-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KRW9qsfLw6xJvR87CW7T7dT0a3cMP5sq4LVuYQUUPzCB91G3jI4zvkwFyCUJZ/q8 /7Ew4wik1Y1cwGjmxQuHBQ== 0000846030-97-000014.txt : 19970714 0000846030-97-000014.hdr.sgml : 19970714 ACCESSION NUMBER: 0000846030-97-000014 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970711 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR FUNDS CENTRAL INDEX KEY: 0000846030 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05762 FILM NUMBER: 97639285 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 N-30D 1 [LOGO] STOCK AND BOND FUNDS COMBINED SEMI-ANNUAL REPORT MAY 31, 1997 PORTFOLIO OF STAR FUNDS STAR CAPITAL APPRECIATION FUND STAR GROWTH EQUITY FUND STAR RELATIVE VALUE FUND THE STELLAR FUND STAR STRATEGIC INCOME FUND STAR U.S. GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- President's Message Dear Shareholder: I am pleased to present the Semi-Annual Report to Shareholders for the Star Stock and Bond Funds. The Report covers the six-month period from December 1, 1996 through May 31, 1997. It includes a discussion with each fund's portfolio manager, which covers economic and market conditions and their impact on fund performance and strategy. Next is a complete list of each fund's holdings, followed by their financial statements. In general, the Star stock funds enjoyed continued positive returns as the bull market in U.S. stocks marched on. Star bond funds, on the other hand, continued to pay a competitive level of income but were affected by interest rate volatility that caused prices to decline. Fund-by-fund highlights over the six-month period ended May 31, 1997, are as follows: STAR CAPITAL APPRECIATION FUND The fund's portfolio of growth-oriented stocks achieved a six-month total return of 4.30%, or -0.38% adjusted for the sales charge, through a $0.54 increase in net asset value*. Fund assets ended the period at $73.8 million. STAR GROWTH EQUITY FUND This fund pursues classic growth through high-quality stocks that, at the end of the period, included companies like Allstate, Boeing, Clorox, Disney, Dow, Eastman Kodak, Gillette, Hewlett-Packard, J.P. Morgan, Microsoft, Merck, and Pepsico. During the six-month period, Star Growth Equity Fund delivered a strong total return of 9.85%, or 4.44% adjusted for the sales charge.* Contributing to the total return were a $0.27 increase in share price, $0.07 per share in dividends, and $1.02 in capital gains. Fund assets ended the period at $125.5 million. STAR RELATIVE VALUE FUND The fund pursues a high level of total return through a portfolio of stocks that appear to be undervalued and historically offer above-average yields with low volatility. Many of these stocks are household names and, at the end of the period included American Express, AT&T, Bristol-Myers Squibb, Dow, General Motors, Gillette, Goodyear, IBM, Intel, Procter & Gamble, and more. Over the six-month period, the fund delivered a strong total return of 12.77%, or 7.67% adjusted for the sales charge.* The fund's share price rose from $19.03 on the first day of the period to $20.86 on the last day. Shareholders received dividends totaling $0.15 per share and capital gains totaling $0.38 per share. Fund net assets increased substantially over the six-month period to reach $294.9 million. THE STELLAR FUND To pursue a high level of total return over the long-term, the fund invests in approximately equal weightings in U.S. stocks, U.S. bonds, international securities, real estate securities, and money market securities. This highly diversified approach produced a total return of 5.27%, or 0.54% adjusted for the sales charge, for Investment Shares.* Contributing to the total return were dividends totaling $0.17 per share, capital gains totaling $0.50 per share, and a share price increase of $0.01 per share. On the last day of the period, fund assets stood at $118.4 million. Shareholders of Trust Shares received a total return of 5.47% through dividends totaling $0.19 per share, capital gains totaling $0.50 per share, and a share price increase of $0.02 per share. STAR STRATEGIC INCOME FUND The fund is managed to provide income through a diversified portfolio of investments that, at the end of the period included corporate bonds (45.4%), common stocks (4.5%), government agency bonds (19.8%), and preferred stocks (6.7%). The fund paid dividends totaling $0.39 per share. Consistent with a bond market affected by rising rates that caused bond prices to fall, the fund's total return was 1.38%, or -3.66% adjusted for the sales charge.* At the end of the period, fund assets reached $136.6 million. STAR U.S. GOVERNMENT INCOME FUND Amid a relatively difficult environment for bonds, the fund provided shareholders with $0.28 per share in dividends through a portfolio that consisted of U.S. Treasury securities (47.0% of assets), government agency securities (24.1% of assets) and corporate bonds (26.9% of assets) at the end of the period. Due to rising rates that caused bond prices to fall, the fund experienced a slightly negative total return of -0.05%, or -3.58% adjusted for the sales charge.* The fund's net assets stood at $135.4 million at the end of the period. Thank you for pursuing your longer-term goals through the Star Stock and Bond Funds. We will continue to keep you up-to-date on the details of your investment on a regular basis, through the highest level of service possible. Sincerely, Edward C. Gonzales President July 11, 1997 * Performance quoted represents past performance and is not indicative of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- Investment Reviews Star Capital Appreciation Fund Q Late in the period, volatility hit the stock market, with growth stocks bearing the brunt. Can you comment? A A great deal of the total market volatility was a direct result of uncertainty about the direction of the economy and the ensuing Federal Reserve Board (the "Fed") action. The perception of volatility has picked up in the marketplace as the daily fluctuations become more pronounced. True momentum stocks received a great deal of focus primarily resulting from the short-term nature of some of the investors within that group. As the momentum "dries up" these investors very quickly exit the stock. It is this phenomenon that has drawn the attention of the popular press. These stocks do move around a great deal. Those stocks which had negative earnings news have not recovered, but those with positive news recovered some if not all of their losses. Q Technology stocks have been particularly hard hit. Was that a major influence on the fund performance? A The fund maintained a neutral policy toward technology stock during the period. The sell-off which occurred in the February-March time period has been entirely corrected as the technology indexes all established new 52 weeks highs. The fund participated in both the sell off and the rally back to new highs. The policy of neutral weighting is consistent with the current sector weightings of the fund's investment adviser. Q In the previous report, consistent with your expectations of a decelerating economy, you discussed the portfolio's focus on leading stocks within key growth sectors of the mid-cap universe. Is that strategy still on track? What sectors are you focusing on? A The policy of focusing on portfolio holdings of industry leaders within key sectors is definitely intact. This policy helps concentrate the exposure to the highest quality mid-cap names and capitalize on their abilities to manage their businesses. These companies typically exhibit the characteristics of above average long-term earnings growth rates, solid product lines, strong management and growing market share. To optimize the impact of the fund's sector weights, we have concentrated mainly on a sector neutral approach for the core holdings of the portfolio, while overweighting periodically with the trading portfolio these sectors which are currently exhibiting the strongest relative earnings growth levels. At the present time the overweights are in the basics and capital goods sectors. Star Growth Equity Fund Q The soaring stock market was jolted by volatility early in 1997. Nevertheless, Star Growth Equity Fund produced a solid return for the six-month period. Comment? A The Star Growth Equity Fund had a good six-month period and generated a 9.85%* total return from December 1, 1996 through May 31, 1997, based on net asset value. The Fund's average annual total returns for the one-year and since inception (11/14/94) periods ended May 31, 1997, were 19.8% and 26.14%, respectively, based on offering price. The fund is very widely diversified with exposure to all of the broad economic sectors of the market. This helps to reduce volatility by not heavily over or underweighting any one specific sector. The fund also is widely diversified through security selection. We currently hold over 90 names in the fund. This helps to eliminate wide swings in the fund due to dramatic movements by any one particular security. We suspect that this volatility will continue and urge investors to stick to their long term goals and objectives. - --------- * Performance quoted reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- Q What sectors drove the fund's performance? A Although the month to month volatility, as discussed above, has been large, there are a couple of sectors which have been positive drivers in performance. In particular these have continued to be in the technology area with names such as Intel and Microsoft. We have also seen good strength in the capital goods area with names such as Boeing, Caterpillar and Illinois Tool Works. With the tremendous volatility, however, there were pockets of strength found in almost every sector which overall contributed to the performance. Q Where do you see opportunities? A We have put a slightly heavier emphasis on cyclical stocks in the portfolio. With the recent economic strength this group should see some short term improved earnings. Therefore we have recently increased weights in Chemicals, Metals, and Capital Goods stocks. This is truly a short-term play and not one which we expect to promote from a long-term standpoint. Q At this point, in what promises to be a volatile market, is individual security selection a more critical determinant of performance than sector weights? A We continue to place heavy emphasis