a particular state, the Fund (i) will not invest in real estate limited partnerships and (ii) will not purchase interests in oil, gas, and mineral leases, except it may purchase the securities of issuers which invest in or sponsor such programs. TRUST MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions. Except as listed below, none of the Trustees or officers are affiliated with Star Bank, N.A., Federated Investors, Federated Securities Corp., Federated Services Company, Federated Administrative Services, or the Funds (as defined below). - --------------------------------------------------------------------------------
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ------------------------------------------------------------------------------- John F. Donahue +* Chairman and Chairman and Trustee, Federated Investors Tower Trustee Federated Investors; Chairman Pittsburgh, PA and Trustee, Federated Advisers, Federated Management, and Federated Research; Director, AEtna Life and Casualty Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. - ------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Wood/IPC Commercial Properties Corporation; Senior Department Vice-President, John R. Wood John R. Wood and and Associates, Inc., Associates, Inc., Realtors Realtors; President, Northgate 3255 Tamiami Trail North Village Development Naples, FL Corporation; General Partner or Trustee in private real estate ventures in Southwest Florida; Director, Trustee, or Managing General Partner of the Funds; formerly, President, Naples Property Management, Inc. - ------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the One PNC Plaza--23rd Floor Executive Committee, Michael Pittsburgh, PA Baker, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. - ------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The 571 Hayward Mill Road Emerging Germany Fund, Inc.; Concord, MA Director, Trustee, or Managing General Partner of the Funds; formerly, Director, Blue Cross of Massachusetts, Inc. - ------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and 3471 Fifth Avenue Internist, Presbyterian and Suite 1111 Montefiore Hospitals; Clinical Pittsburgh, PA Professor of Medicine and Trustee, University of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. - ------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, 5916 Penn Mall Meyer and Flaherty; Director, Pittsburgh, PA Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - ------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer, and Federated Investors Tower Treasurer, Trustee, Federated Investors; Pittsburgh, PA and Trustee Vice President and Treasurer, Federated Advisers, Federated Management, and Federated Research; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer, and Director, Federated Administrative Services; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. - ------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State 225 Franklin Street Representative, Commonwealth Boston, MA of Massachusetts; Director, Trustee, or Managing General Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer 5916 Penn Mall and Flaherty; Chairman, Pittsburgh, PA Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - ------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and 1202 Cathedral of Learning Management Consultant; Trustee, University of Pittsburgh Carnegie Endowment for Pittsburgh, PA International Peace, RAND Corporation, Online Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy and Technology. - ------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing 4905 Bayard Street consultant; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds. - ------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Federated Investors Tower Trustee, Federated Investors; Pittsburgh, PA Chairman and Director, Federated Securities Corp.; President or Vice President of the Funds; Director or Trustee of some of the Funds. - ------------------------------------------------------------------------------- Joseph S. Machi Vice President Vice President, Federated Federated Investors Tower and Assistant Administrative Services; Vice Pittsburgh, PA Treasurer President and Assistant Treasurer of some of the Funds. - ------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, Federated Investors Tower and Secretary General Counsel, and Trustee, Pittsburgh, PA Federated Investors; Vice President, Secretary, and Trustee, Federated Advisers, Federated Management, and Federated Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Director, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - ------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors Tower Federated Investors; Executive Pittsburgh, PA Vice President, Federated Securities Corp.; President and Trustee, Federated Advisers, Federated Management, and Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - -------------------------------------------------------------------------------
*This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. +Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: A.T. Ohio Municipal Money Fund; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; The Boulevard Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; - -------------------------------------------------------------------------------- Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding Shares. Prior to the creation of separate classes of Shares, as of January 6, 1994, the following shareholder of record owned 5% or more of the outstanding Shares of the Fund: Firstcinco, Cincinnati, Ohio, owned approximately 2,512,039 Shares (36.59%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees are not liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Star Bank, N.A. ("Star Bank" or "Adviser"). Star Bank is a wholly-owned subsidiary of StarBanc Corporation. Because of the internal controls maintained by Star Bank to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Star Bank's or its affiliates' lending relationships with an issuer. Star 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. ADVISORY FEES For its advisory services, Star Bank receives an annual investment advisory fee as described in the prospectus. For the fiscal years ended November 30, 1993, and 1992, and for the period from the Fund's date of initial public investment (October 18, 1991) to November 30, 1991, prior to the creation of separate classes of Shares, the Adviser earned $465,417, $235,165, and $15,126, respectively, of which $1,248, $18,156, and $2,485, respectively, were voluntarily waived. All advisory fees were computed on the same basis as described in the prospectus. STATE EXPENSE LIMITATIONS The Fund has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser has agreed to reimburse the Fund for its expenses over the limitation. - -------------------------------------------------------------------------------- If the Fund's monthly projected operating expenses exceed this limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the fiscal years ended November 30, 1993, and 1992, and for the period from October 18, 1991 (date of initial public investment), to November 30, 1991, prior to the creation of separate classes of Shares, the Fund incurred administrative service fees of $62,298, $32,167, and $2,103, respectively, of which $0, $787, and $2,103, respectively, were voluntarily waived. In addition, John A. Staley, IV, an officer of the Trust, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended November 30, 1993, 1992, and 1991, Federated Administrative Services paid approximately $164,324, $186,144, and $193,178, respectively, for services provided by Commercial Data Services, Inc. CUSTODIAN - -------------------------------------------------------------------------------- Star Bank is custodian for the securities and cash of the Fund. Under the Custodian Agreement, Star 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 1% of the Fund's average daily net assets. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: . advice as to the advisability of investing in securities; . security analysis and reports; . economic studies; . industry studies; . receipt of quotations for portfolio evaluations; and . similar services. The Adviser exercises reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. It determines in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers and dealers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser might otherwise have paid, it would tend to reduce its expenses. For the fiscal years ended November 30, 1993, and 1992, and for the period ended November 30, 1991, prior to the creation of separate classes of Shares, the Fund paid total brokerage commissions of $195,196, $212,801, and $37,018, respectively. PURCHASING SHARES - -------------------------------------------------------------------------------- Except under certain circumstances described in the respective prospectuses, Shares are sold at their net asset value plus a sales charge, if any, on days the New York Stock Exchange and the Federal Reserve Wire System are open for business. Except under the circumstances described in the respective prospectuses, the minimum initial investment in the Fund by an investor is $1,000. With respect to the Investment Shares, the minimum initial investment may be waived from time to time for employees and retired employees of Star Bank, N.A., and for members of the families (including parents, grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such employees or retired employees. The procedure for purchasing Shares is explained in the respective prospectus under "Investing in Investment Shares" or "Investing in Trust Shares." - -------------------------------------------------------------------------------- DISTRIBUTION PLAN (INVESTMENT SHARES ONLY) With respect to Investment Shares of the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of Shares subject to the Plan. Such activities may include the advertising and marketing of Shares; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services as to Shares. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for Share purchases and redemptions, confirming and reconciling all transactions, reviewing the activity in Fund accounts, and providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of Shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. ADMINISTRATIVE ARRANGEMENTS The administrative services include, but are not limited to, providing office space, equipment, telephone facilities, and various personnel, including clerical, supervisory, and computer, as is necessary or beneficial to establish and maintain shareholders' accounts and records, process purchase and redemption transactions, process automatic investments of client account cash balances, answer routine client inquiries regarding the Fund, assist clients in changing dividend options, account designations, and addresses, and providing such other services as the Fund may reasonably request. CONVERSION TO FEDERAL FUNDS 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 funds or be converted into federal funds. Star Bank acts as the shareholder's agent in depositing checks and converting them to federal funds. 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. DETERMINING MARKET VALUE OF SECURITIES Market or fair values of the Fund's portfolio securities are determined as follows: . for equity securities and bonds and other fixed income securities, according to the last sale price on a national securities exchange, if available; . in the absence of recorded sales of equity securities, according to the mean between the last closing bid and asked prices and for bonds and other fixed income securities as determined by an independent pricing services; . for unlisted equity securities, the latest bid prices; or . for all other securities, at fair value as determined in good faith by the Trustees. TRADING IN FOREIGN SECURITIES Trading in foreign securities may be completed at times which vary from the closing of the New York Stock Exchange. In computing the net asset value, the Trust 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 Trustees, although the actual calculation may be done by others. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Shareholders using the exchange privilege must exchange Shares having a net asset value of at least $1,000. Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, Shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling Star Bank at the number on the cover of this Statement. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- The Fund redeems Shares at the next computed net asset value after Star Bank receives the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays restricting wire transfers. Redemption procedures are explained in the respective prospectus under "Redeeming Investment Shares" or "Redeeming Trust 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 this state's policy changes, the Fund reserves 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 Investment Company Act of 1940 under which the Trust is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the respective 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. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund 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: . derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; . derive less than 30% of its gross income from the sale of securities held less than three months; . invest in securities within certain statutory limits; and . distribute to its shareholders at least 90% of its net income earned during the year. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal income tax on dividends and capital gains received as cash or additional Shares. The dividends received deduction for corporations will apply to ordinary income distributions to the extent the distribution represents amounts that would qualify for the dividends received deduction to the Fund if the Fund were a regular corporation, and to the extent designated by the Fund as so qualifying. These dividends and any short-term capital gains are taxable as ordinary income. CAPITAL GAINS Shareholders will pay federal tax at capital gains rates on long-term capital gains distributed to them regardless of how long they have held Shares. TOTAL RETURN - -------------------------------------------------------------------------------- Prior to the creation of separate classes of Shares, the Fund's average annual total returns for the fiscal year ended November 30, 1993, and for the period from October 18, 1991 (date of initial public investment), to November 30, 1993, were 6.90%, and 7.07%, respectively. The average annual total return for both classes of Shares of the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of Shares owned at the end of the period by the maximum offering price per Share at the end of the period. The number of Shares owned at the end of the period is based on the number of Shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional Shares, assuming the quarterly reinvestment of all dividends and distributions. YIELD - -------------------------------------------------------------------------------- Prior to the creation of separate classes of Shares, the Fund's yield for the thirty-day period ended November 30, 1993, was 2.03%. The yield for both classes of Shares of the Fund is determined by dividing the net investment income per Share (as defined by the Securities and Exchange Commission) earned by either class of Shares over a thirty-day period by the maximum offering price per Share of either class of Shares 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 twelve-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by either 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 either class of Shares, the performance will be reduced for those shareholders paying those fees. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The performance of both classes of Shares depends upon such variables as: . portfolio quality; . average portfolio maturity; . type of instruments in which the portfolio is invested; . changes in interest rates and market value of portfolio securities; . changes in the Fund's or either class of Shares' expenses; and . various other factors. Either class of Shares' performance 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 either class of Shares' performance. When comparing performance, investors should consider all relevent 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 which the Fund uses in advertising may include: . 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 Fund will quote its Lipper ranking in the "balanced" category in advertising and sale literature. . DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected blue-chip industrial corporations, as well as public utility and transportation companies. The DJIA indicates daily changes in the average price of stocks in any of its categories. It also reports total sales for each group of industries. Because it represents the top corporations of America, the DJIA's index movements are leading economic indicators for the stock market as a whole. . SHEARSON LEHMAN GOVERNMENT/CORPORATE TOTAL INDEX is comprised of approximately 5,000 issues which include non-convertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi-federal corporations; and publicly issued, fixed-rate, non-convertible domestic bonds of - -------------------------------------------------------------------------------- companies in industry, public utilities, and finance. Tracked by Shearson Lehman, the index has an average maturity of nine years. It calculates total return for one-month, three-month, twelve-month, and ten-year periods, and year-to-date. . STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite index of common stocks in industry, transportation, and financial and public utility companies, can be used to compare to the total returns of funds whose portfolios are invested primarily in common stocks. In addition, the Standard & Poor's index assumes reinvestments of all dividends paid by stocks listed on its index. Taxes due on any of these distributions are not included, nor are brokerage or other fees calculated in Standard & Poor's figures. Advertisements and other sales literature for either class of Shares may quote total returns which are calculated on non-standardized base periods. These total returns also represent the historic change in the value of an investment in either class of Shares based on quarterly reinvestment of dividends over a specified period of time. Advertisements for Investment Shares may quote performance information which does not reflect the effect of the sales load. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. 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. NR--Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS 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 edge." Interest payments are protected by a large or by 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 which 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 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. NR--Not rated by Moody's. FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS 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 to be 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. NR--NR indicates that Fitch does not rate the specific issue. 1072404B (4/94) -----END PRIVACY-ENHANCED MESSAGE-----