on sector weights and believe that in general stocks in a group will move in some uniform fashion. However, there is tremendous risk in this market for any type of corporate disappointment. Therefore, we are holding a large number of names to help reduce the risk from any corporate missteps. Sector weightings are still the most important determinant, but prudence calls for strong security diversification within those chosen sectors. Star Relative Value Fund Q The stock market continued to climb during the period, but experienced a significant level of volatility early in 1997. How did Star Relative Value Fund perform compared to overall stock market? A The Star Relative Value Fund generated a +12.77%* total return, based on net asset value, for the six months ended May 31, 1997. This return exceeded that of all growth stock funds as measured by the Lipper Growth Stock Index,** which had a total return of 11.24%. Q What specific sectors and stocks made the greatest impact on fund performance? A Financial related securities, technology stocks, and selected health care and consumer stocks made the greatest impact on the Star Relative Value Fund during the last six months. Top performing stocks included International Business Machines, Intel, Procter & Gamble, Phillip Morris, Bristol Myers, Smithkline Beecham PLC ADR, Nationsbank, American Express, Travelers Group, and American Bankers Insurance Group Inc. - --------- * Performance quoted reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Analytical Services, Inc. as falling into the respective categories indicated. These figures do not reflect sales charges. - -------------------------------------------------------------------------------- Q With valuations so high, are you focusing the portfolio on any particular sectors, or are you sector-neutral? Where are you seeing value in the market? A We are looking to reduce our overweight in the finance sector and increase weightings in basic industry and energy. The energy sector looks especially appealing from a valuation standpoint along with the attractive dividend yields. Consumer cyclicals continue to be underweighted. Q Looking ahead through 1997, do you still anticipate respectable rather than spectacular returns from the market? A We believe, that the market remains vulnerable to a 10% correction and/or continued volatility with increased rotation among the different sectors of the market. Concerns still exist over earnings and interest rates, but inflation remains low and U.S. equities are underrepresented in foreign portfolios. We feel that stocks should provide respectable returns looking ahead. The Stellar Fund Q During the period, how did The Stellar Fund's multi-asset investment mix perform for shareholders? A The Stellar Fund participated in the overwhelming strength of the domestic stock market. The international equity component,* while not as strong as the domestic stockholdings, posted solid gains. Real Estate Investment Trust ("REIT") holdings and the fixed income component held down total fund returns. These portfolio holdings did reduce overall volatility, but suffered as interest rates rose during the period. Q The U.S. stock market finally experienced a significant degree of volatility. How well did the fund's stock holdings perform vs. the Standard & Poor's 500 Index (the "S&P 500")?** A The domestic equity portfolio extended its performance margin over the S&P 500, which had a total return of 15.44% for the six-month period ended May 31, 1997. The driving force behind this performance rests with the portfolio overweighting in energy and health care. In our forecast for 1997, we were anticipating a return to normal levels of volatility and had taken steps to capitalize on it. We used rallies and the subsequent sell off to exchange high volatility issues for lower volatility holdings. Q Amid economic uncertainty and the much anticipated rate increase by the Fed, bond performance weakened. How did the fund's domestic bond holdings perform in this environment? A The bond portion of the fund, while positive for the year, has reduced the absolute performance of the fund. The compression of yields between varying classes of bonds and the lack of volatility in bond prices have created new challenges for the fund's fixed income component. Based on our risk vs. reward analysis, the portfolio is invested primarily in U.S. Treasury issues with a two- and ten-year barbell maturity structure. - --------- * International investing involves special risks such as currency risk, increased volatility of foreign securities and differences in auditing and other financial standards. ** 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. The S&P is an unmanaged index. Actual investment may not be made in an index. - -------------------------------------------------------------------------------- Q How did the fund's international holdings perform? A Many of the international markets have performed well this year in local currency terms. Adding to that performance has been the relative weakening of the dollar relative to most of the G-7 currencies. Despite these positive results, the best performing asset class has been the domestic equity holdings. Q Are the fund's international holdings still concentrated in Europe? A The fund's international component is heavily weighted to Europe with limited exposure to Canada, Australia, Japan and Chile. We find in these markets attractive valuations, improving economies and stable political environments. Q Did the fund's real estate holdings continue to perform well? A The REIT market experienced a down quarter in early 1997. This was due in part to the upward movement in interest rates, as the cost of capital is a major determinate of REIT performance in the short run. Add to that the fact that over the past two years the REIT market has experienced explosive growth and it is clear the segment was due for a correction . The fund's performance was in line with the National Association of Real Estate Investment Trust Index ("NAREIT")*. Q For the near future, where are you seeing opportunities among the various asset classes? A The Stellar Fund domestic portfolio is focusing on smaller market capitalization companies priced attractively on a valuation basis. In the international realm, our focus on Europe continues to be in the large consumer oriented issues. In REITs we continue to underweight the retail sector in favor of greater apartment and office exposure. Our 1997 forecast calls for a slowing economy and a more subdued rate of return for domestic equities with increasing volatility. We look for strong performance from the international and REIT segments of the portfolio in the second half of the year. Star Strategic Income Fund Q The bond market was relatively weak during the period, with a particularly negative first quarter. Can you comment? A The first quarter of 1997 continued the impressive economic strength from the fourth quarter of 1996. Economic growth was fed by strong personal income expansion and ample liquidity. In the first two months of the new year, bond market returns were barely positive. By March, however, the Fed carried out their well advertised warning that higher short-term interest rates were necessary to keep the economy and inflation in check. Yields for the six-month period rose 70 to 63 basis points in shorter and longer maturities, respectively. Thus, the yield curve flattened slightly as measured by 2- to 30-year Treasury issues. The Fed's action and stock market volatility took its toll on corporate and emerging markets debt during the period. According to Lehman Brothers, the corporate sector of the market underperformed Treasury securities due to heightened concerns over earnings and adverse corporate actions (event risk). Mortgage backed securities have been stellar performers, outperforming Treasury and corporate bonds alike. Throughout this period, our outlook was neutral. With the aid of a longer-term outlook and proprietary models, the fund was spared significant damage caused by wide swings in perception and interest rates. - --------- * NAREIT is an unmanaged index comprised of major growth-oriented REITs. - -------------------------------------------------------------------------------- Q In this environment, how did the Star Strategic Income Fund's income producing investments perform for shareholders? A Income levels have remained fairly steady for the past six months. As yields peaked, we made adjustments to the portfolio to "lock-in" higher yields. Thus, income levels and performance improved somewhat. The corporate bond market had seen yield premiums compared to Treasury bonds narrow dramatically in 1996. For 1997, the opposite has occurred and yield levels have risen a bit more quickly than Treasury bonds. The opposite has held true for mortgage related bonds. A major advantage for the Strategic Income fund is its flexibility to allocate assets towards those investments which offer the best value (or yield). Mortgage bonds and REITs have performed well this year, so they are being scaled back in representation. Conversely, the fund has increased its corporate bond and international exposure to take advantage of income opportunities being presented. Q The fund's diversification among different income-producing investments has helped cushion the fund's shareholders against the difficult markets in the past. Has this continued to hold true for what was a relatively difficult six-month period? A Yes, but in a less dramatic fashion. The benefits of broad diversification are clear over long time horizons. However, there are short periods when multiple asset classes are more closely correlated. As we've discussed earlier, corporate bonds have had a bumpy start to 1997 and represent over 40% of the portfolio. REIT's had an outstanding month in December, but returns for 1997 have been essentially in line with the overall bond market. International bond markets have not registered strong performance. Fortunately, equity and mortgage-backed securities have had a tremendous year. Once again, positive returns were generated only through income without the help of capital gains. Q With one rate increase by the Fed behind us, what do you see for fixed income securities for the rest of 1997? A Our outlook calls for moderate growth in the economy and "limited" inflationary pressures. We say limited pressures because the only source of inflation we believe is wage rates. Average hourly earnings continue to move upward as the unemployment rate declines. Benefit costs have nearly stopped declining as most firms now have HMO's. Conversely, leading indicators of inflation show encouraging signs that inflation rates will remain stable. The National Association of Purchasing Managers ("NAPM") price index, industrial prices, agricultural prices, gold, and value of the dollar have all shown little inflation concerns in the past twelve months. We believe the Fed is not entering a period of sustained rate increases, but may need to increase rates another 50 basis points to ensure low inflation. Bond yields have risen 50 basis points since the year began due to stronger economic growth and the Fed's preemptive rate increase. Going forward we expect a stalemate between the longer-term positives and short-term negatives with generally more volatility. Bond yields at 7.25% are attractive from a longer-term perspective. Positives for the bond markets include excellent value, slowing federal deficit growth, low gold prices, and technical factors. Assuming our predicted inflation rate of 3%, real bond yields of 4.0% are at historically attractively levels. Impediments to further yield declines include strong performance in the coincident indicators, a late business cycle, and stronger than expected economic growth. Our proprietary "Bond Market Barometer" model stands at a slightly bearish reading of -5 (-13 signals higher yields and +13 signals lower yields). We think yields will be volatile, but remain within a range of 6.75% to 7.25% over the next six months. Star U.S. Government Income Fund Q What is your analysis of the bond market, which remained relatively weak over the period and experienced a particularly difficult first quarter of 1997? A The first quarter of 1997 continued the impressive economic strength from the fourth quarter of 1996. Economic growth was fed by strong personal income expansion and ample liquidity. In the first two months of the new year, bond market returns were barely positive. By March, however, the Fed carried out its well advertised warning that higher short-term interest rates were necessary to keep the economy and inflation in check. Yields for the six-month period rose 70 and 63 basis points in shorter and longer maturities, respectively. Thus, the yield curve flattened slightly as measured by 2- to 30-year Treasury issues. The Fed's action and stock market volatility took its toll on corporate and emerging markets debt during the period. According to Lehman Brothers, the corporate sector of the market underperformed Treasury securities due to heightened concerns over earnings and adverse corporate actions (event risk). Mortgage backed securities have been stellar performers, outperforming Treasury and corporate bonds alike. Throughout this period, our outlook was neutral. With the aid of a longer-term outlook and proprietary models, the fund was spared significant damage caused by wide swings in perception and interest rates. Q In this environment, how did the fund's portfolio perform for shareholders in terms of income and total return? A Income levels have advanced slightly throughout the period. As yields rose, we made adjustments to the portfolio to "lock-in" higher yields. Thus, income levels and performance improved somewhat. Total return for the six months ended May 31, 1997, based on net asset value, was -0.5%,* compared to -0.3% for the Lipper U.S. Government Bond Fund Average. Q Did the fund's mortgage backed and corporate bond holdings continue to help cushion shareholders against the difficult market? A At the beginning of the period, the sector allocation was 15% mortgage-backed, 10% agency, 50% Treasury, and 25% corporate bonds. The incremental income of the mortgage-backed bonds helped buffer the portfolio from a difficult market. Mortgages in particular performed well when interest rates rose and volatility declined. Corporate bonds had been the best performing fixed income asset in 1996, but those strong results have not been repeated thus far in 1997. Fortunately, our efforts to improve diversification in REIT bonds and maintain a conservative profile have helped minimize damage to the portfolio. Q With one rate increase by the Fed behind us, what do you see for fixed income securities for the rest of 1997? A Our outlook calls for moderate growth in the economy and "limited" inflationary pressures. We say limited pressures because the only source of inflation we believe is wage rates. Average hourly earnings continue to move upward as the unemployment rate declines. Benefit costs have nearly stopped declining as most firms now have HMO's. Conversely, leading indicators of inflation show encouraging signs that inflation rates will remain stable. The NAPM price index, industrial prices, agricultural prices, gold, and value of the dollar have all shown little inflation concerns in the past twelve months. We believe the Fed is not entering a period of sustained rate increases, but may need to increase rates another 50 basis points to ensure low inflation. Bond yields have risen 50 basis points since the year began due to stronger economic growth and the Fed's preemptive rate increase. Going forward we expect a stalemate between the longer-term positives and short-term negatives with generally more volatility. Bond yields at 7.25% are attractive from a longer-term perspective. Positives for the bond markets include excellent value, slowing federal deficit growth, low gold prices, and technical factors. Assuming our predicted inflation rate of 3%, real bond yields of 4.0% are at historically attractive levels. Impediments to further yield declines include strong performance in the coincident indicators, a late business cycle, and stronger than expected economic growth. Our proprietary "Bond Market Barometer" model stands at a slightly bearish reading of -5 (-13 signals higher yields and +13 signals lower yields). We think yields will be volatile, but remain within a range of 6.75% to 7.25% over the next six months. - --------- * Performance quoted reflects past performance and is not indicative of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. - -------------------------------------------------------------------------------- Portfolios of Investments -------------------------------------------------------- STAR CAPITAL APPRECIATION FUND May 31, 1997 (unaudited)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- COMMON STOCKS 92.8% - ---------------------------------------------------------------------- BANKING 1.8% 29,000 First Tennessee National Corp. $1,308,625 - ---------------------------------------------------------------------- CHEMICALS 1.9% 22,000 Betz Laboratories, Inc. 1,402,500 - ---------------------------------------------------------------------- COMPUTER SERVICES 3.0% 34,500 (a) Cadence Design Systems, Inc. 1,147,125 13,000 (a) U.S. Robotics Corp. 1,092,000 - ---------------------------------------------------------------------- Total 2,239,125 - ---------------------------------------------------------------------- COMPUTERS 4.9% 41,250 Diebold, Inc. 1,546,875 45,000 International Game Technology 798,750 53,000 (a) Structural Dynamics Research Corp. 1,298,500 - ---------------------------------------------------------------------- Total 3,644,125 - ---------------------------------------------------------------------- CONSUMER DURABLES 4.3% 37,000 Bowater, Inc. 1,826,875 22,000 Cintas Corp. 1,364,000 - ---------------------------------------------------------------------- Total 3,190,875 - ---------------------------------------------------------------------- DRUGS 1.5% 28,000 (a) Watson Pharmaceuticals, Inc. 1,095,500 - ---------------------------------------------------------------------- ELECTRIC 1.4% 43,000 Wisconsin Energy Corp. 1,037,375 - ---------------------------------------------------------------------- ELECTRONICS 6.6% 16,000 (a) 3Com Corp. 776,000 42,000 (a) Atmel Corp. 1,207,500 22,000 Avnet, Inc. 1,386,000 28,000 (a) Maxim Integrated Products, Inc. 1,505,000 - ---------------------------------------------------------------------- Total 4,874,500 - ---------------------------------------------------------------------- ENERGY OIL EXPLORATION 1.1% 20,000 Noble Affiliates, Inc. 842,500 - ---------------------------------------------------------------------- ENTERTAINMENT & LEISURE 3.8% 48,000 Callaway Golf Co. 1,548,000 34,000 (a) MGM Grand, Inc. 1,287,750 - ---------------------------------------------------------------------- Total 2,835,750 - ---------------------------------------------------------------------- FINANCE 3.0% 30,000 Pacific Century Financial Corp. 1,380,000 22,500 Paychex, Inc. 826,875 - ---------------------------------------------------------------------- Total 2,206,875 - ---------------------------------------------------------------------- FINANCIAL SERVICES 9.5% 32,920 Bear Stearns Cos., Inc. 1,069,900 35,508 Conseco, Inc. 1,420,320 47,000 Money Stores, Inc. 1,204,375 42,000 State Street Corp. 1,874,250 30,000 SunAmerica, Inc. 1,417,500 - ---------------------------------------------------------------------- Total 6,986,345 - ---------------------------------------------------------------------- FOOD & BEVERAGE 3.6% 69,000 Coca Cola Enterprises, Inc. 1,457,625 57,000 Tyson Foods, Inc., Class A 1,168,500 - ---------------------------------------------------------------------- Total 2,626,125 - ---------------------------------------------------------------------- FOOD STORE RETAIL 1.7% 28,500 (a) Safeway, Inc. 1,282,500 - ---------------------------------------------------------------------- GAS 1.0% 12,000 Columbia Gas System, Inc. 772,500 - ---------------------------------------------------------------------- HOSPITAL MANAGEMENT 1.1% 34,200 (a) HEALTHSOUTH Corp. 782,325 - ---------------------------------------------------------------------- HOSPITALS 2.8% 12,000 Quorum Health Group, Inc. 424,500 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- HOSPITALS (CONTINUED) 40,000 (a) Vencor, Inc. $1,630,000 - ---------------------------------------------------------------------- Total 2,054,500 - ---------------------------------------------------------------------- INSURANCE 1.3% 12,000 Progressive Corp. Ohio 949,500 - ---------------------------------------------------------------------- MANUFACTURING 2.5% 25,000 (a) Nautica Enterprise, Inc. 587,500 28,000 (a) Sealed Air Corp. 1,284,500 - ---------------------------------------------------------------------- Total 1,872,000 - ---------------------------------------------------------------------- MEDICAL 2.1% 46,000 (a) Healthcare & Retirement Corp. 1,564,000 - ---------------------------------------------------------------------- METALS 0.9% 10,000 Reynolds Metals Co. 678,750 - ---------------------------------------------------------------------- OIL-INTERNATIONAL 8.3% 90,000 (a) Abacan Resource Corp. 652,500 50,000 (a) Global Marine, Inc. 1,125,000 35,000 IMC Global, Inc. 1,369,375 29,000 (a) Smith International, Inc. 1,518,875 45,000 Tosco Corp. 1,468,125 - ---------------------------------------------------------------------- Total 6,133,875 - ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUST 0.9% 18,000 Starwood Lodging Trust 670,500 - ---------------------------------------------------------------------- RESTAURANTS 1.3% 52,500 (a) Boston Chicken, Inc. 945,000 - ---------------------------------------------------------------------- RETAIL 5.4% 52,000 (a) Bed Bath & Beyond, Inc. 1,475,500 25,000 Gap (The), Inc. 856,250 35,000 Tiffany & Co. 1,623,125 - ---------------------------------------------------------------------- Total 3,954,875 - ---------------------------------------------------------------------- SERVICES 4.4% 32,000 (a) CDI Corp. 1,292,000 13,000 (a) Corrections Corp. America 471,250 3,800 Washington Post Co., Class B 1,465,375 - ---------------------------------------------------------------------- Total 3,228,625 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 2.5% 38,000 (a) ADC Telecommunications, Inc. 1,301,500 24,000 (a) Aspect Telecommunications Corp. 540,000 - ---------------------------------------------------------------------- Total 1,841,500 - ---------------------------------------------------------------------- TRANSPORTATION 1.6% 45,000 Comair Holdings, Inc. 1,170,000 - ---------------------------------------------------------------------- UTILITIES 6.6% 45,000 Ipalco Enterprises, Inc. 1,400,625 32,000 NIPSCO Industries, Inc. 1,296,000 40,000 Pinnacle West Capital Corp. 1,175,000 32,000 Sierra Pacific Resources 948,000 - ---------------------------------------------------------------------- Total 4,819,625 - ---------------------------------------------------------------------- WASTE SERVICES 2.0% 40,000 (a) USA Waste Services, Inc. 1,450,000 - ---------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $57,208,339) 68,460,295 - ---------------------------------------------------------------------- COMMERCIAL PAPER 3.6% - ---------------------------------------------------------------------- $2,691,000 NYNEX Corp. CP (AT AMORTIZED COST) 2,690,580 - ---------------------------------------------------------------------- MUTUAL FUNDS 4.6% 3,360,038 Flex Funds (AT NET ASSET VALUE) 3,360,038 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $63,258,957) $74,510,913 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- ------------------------------------------------------------------- STAR GROWTH EQUITY FUND May 31, 1997 (unaudited) - -----------------------------------------------------------------------
- ----------------------------------------------------------------------- SHARES VALUE - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- COMMON STOCKS 92.2% - ---------------------------------------------------------------------- AEROSPACE & DEFENSE 1.7% 10,000 Boeing Co. $1,052,500 11,500 Lockheed Martin Corp. 1,076,688 - ---------------------------------------------------------------------- Total 2,129,188 - ---------------------------------------------------------------------- AUTOMOBILE 1.0% 1,500 General Motors Corp. 85,875 28,000 Johnson Controls, Inc. 1,186,500 - ---------------------------------------------------------------------- Total 1,272,375 - ---------------------------------------------------------------------- BANKING 1.8% 10,000 Banc One Corp. 432,500 8,800 First Financial Bancorp 332,200 10,100 J.P. Morgan & Co., Inc. 1,085,750 10,000 RCSB Financial, Inc. 409,375 - ---------------------------------------------------------------------- Total 2,259,825 - ---------------------------------------------------------------------- BROADCASTING 1.1% 26,000 (a) Clear Channel Communications, Inc. 1,374,750 - ---------------------------------------------------------------------- CHEMICALS 4.5% 3,000 Dow Chemical Co. 250,125 22,000 Du Pont (E.I.) de Nemours & Co. 2,395,250 20,000 Lyondell Petrochemical Co. 440,000 58,595 Monsanto Co. 2,578,180 - ---------------------------------------------------------------------- Total 5,663,555 - ---------------------------------------------------------------------- COMPUTER SERVICES 6.3% 40,600 (a)(b) Cisco Systems, Inc. 2,750,650 28,140 (b) Hewlett-Packard Co. 1,449,210 19,000 (a) Microsoft Corp. 2,356,000 30,000 (a) Oracle Corp. 1,398,750 - ---------------------------------------------------------------------- Total 7,954,610 - ---------------------------------------------------------------------- CONSUMER NON-DURABLES 0.8% 20,000 American Brands, Inc. 980,000 - ---------------------------------------------------------------------- DRUGS 4.7% 15,000 (a) Amgen, Inc. 1,003,125 32,900 American Home Products Corp. 2,508,625 6,000 Bristol-Myers Squibb Co. 440,250 21,000 Merck & Co., Inc. 1,887,375 - ---------------------------------------------------------------------- Total 5,839,375 - ---------------------------------------------------------------------- ELECTRICAL EQUIPMENT 1.2% 25,600 General Electric Co. 1,545,600 - ---------------------------------------------------------------------- ELECTRONIC TECHNOLOGY 5.1% 58,500 (a) Atmel Corp. 1,681,875 21,170 Intel Corp. 3,207,255 3,773 Lucent Technologies, Inc. 240,058 36,500 Telefonaktiebolaget LM Ericsson, Class B 1,300,313 - ---------------------------------------------------------------------- Total 6,429,501 - ---------------------------------------------------------------------- ENERGY MINERALS 0.7% 40,000 Occidental Petroleum Corp. 930,000 - ---------------------------------------------------------------------- ENERGY SERVICES 3.2% 30,000 (a) ENSCO International, Inc. 1,496,250 60,000 (a) Global Marine, Inc. 1,350,000 15,000 Halliburton Co. 1,160,625 - ---------------------------------------------------------------------- Total 4,006,875 - ---------------------------------------------------------------------- ENTERTAINMENT 1.8% 40,000 Callaway Golf Co. $1,290,000 11,147 Disney (Walt) Co. 912,661 - ---------------------------------------------------------------------- Total 2,202,661 - ---------------------------------------------------------------------- FINANCE 1.4% 16,000 Merrill Lynch & Co., Inc. 1,696,000 - ---------------------------------------------------------------------- FOOD & BEVERAGE 1.6% 48,000 PepsiCo, Inc. 1,764,000 6,000 Sara Lee Corp. 245,250 - ---------------------------------------------------------------------- 2,009,250 - ---------------------------------------------------------------------- GOVERNMENT AGENCY 1.9% 40,000 Federal National Mortgage Association 1,745,000 5,000 Student Loan Marketing Association 608,125 - ---------------------------------------------------------------------- Total 2,353,125 - ---------------------------------------------------------------------- HEALTH SERVICES 1.3% 18,150 Columbia/HCA Healthcare Corp. 664,744 30,000 (a) Quorum Health Group, Inc. 1,061,250 - ---------------------------------------------------------------------- Total 1,725,994 - ---------------------------------------------------------------------- HEALTH TECHNOLOGY 2.6% 29,000 Schering Plough Corp. 2,631,750 13,800 (a) Sofamor Danek Group, Inc. 634,800 - ---------------------------------------------------------------------- Total 3,266,550 - ---------------------------------------------------------------------- HOSPITAL SUPPLIES 1.3% 26,670 Johnson & Johnson 1,596,866 - ---------------------------------------------------------------------- HOUSEHOLD PRODUCTS 6.9% 22,000 Clorox Co. 2,777,500 28,008 Gillette Co. 2,489,211 19,829 Procter & Gamble Co. 2,733,923 16,526 Tupperware Corp. 599,068 - ---------------------------------------------------------------------- Total 8,599,702 - ---------------------------------------------------------------------- INSURANCE 7.2% 35,000 Allstate Corp. 2,576,875 29,000 American Bankers Insurance Group, Inc. 1,645,750 15,561 American International Group, Inc. 2,106,570 25,000 Ohio Casualty Corp. 1,037,500 30,000 Travelers Group, Inc. 1,646,250 - ---------------------------------------------------------------------- Total 9,012,945 - ---------------------------------------------------------------------- MANUFACTURING 0.7% 11,000 Eastman Kodak Co. 911,625 - ---------------------------------------------------------------------- METALS & MINING 1.2% 20,000 Aluminum Co. of America 1,472,500 - ---------------------------------------------------------------------- MULTI-INDUSTRY 0.6% 10,529 Allied-Signal, Inc. 808,101 - ---------------------------------------------------------------------- OIL-DOMESTIC 0.9% 2,500 Ashland, Inc. 119,688 7,300 Atlantic Richfield Co. 1,062,150 - ---------------------------------------------------------------------- Total 1,181,838 - ---------------------------------------------------------------------- OIL-FOREIGN 1.3% 11,300 Mobil Corp. 1,580,588 - ---------------------------------------------------------------------- OIL-INTERNATIONAL 3.8% 25,000 Chevron Corp. 1,750,000 27,500 Texaco Corp. 3,000,938 - ---------------------------------------------------------------------- Total 4,750,938 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- ------------------------------------------------------------------- STAR GROWTH EQUITY FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- PROCESS INDUSTRIES 0.3% 7,000 International Paper Co. $336,000 - ---------------------------------------------------------------------- PRODUCER MANUFACTURING 5.3% 27,800 AGCO Corp. 886,125 23,500 Caterpillar, Inc. 2,294,188 5,400 Emerson Electric Co. 291,600 20,000 Illinois Tool Works, Inc. 992,500 20,000 Parker-Hannifin Corp. 1,052,500 10,000 Textron, Inc. 1,185,000 - ---------------------------------------------------------------------- Total 6,701,913 - ---------------------------------------------------------------------- PUBLISHING 1.5% 20,000 Gannett Co., Inc. 1,850,000 - ---------------------------------------------------------------------- REAL ESTATE 2.2% 24,000 Camden Property Trust 705,000 23,000 Highwoods Properties, Inc. 695,750 16,000 Meditrust, REIT 590,000 25,000 RFS Hotel Investors, Inc. 465,625 19,583 United Dominion Realty Trust, Inc. 288,849 - ---------------------------------------------------------------------- Total 2,745,224 - ---------------------------------------------------------------------- RETAIL TRADE 5.4% 40,800 (a) Kohl's Corp. 2,198,100 41,526 Premark International, Inc. 1,131,584 43,122 (a) Safeway, Inc. 1,940,490 30,000 Sears, Roebuck & Co. 1,473,750 - ---------------------------------------------------------------------- Total 6,743,924 - ---------------------------------------------------------------------- STEEL 0.4% 15,600 AK Steel Holding Corp. 606,450 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 3.8% 28,000 BellSouth Corp. 1,270,500 55,000 GTE Corp. 2,426,875 15,000 NYNEX Corp. 806,250 5,200 Vodafone Group PLC, ADR 232,048 - ---------------------------------------------------------------------- Total 4,735,673 - ---------------------------------------------------------------------- TRANSPORTATION 0.7% 2,400 (a) AMR Corp. 238,500 25,000 Canadian Pacific Ltd. 662,500 - ---------------------------------------------------------------------- Total 901,000 - ---------------------------------------------------------------------- TRANSPORTATION-AIRLINES 0.9% 34,000 Comair Holdings, Inc. 884,000 4,000 (a) UAL Corp. 312,000 - ---------------------------------------------------------------------- Total 1,196,000 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- UTILITIES 5.1% 25,000 Cinergy Corp. $875,000 36,150 Coastal Corp. 1,812,019 11,300 Duke Power Co. 508,500 33,200 Enron Corp. 1,352,900 44,000 GPU, Inc. 1,540,000 13,600 Southern Co. 289,000 - ---------------------------------------------------------------------- Total 6,377,419 - ---------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $88,901,521) 115,747,940 - ---------------------------------------------------------------------- OPTIONS PURCHASED 0.1% 100 Put Option on Standard & Poors 500, expires 7/1/1997, Strike @850 145,000 30 Put Option on Exxon, expires 1/16/1999, Strike @70 750 25 Put Option on Phillip Morris, expires 1/17/1998, Strike @70 563 25 Put Option on Phillip Morris, expires 1/17/1998, Strike @70 844 70 Put Option on Coca-Cola, expires 1/16/1999, Strike @40 3,063 200 Put Option on Coca-Cola, expires 1/16/1999, Strike @40 8,750 40 Put Option on Merck, expires 1/16/1999, Strike @60 3,750 60 Put Option on General Electric, expires 1/16/1999, Strike @80 9,000 - ---------------------------------------------------------------------- TOTAL OPTIONS (IDENTIFIED COST $380,580) 171,720 - ---------------------------------------------------------------------- COMMERCIAL PAPER 2.4% - ---------------------------------------------------------------------- TELECOMMUNICATIONS 2.4% $3,028,000 NYNEX Corp., 5.62%, 6/2/1997 (AT AMORTIZED COST) 3,027,527 - ---------------------------------------------------------------------- MUTUAL FUNDS 4.8% 6,044,472 Flex Funds (AT NET ASSET VALUE) 6,044,472 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $98,354,100) $124,991,659 - ----------------------------------------------------------------------
- ---------------------------------------------------------------------- STAR RELATIVE VALUE FUND May 31, 1997 (unaudited)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- COMMON STOCKS 96.3% - ---------------------------------------------------------------------- AEROSPACE 4.7% 97,000 Lockheed Martin Corp. $9,081,625 98,000 Raytheon Co. 4,679,500 - ---------------------------------------------------------------------- Total 13,761,125 - ---------------------------------------------------------------------- AUTOMOBILE 1.3% 65,000 General Motors Corp. 3,721,250 - ---------------------------------------------------------------------- AUTOMOTIVE & RELATED 4.2% 130,000 Goodyear Tire & Rubber Co. $7,605,000 110,000 Johnson Controls, Inc. 4,661,250 - ---------------------------------------------------------------------- Total 12,266,250 - ---------------------------------------------------------------------- BANKS & SAVINGS INSTITUTIONS 7.2% 26,000 Citicorp 2,973,750 64,000 Corestates Financial Corp. 3,384,000 20,000 First Financial Bancorp 755,000 31,000 Mellon Bank Corp. 2,712,500
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- -------------------------------------------------------------------- STAR RELATIVE VALUE FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- BANKS & SAVINGS INSTITUTIONS (CONTINUED) 25,000 National Australia Bank, Ltd., Melbourne, ADR $1,787,500 100,000 NationsBank Corp. 5,887,500 115,000 Signet Banking Corp. 3,780,625 - ---------------------------------------------------------------------- Total 21,280,875 - ---------------------------------------------------------------------- CHEMICAL & FERTILIZERS 2.8% 100,000 Dow Chemical Co. 8,337,500 - ---------------------------------------------------------------------- DIVERSIFIED 3.0% 100,000 Allied-Signal, Inc. 7,675,000 40,000 Canadian Pacific Ltd. 1,060,000 - ---------------------------------------------------------------------- Total 8,735,000 - ---------------------------------------------------------------------- DRUGS 14.2% 100,000 American Home Products Corp. 7,625,000 164,000 Bristol-Myers Squibb Co. 12,033,500 103,500 Merck & Co., Inc. 9,302,062 150,000 Smithkline Beecham Corp., ADR 13,125,000 - ---------------------------------------------------------------------- Total 42,085,562 - ---------------------------------------------------------------------- UTILITIES-ELECTRIC 2.2% 190,000 GPU, Inc. 6,650,000 - ---------------------------------------------------------------------- ELECTRICAL EQUIPMENT 2.5% 124,000 General Electric Co. 7,486,500 - ---------------------------------------------------------------------- ELECTRONICS 5.1% 96,000 Intel Corp. 14,544,000 10,000 Motorola, Inc. 663,750 - ---------------------------------------------------------------------- Total 15,207,750 - ---------------------------------------------------------------------- FINANCE 0.7% 50,000 Lehman Brothers Holdings, Inc. 2,018,750 - ---------------------------------------------------------------------- HOUSEHOLD PRODUCTS 7.9% 97,000 Gillette Co. 8,620,875 106,000 Procter & Gamble Co. 14,614,750 - ---------------------------------------------------------------------- Total 23,235,625 - ---------------------------------------------------------------------- INDUSTRIAL 0.7% 40,000 International Paper Co. 1,920,000 - ---------------------------------------------------------------------- INSURANCE 6.0% 50,000 American Bankers Insurance Group, Inc. 2,837,500 52,000 Cincinnati Financial Corp. 4,069,000 125,000 Ohio Casualty Corp. 5,187,500 100,000 Travelers Group, Inc. 5,487,500 - ---------------------------------------------------------------------- Total 17,581,500 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- INTERNATIONAL OIL 9.2% 74,000 Mobil Corp. $10,350,750 39,000 Royal Dutch Petroleum Co., ADR 7,614,750 85,000 Texaco, Inc. 9,275,625 - ---------------------------------------------------------------------- Total 27,241,125 - ---------------------------------------------------------------------- MANUFACTURING 1.7% 50,000 American Brands, Inc. 2,450,000 40,000 Lucent Technologies, Inc. 2,545,000 - ---------------------------------------------------------------------- Total 4,995,000 - ---------------------------------------------------------------------- MISC FINANCIAL SERVICES 1.8% 75,000 American Express Co. 5,212,500 - ---------------------------------------------------------------------- NATURAL GAS & COAL 1.0% 86,000 NICOR, Inc. 2,956,250 - ---------------------------------------------------------------------- OFFICE & BUSINESS EQUIPMENT 5.6% 190,000 International Business Machines Corp. 16,435,000 - ---------------------------------------------------------------------- RAILROADS 0.7% 25,000 Burlington Northern Santa Fe 2,075,000 - ---------------------------------------------------------------------- RETAILING & APPAREL 4.6% 150,000 Penney (J.C.) Co., Inc. 7,725,000 118,000 Sears, Roebuck & Co. 5,796,750 - ---------------------------------------------------------------------- Total 13,521,750 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 5.5% 169,000 AT&T Corp. 6,231,875 67,000 Cable & Wireless, ADR 1,683,375 152,000 GTE Corp. 6,707,000 39,000 Vodafone Group PLC, ADR 1,740,375 - ---------------------------------------------------------------------- Total 16,362,625 - ---------------------------------------------------------------------- TOBACCO 3.5% 235,000 Philip Morris Cos., Inc. 10,340,000 - ---------------------------------------------------------------------- TRANSPORTATION 0.2% 20,000 Comair Holdings, Inc. 520,000 - ---------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $174,886,432) 283,946,937 - ---------------------------------------------------------------------- COMMERCIAL PAPER 3.5% - ---------------------------------------------------------------------- TELECOMMUNICATIONS 3.5% $10,224,000 NYNEX Corp. CP (AT AMORTIZED COST) 10,222,404 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $185,108,836) $294,169,341 - ----------------------------------------------------------------------
--------------------------------------------------------------- STAR STRATEGIC INCOME FUND May 31, 1997 (unaudited)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- COMMON STOCKS 4.5% - ---------------------------------------------------------------------- AUTOMOBILE 0.8% 20,000 (b) Ford Motor Co. $750,000 5,000 General Motors Corp. 286,250 - ---------------------------------------------------------------------- Total 1,036,250 - ---------------------------------------------------------------------- ENERGY 0.4% 12,500 Ashland, Inc. 598,437 - ---------------------------------------------------------------------- FINANCE 0.5% 15,000 Banc One Corp. $648,750 - ---------------------------------------------------------------------- FOOD & BEVERAGE 0.8% 25,000 Sara Lee Corp. 1,021,875 - ---------------------------------------------------------------------- INSURANCE 0.2% 7,619 Ohio Casualty Corp. 316,188 - ---------------------------------------------------------------------- OIL 0.4% 3,400 (b) Atlantic Richfield Co. 494,700 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- --------------------------------------------------------------- STAR STRATEGIC INCOME FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- UTILITIES 1.4% 25,000 (b) Central & SouthWest Corp. $531,250 16,500 Duke Power Co. 742,500 10,000 (b) DTE Energy Co. 266,250 15,200 Kansas City Power And Light Co. 423,700 - ---------------------------------------------------------------------- Total 1,963,700 - ---------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $6,148,631) 6,079,900 - ---------------------------------------------------------------------- PREFERRED STOCKS 6.7% - ---------------------------------------------------------------------- ENERGY 0.9% 50,000 Enron Capital Trust, $2.08, Pfd. 1,281,250 - ---------------------------------------------------------------------- INSURANCE 1.7% 90,000 Travelers P & C Capital I, $2.02, Pfd. 2,272,500 - ---------------------------------------------------------------------- INTERNATIONAL OIL 1.3% 70,000 Transcanada Pipelines Ltd., Pfd., $2.13 1,811,250 - ---------------------------------------------------------------------- OIL 2.6% 168,000 Atlantic Richfield Co., $2.23, Conv. Pfd. 3,612,000 - ---------------------------------------------------------------------- UTILITIES 0.2% 10,000 Alabama Power Capital Trust II, $1.90, Pfd. 248,750 - ---------------------------------------------------------------------- TOTAL PREFERRED STOCKS (IDENTIFIED COST $9,565,925) 9,225,750 - ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS 18.1% - ---------------------------------------------------------------------- 30,300 Avalon Properties, Inc. 833,250 63,900 Camden Property Trust 1,877,062 40,000 Glimcher Realty Trust 800,000 70,000 Highwoods Properties, Inc. 2,117,500 40,000 Hospitality Properties Trust 1,270,000 42,100 Kimco Realty Corp., $2.13, Cumulative Pfd. 1,063,025 136,800 LTC Properties, Inc. 2,428,200 21,800 Liberty Property Trust 523,200 50,000 Manufactured Home Communities, Inc. 1,100,000 83,200 Meditrust, 3,068,000 50,000 Merry Land and Investment Co. 1,050,000 97,100 Omega Healthcare Investors 3,180,025 45,000 Public Storage, Inc., $2.44, Pfd., Series F 1,243,125 49,500 Summit Properties, Inc. 996,187 40,000 United Dominion Realty Trust, Inc., $2.15, Cumulative Pfd. 1,000,000 15,000 United Dominion Realty Trust, Inc., $2.31, Pfd., Series A 388,125 140,000 Winston Hotels, Inc. 1,837,500 - ---------------------------------------------------------------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (IDENTIFIED COST $22,667,121) 24,775,199 - ---------------------------------------------------------------------- CORPORATE BONDS 45.3% - ---------------------------------------------------------------------- BANKS & SAVINGS INSTITUTIONS 6.2% $500,000 Capital Holding Corp., 9.25%, 5/7/2001 540,254 3,000,000 Citicorp, 7.25%, 10/15/2011 2,960,910 1,250,000 Donaldson, Lufkin and Jenrette Securities Corp., 6.875%, 11/1/2005 1,208,250 1,750,000 NationsBank Corp., 7.625%, 4/15/2005 1,795,570 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- BANKS & SAVINGS INSTITUTIONS (CONTINUED) $2,100,000 NationsBank Corp., Medium Term Note, 6.375%, 2/21/2006 $1,982,211 - ---------------------------------------------------------------------- Total 8,487,195 - ---------------------------------------------------------------------- CHEMICAL & FERTILIZERS 0.4% 458,000 Dow Chemical Co., 9.35%, 3/15/2002 486,451 - ---------------------------------------------------------------------- DIVERSIFIED ENERGY 3.8% 1,265,000 Occidental Petroleum Corp., 10.125%, 9/15/2009 1,531,105 1,500,000 Occidental Petroleum Corp., 8.50%, 11/9/2001 1,575,870 2,000,000 Occidental Petroleum Corp., 8.75%, 2/14/2003 2,034,920 - ---------------------------------------------------------------------- Total 5,141,895 - ---------------------------------------------------------------------- ELECTRONICS 0.7% 1,000,000 Loral Corp., 7.625%, 6/15/2025 989,030 - ---------------------------------------------------------------------- ENERGY 2.4% 1,500,000 Ashland, Inc., 7.78%, 9/19/2016 1,509,645 750,000 Ashland, Inc., Series F, 7.90%, 8/5/2006 778,253 1,000,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 1,013,420 - ---------------------------------------------------------------------- Total 3,301,318 - ---------------------------------------------------------------------- ENERGY OIL EXPLORATION 1.4% 1,900,000 Noble Affiliates, Inc., 8.00%, 4/1/2027 1,919,152 - ---------------------------------------------------------------------- ENTERTAINMENT 1.8% 2,500,000 Circus Circus Enterprises, Inc., 6.75%, 7/15/2003 2,425,650 - ---------------------------------------------------------------------- FINANCE 4.7% 1,500,000 Associates Corp. of North America, Medium Term Note, 7.25%, 5/22/2006 1,505,100 1,250,000 International Lease Finance Corp., 7.00%, 5/15/2000 1,258,962 1,500,000 International Lease Finance Corp., 8.375%, 12/15/2004 1,610,310 2,000,000 Lehman Brothers, Inc., 7.125%, 7/15/2002 1,996,220 - ---------------------------------------------------------------------- Total 6,370,592 - ---------------------------------------------------------------------- FOOD & BEVERAGE 0.9% 1,300,000 PepsiCo, Inc., 6.80%, 5/15/2000 1,304,186 - ---------------------------------------------------------------------- GROCERY STORES 2.3% 2,000,000 Safeway, Inc., Medium Term Note, 8.57%, 4/1/2003 2,109,500 1,000,000 Safeway, Inc., Medium Term Note, 8.27%, 3/29/2000 1,031,020 - ---------------------------------------------------------------------- Total 3,140,520 - ---------------------------------------------------------------------- HOSPITAL MANAGEMENT 3.5% 2,000,000 Manor Care, Inc., 7.50%, 6/15/2006 2,022,360 2,450,000 Columbia/HCA Healthcare Corp., Medium Term Note, 8.70%, 2/10/2010 2,709,749 - ---------------------------------------------------------------------- Total 4,732,109 - ---------------------------------------------------------------------- HOUSEHOLD PRODUCTS 1.4% 2,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 1,904,740 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- --------------------------------------------------------------- STAR STRATEGIC INCOME FUND (Continued)
- ----------------------------------------------------------------------- - ----------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- INDUSTRIAL 0.7% $1,000,000 Lockheed Corp., 7.875%, 3/15/2023 $991,650 - ---------------------------------------------------------------------- INSURANCE 1.2% 1,500,000 Ohio National Life Insurance Company, 8.875%, 7/15/2004 1,597,470 - ---------------------------------------------------------------------- INTERNATIONAL 2.1% 500,000 Philips Electronics N.V., 6.75%, 8/15/2003 487,825 1,100,000 Philips Electronics N.V., 8.375%, 9/15/2006 1,167,188 1,025,000 Transcanada Pipelines, Ltd., 9.875%, 1/1/2021 1,265,199 - ---------------------------------------------------------------------- Total 2,920,212 - ---------------------------------------------------------------------- MANUFACTURING 0.2% 250,000 Eastman Kodak Co., 9.875%, 11/1/2004 262,475 - ---------------------------------------------------------------------- METALS & MINING 1.2% 1,600,000 Alcan Aluminum, Ltd., 9.20%, 3/15/2001 1,638,304 - ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS 0.9% 200,000 Meditrust, 7.60%, 7/15/2001 202,590 1,000,000 Post Apartment Homes LP, 7.30%, 4/1/2004 1,005,140 - ---------------------------------------------------------------------- Total 1,207,730 - ---------------------------------------------------------------------- RETAILING & APPAREL 1.4% 1,050,000 Penney (J.C.) Co., Inc., 9.45%, 7/15/2002 1,127,228 725,000 Sears, Roebuck & Co., 8.66%, 10/2/2006 795,891 - ---------------------------------------------------------------------- Total 1,923,119 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 2.1% 3,000,000 GTE Corp., 7.83%, 5/1/2023 2,925,300 - ---------------------------------------------------------------------- TOBACCO 1.1% 500,000 Philip Morris Cos., Inc., 6.00%, 11/15/1999 488,015 1,017,000 Philip Morris Cos., Inc., 7.125%, 8/15/2002 1,013,949 - ---------------------------------------------------------------------- Total 1,501,964 - ---------------------------------------------------------------------- UTILITIES 4.9% 500,000 Detroit Edison Co., 6.40%, 10/1/1998 500,510 289,000 Duke Power Co., 7.875%, 5/1/2024 285,130 2,000,000 Northern Illinois Gas, 6.45%, 8/1/2001 1,979,800 2,000,000 Northern Illinois Gas, 7.26%, 10/15/2025 1,878,020 1,000,000 Pacific Bell, 7.25%, 2/1/2008 972,080 1,000,000 Pacific Bell, 8.50%, 8/15/2031 1,032,040 - ---------------------------------------------------------------------- Total 6,647,580 - ---------------------------------------------------------------------- TOTAL CORPORATE BONDS (IDENTIFIED COST $62,545,726) 61,818,642 - ---------------------------------------------------------------------- CLOSED-END INVESTMENT COMPANIES 1.6% - ---------------------------------------------------------------------- 185,000 First Commonwealth Fund, Inc. (IDENTIFIED COST $2,199,275) 2,173,750 - ---------------------------------------------------------------------- GOVERNMENT AGENCIES 18.4% - ---------------------------------------------------------------------- FEDERAL HOME LOAN BANK 2.3% 2,031,978 8.50%, 6/1/2024 2,124,677 921,738 9.00%, 5/1/2021 981,651 - ---------------------------------------------------------------------- Total 3,106,328 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- SHARES, PRINCIPAL AMOUNT OR CONTRACTS VALUE - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORPORATION 3.6% $670,000 10.00%, PC GTD, 12/15/2020 $757,174 2,000,000 10.00%, PC GTD, 1/15/2021 2,248,240 500,000 8.00%, PC GTD, 7/15/2020 507,444 1,500,000 6.50%, PC GTD, 12/15/2018 1,481,250 - ---------------------------------------------------------------------- Total 4,994,108 - ---------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION 6.4% 1,100,000 9.50%, REMIC, 6/25/2020 1,178,386 1,000,000 9.00%, REMIC, 11/25/2019 1,068,650 500,000 8.40%, REMIC, 8/25/2019 512,045 2,000,000 7.75%, REMIC, 5/25/2021 2,004,860 2,200,000 7.50%, REMIC, 5/25/2020 2,203,432 1,000,000 7.00%, REMIC, 7/25/2007 985,040 1,000,000 4.00%, REMIC, 6/25/2020 812,810 - ---------------------------------------------------------------------- Total 8,765,223 - ---------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 6.1% 1,244,836 7.50%, 12/15/2026 1,239,782 2,229,142 7.50%, 2/20/2027 2,208,946 3,840,217 8.00%, 8/20/2026 3,889,414 616,209 9.00%, 1/15/2022 654,914 263,673 9.00%, 7/15/2016 281,883 - ---------------------------------------------------------------------- Total 8,274,939 - ---------------------------------------------------------------------- TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $25,168,390) 25,140,598 - ---------------------------------------------------------------------- INTERNATIONAL MUTUAL FUNDS 2.1% - ---------------------------------------------------------------------- 65,279 American Century International Bond Fund 716,107 240,000 Kleinwort Benson Australian Income Fund 2,160,000 - ---------------------------------------------------------------------- TOTAL INTERNATIONAL MUTUAL FUNDS (IDENTIFIED COST $2,954,785) 2,876,107 - ---------------------------------------------------------------------- CASH EQUIVALENTS 1.5% - ---------------------------------------------------------------------- FEDERAL HOME LOAN BANK 0.2% $235,423 11.00%, 4/1/2003 253,004 - ---------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.3% 187,611 10.00%, REMIC, 12/25/2018 195,575 385,254 9.40%, REMIC, 6/25/2019 399,011 113,393 8.20%, REMIC, 4/25/2006 113,423 792,398 7.25%, REMIC, 2/25/2017 797,184 219,407 4.75%, REMIC, 12/25/2011 218,349 - ---------------------------------------------------------------------- Total 1,723,542 - ---------------------------------------------------------------------- TOTAL CASH EQUIVALENTS (IDENTIFIED COST $1,971,595) 1,976,546 - ---------------------------------------------------------------------- OPTIONS PURCHASED 0.0% 75 Put Option on Sallie Mae, expires 6/20/1997, strike @ 105 1,406 50 Call Option on SWY, expires 1/17/1998, strike @ 50 13,125 100 Call Option on CISCO, expires 1/17/1998, strike @ 80 23,750 15 Put Option on Exxon, expires 1/16/1999, strike @ 35 375 35 Put Option on Coca Cola, expires 1/16/1999, strike @ 40 1,532 - ---------------------------------------------------------------------- TOTAL OPTIONS (IDENTIFIED COST $98,844) 40,188 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $133,320,292) $134,106,680 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- ------------------------------------------------ STAR U.S. GOVERNMENT INCOME FUND May 31, 1997 (unaudited)
- ----------------------------------------------------------------------- - ----------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- CORPORATE BONDS 27.2% - ---------------------------------------------------------------------- BANKING 1.2% $1,500,000 Citicorp, 8.625%, 12/1/2002 $1,610,385 - ---------------------------------------------------------------------- BEVERAGE & TOBACCO 0.8% 1,029,000 Philip Morris Cos., Inc., 8.625%, 3/1/1999 1,061,876 - ---------------------------------------------------------------------- CHEMICALS 1.2% 1,581,436 Dow Chemical Co., 7.60%, 1/2/2002 1,608,668 - ---------------------------------------------------------------------- FINANCE 5.2% 2,000,000 Associates Corp., 7.25%, 5/22/2006 2,006,800 3,750,000 International Lease Financing Co., 6.25%, 10/15/2000 3,688,425 250,000 International Lease Financing Co., 8.375%, 12/15/2004 268,385 1,000,000 United Dominion Realty Trust, Inc., 7.95%, 7/12/2006 1,039,450 - ---------------------------------------------------------------------- Total 7,003,060 - ---------------------------------------------------------------------- FOOD & BEVERAGE 0.6% 750,000 McDonald's Corp., 8.375%, 10/29/1999 781,838 - ---------------------------------------------------------------------- HEALTHCARE 1.7% 765,000 Columbia HCA Healthcare Co., 6.125%, 12/15/2000 747,642 1,500,000 Columbia HCA Healthcare Co., 6.91%, 6/15/2005 1,469,730 - ---------------------------------------------------------------------- Total 2,217,372 - ---------------------------------------------------------------------- HOUSEHOLD PRODUCTS 0.7% 1,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 952,370 - ---------------------------------------------------------------------- INTERNATIONAL 4.2% 1,000,000 Alcan Aluminum Corp., 7.25%, 12/15/1999 1,016,960 400,000 Alcan Aluminum, Ltd., 9.20%, 3/15/2001 409,576 1,500,000 Philips Electronics N.V., 6.75%, 8/15/2003 1,463,475 430,000 TransCanada Pipelines Ltd., 8.625%, 5/15/2012 471,517 2,000,000 TransCanada Pipelines Ltd., 9.125%, 4/20/2006 2,234,020 - ---------------------------------------------------------------------- Total 5,595,548 - ---------------------------------------------------------------------- OIL 3.5% 1,000,000 Ashland, Inc., 7.90%, 8/5/2006 1,037,670 600,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 608,052 3,000,000 Occidental Petroleum Corp., 8.50%, 11/9/2001 3,151,740 - ---------------------------------------------------------------------- Total 4,797,462 - ---------------------------------------------------------------------- REAL ESTATE 2.3% 2,000,000 Meditrust, REIT, 7.82%, 9/10/2026 2,054,120 1,000,000 Post Apartment Homes LP, 7.30%, 4/1/2004 1,005,140 - ---------------------------------------------------------------------- Total 3,059,260 - ---------------------------------------------------------------------- TELEPHONE 1.1% 1,500,000 GTE Corp., 7.83%, 5/1/2023 1,462,650 - ---------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- UTILITIES-ELECTRIC 4.7% $100,000 Alabama Power Co., 8.75%, 12/1/2021 $102,250 600,000 Detroit Edison Co., 6.40%, 10/1/1998 600,612 4,250,000 Georgia Power Co., 6.625%, 4/1/2003 4,148,935 1,000,000 Northern Illinois Gas Co., 6.45%, 8/1/2001 989,900 500,000 Northern Illinois Gas Co., 7.26%, 10/15/2025 469,505 - ---------------------------------------------------------------------- Total 6,311,202 - ---------------------------------------------------------------------- TOTAL CORPORATE BONDS (IDENTIFIED COST $36,683,721) 36,461,691 - ---------------------------------------------------------------------- GOVERNMENT AGENCIES 24.0% - ---------------------------------------------------------------------- FEDERAL HOME LOAN BANK 0.3% 394,255 6.00%, 8/1/2013 374,317 - ---------------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORPORATION 9.8% 4,195,971 7.00%, 9/17/2031 4,051,751 2,000,000 7.585%, 9/19/2006 2,024,040 7,500,000 PC GTD., 6.50%, 2/15/2023 7,268,625 - ---------------------------------------------------------------------- Total 13,344,416 - ---------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION 13.9% 1,500,000 5.36%, 2/16/2001 1,444,230 5,500,000 6.14%, 11/25/2005 5,262,345 2,500,000 6.54%, 10/3/2005 2,457,900 1,000,000 6.82%, 8/23/2005 1,000,860 2,000,000 6.85%, 8/22/2005 2,005,460 1,920,964 7.25%, 2/25/2017, REMIC 1,932,567 587,066 7.25%, 1/25/2019, REMIC 589,379 4,042,000 7.25%, 1/17/2021, REMIC 4,098,184 - ---------------------------------------------------------------------- Total 18,790,925 - ---------------------------------------------------------------------- TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $32,536,118) 32,509,658 - ---------------------------------------------------------------------- U.S. TREASURY 47.1% - ---------------------------------------------------------------------- TREASURY BONDS 17.4% 8,500,000 6.75%, 8/15/2026 8,268,970 7,400,000 7.125%, 2/15/2023 7,504,858 1,150,000 7.50%, 11/15/2016 1,212,709 2,000,000 8.125%, 8/15/2019 2,250,180 3,500,000 8.875%, 8/15/2017 4,207,840 100,000 12.75%, 11/15/2010 138,105 - ---------------------------------------------------------------------- Total 23,582,662 - ---------------------------------------------------------------------- TREASURY NOTES 29.7% 16,000,000 5.875%, 3/31/1999 15,930,560 750,000 6.125%, 12/31/2001 739,178 15,500,000 6.75%, 5/31/1999 15,662,130 7,650,000 7.75%, 11/30/1999 7,904,057 - ---------------------------------------------------------------------- Total 40,235,925 - ---------------------------------------------------------------------- TOTAL U.S. TREASURY (IDENTIFIED COST $63,796,243) 63,818,587 - ---------------------------------------------------------------------- SHORT-TERM INVESTMENTS 0.0% - ---------------------------------------------------------------------- TELEPHONE 0.0% 25,000 NYNEX Corp., 5.62%, 6/2/1997 24,996 - ---------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (AT AMORTIZED COST) 24,996 - ---------------------------------------------------------------------- MUTUAL FUNDS 0.4% 579,931 Flex Funds (AT AMORTIZED COST) 579,931 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $133,621,009) $133,394,863 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE STELLAR FUND May 31, 1997 (unaudited)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- U.S. EQUITIES 20.3% - ---------------------------------------------------------------------- BASIC INDUSTRY 2.4% - ---------------------------------------------------------------------- AIRLINES 0.1% 1,800 UAL Corp. $140,400 - ---------------------------------------------------------------------- CHEMICALS 0.5% 3,000 Dow Chemical Co. 250,125 12,400 Lyondell Petrochemical Co. 272,800 - ---------------------------------------------------------------------- Total 522,925 - ---------------------------------------------------------------------- INDUSTRIAL 0.2% 2,400 Du Pont (E.I.) de Nemours & Co. 261,300 - ---------------------------------------------------------------------- MANUFACTURING 0.2% 5,250 Parker-Hannifin Corp. 276,281 - ---------------------------------------------------------------------- METALS & MINING 0.9% 9,800 AGCO Corp. 312,375 3,600 Aluminum Co. of America 265,050 3,500 Caterpillar, Inc. 341,687 8,000 Coeur d'Alene Mines Corp., Rights 109,000 - ---------------------------------------------------------------------- Total 1,028,112 - ---------------------------------------------------------------------- PAPER 0.3% 7,000 International Paper Co. 336,000 - ---------------------------------------------------------------------- STEEL 0.2% 5,600 AK Steel Holding Corp. 217,700 - ---------------------------------------------------------------------- TOTAL BASIC INDUSTRY 2,782,718 - ---------------------------------------------------------------------- CAPITAL GOODS 2.8% - ---------------------------------------------------------------------- AEROSPACE 0.2% 2,500 Boeing Co. 263,125 - ---------------------------------------------------------------------- ELECTRONICS 1.4% 5,400 Emerson Electric Co. 291,600 9,000 Intel Corp. 1,363,500 - ---------------------------------------------------------------------- Total 1,655,100 - ---------------------------------------------------------------------- OFFICE & BUSINESS EQUIPMENT 1.2% 16,600 (a) Cisco Systems, Inc. 1,124,650 5,300 Hewlett-Packard Co. 272,950 - ---------------------------------------------------------------------- Total 1,397,600 - ---------------------------------------------------------------------- TOTAL CAPITAL GOODS 3,315,825 - ---------------------------------------------------------------------- CONSUMER CYCLICAL 3.0% - ---------------------------------------------------------------------- AUTOMOTIVE & RELATED 0.5% 14,000 Johnson Controls, Inc. 593,250 - ---------------------------------------------------------------------- ENTERTAINMENT & LEISURE 0.2% 8,000 Callaway Golf Co. 258,000 - ---------------------------------------------------------------------- RETAILING 1.5% 8,100 Gap (The), Inc. 277,425 20,000 (a)General Nutrition Cos., Inc. 465,000 3,400 (a)Kohl's Corp. 183,175 40,000 Roberds, Inc. 205,000 8,122 (a)Safeway, Inc. 365,490 8,400 Wal-Mart Stores, Inc. 249,900 - ---------------------------------------------------------------------- Total 1,745,990 - ---------------------------------------------------------------------- TRANSPORTATION 0.8% 10,000 Comair Holdings, Inc. 260,000 26,600 (a)Genesee & Wyoming, Inc., Class A 704,900 - ---------------------------------------------------------------------- Total 964,900 - ---------------------------------------------------------------------- TOTAL CONSUMER CYCLICAL 3,562,140 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- CONSUMER STAPLES 1.9% - ---------------------------------------------------------------------- FOOD & BEVERAGE 0.4% 3,500 Sara Lee Corp. $143,062 9,000 Sysco Corp. 313,875 - ---------------------------------------------------------------------- 456,937 - ---------------------------------------------------------------------- HOUSEHOLD 0.8% 1,500 Gillette Co. 133,312 6,000 Procter & Gamble Co. 827,250 - ---------------------------------------------------------------------- Total 960,562 - ---------------------------------------------------------------------- TOBACCO 0.7% 20,000 Philip Morris Cos., Inc. 880,000 - ---------------------------------------------------------------------- TOTAL CONSUMER STAPLES 2,297,499 - ---------------------------------------------------------------------- ENERGY 2.6% - ---------------------------------------------------------------------- DOMESTIC OIL 0.6% 5,800 BJ Services Co. 320,450 3,200 Texaco, Inc. 349,200 - ---------------------------------------------------------------------- Total 669,650 - ---------------------------------------------------------------------- ENERGY EXPLORATION 0.4% 3,500 Halliburton Co. 270,812 5,000 Noble Affiliates, Inc. 210,625 - ---------------------------------------------------------------------- Total 481,437 - ---------------------------------------------------------------------- INTERNATIONAL OIL 1.1% 1,170 Global Marine, Inc. 26,325 9,300 Mobil Corp. 1,300,837 - ---------------------------------------------------------------------- Total 1,327,162 - ---------------------------------------------------------------------- NATURAL GAS 0.5% 13,000 Coastal Corp. 651,625 - ---------------------------------------------------------------------- TOTAL ENERGY 3,129,874 - ---------------------------------------------------------------------- EQUITY MUTUAL FUNDS 1.4% - ---------------------------------------------------------------------- 100,000 (a)Gateway Trust 1,645,000 - ---------------------------------------------------------------------- TOTAL EQUITY MUTUAL FUNDS 1,645,000 - ---------------------------------------------------------------------- FINANCE 2.1% - ---------------------------------------------------------------------- BANKS & SAVINGS INSTITUTIONS 0.5% 2,658 Citicorp 304,009 3,200 First Union Corp. 274,800 - ---------------------------------------------------------------------- Total 578,809 - ---------------------------------------------------------------------- INSURANCE 0.6% 5,000 American International Group, Inc. 676,875 - ---------------------------------------------------------------------- OTHER FINANCE 1.0% 3,400 American Express Co. 236,300 8,400 Dean Witter, Discover & Co. 346,500 2,600 First USA, Inc. 128,700 4,000 Merrill Lynch & Co., Inc. 424,000 - ---------------------------------------------------------------------- Total 1,135,500 - ---------------------------------------------------------------------- TOTAL FINANCE 2,391,184 - ---------------------------------------------------------------------- HEALTH CARE 2.3% - ---------------------------------------------------------------------- BIOPHARMACEUTICALS 0.2% 3,500 (a)Amgen, Inc. 234,062 - ---------------------------------------------------------------------- HOSPITAL MANAGEMENT 0.8% 17,000 Columbia/HCA Healthcare Corp. 622,625 8,000 Quorum Health Group, Inc. 283,000 55 Transitional Hospitals Corp. 873 - ---------------------------------------------------------------------- Total 906,498 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE STELLAR FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- HOSPITAL SUPPLIES 0.2% 5,000 Johnson & Johnson $299,375 - ---------------------------------------------------------------------- PHARMACEUTICALS 1.1% 3,900 American Home Products Corp. 297,375 6,000 Bristol-Myers Squibb Co. 440,250 6,000 Merck & Co., Inc. 539,250 - ---------------------------------------------------------------------- Total 1,276,875 - ---------------------------------------------------------------------- TOTAL HEALTH CARE 2,716,810 - ---------------------------------------------------------------------- MISCELLANEOUS 0.2% - ---------------------------------------------------------------------- DIVERSIFIED 0.2% 3,500 Allied-Signal, Inc. 268,625 - ---------------------------------------------------------------------- UTILITIES 1.6% - ---------------------------------------------------------------------- ELECTRIC 1.0% 10,000 Duke Power Co. 450,000 4,200 GPU, Inc. 147,000 25,000 Southern Co. 531,250 - ---------------------------------------------------------------------- Total 1,128,250 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 0.6% 4,500 Cincinnati Bell, Inc. 276,750 5,600 GTE Corp. 247,100 4,022 SBC Communications, Inc. 235,287 - ---------------------------------------------------------------------- Total 759,137 - ---------------------------------------------------------------------- TOTAL UTILITIES 1,887,387 - ---------------------------------------------------------------------- TOTAL U.S. EQUITIES (IDENTIFIED COST $16,744,586) 23,997,062 - ---------------------------------------------------------------------- INTERNATIONAL SECURITIES 20.3% - ---------------------------------------------------------------------- INTERNATIONAL EQUITIES 18.6% - ---------------------------------------------------------------------- AUSTRALIA 2.5% 30,000 National Australia Bank, Ltd. 2,145,000 40,000 News Corp., Ltd. 710,000 10,000 News Corp., Ltd. ADR 147,500 - ---------------------------------------------------------------------- TOTAL AUSTRALIA 3,002,500 - ---------------------------------------------------------------------- CANADA 2.3% 40,000 Alcan Aluminum, Ltd. 1,435,000 45,000 Canadian Pacific Ltd. 1,192,500 2,500 Seagram Co. Ltd. 100,625 - ---------------------------------------------------------------------- TOTAL CANADA 2,728,125 - ---------------------------------------------------------------------- DENMARK 1.4% 30,000 Novo-Nordisk AS 1,646,250 - ---------------------------------------------------------------------- FRANCE 1.5% 10,000 Rhone-Poulenc Rorer, Inc. 752,500 35,000 Thomson CSF 999,306 - ---------------------------------------------------------------------- TOTAL FRANCE 1,751,806 - ---------------------------------------------------------------------- GERMANY 1.0% 15,000 Daimler Benz A.G. 1,186,875 - ---------------------------------------------------------------------- GREAT BRITAIN 3.6% 12,000 (b)British Petroleum Co. PLC 1,738,500 50,000 Cable & Wireless Ltd. 1,256,250 5,000 Smithkline Beecham Corp. PLC 437,500 20,000 (a)Vodafone Group PLC 892,500 - ---------------------------------------------------------------------- TOTAL GREAT BRITAIN 4,324,750 - ---------------------------------------------------------------------- HOLLAND 0.2% 1,500 Royal Dutch Petroleum Co. 292,875 - ---------------------------------------------------------------------- ITALY 0.5% 10,000 Luxottica Group SPA 642,500 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- JAPAN 1.8% 10,000 Hitachi Ltd. $1,085,000 45,000 Pioneer Electronic Corp 1,057,500 - ---------------------------------------------------------------------- TOTAL JAPAN 2,142,500 - ---------------------------------------------------------------------- NORWAY 0.9% 20,000 Norsk Hydro AS 1,015,000 - ---------------------------------------------------------------------- SPAIN 1.8% 50,000 Repsol SA 2,106,250 - ---------------------------------------------------------------------- SWEDEN 1.1% 45,000 Volvo Aktiebolaget 1,248,750 45,000 Volvo Aktiebolaget, Rights 11,250 - ---------------------------------------------------------------------- TOTAL SWEDEN 1,260,000 - ---------------------------------------------------------------------- TOTAL INTERNATIONAL EQUITIES 22,099,431 - ---------------------------------------------------------------------- CLOSED-END INVESTMENT COMPANIES 1.7% 30,000 Chile Fund, Inc. 765,000 62,500 Kleinwort Benson Australian Income Fund 562,500 38,010 Mexico Fund 641,419 - ---------------------------------------------------------------------- TOTAL CLOSED-END INVESTMENT COMPANIES 1,968,919 - ---------------------------------------------------------------------- TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST $18,256,265) 24,068,350 - ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS 18.2% 1,251 (a)Arden Realty Group, Inc. 32,370 38,000 Avalon Properties, Inc. 1,045,000 20,000 Bay Apartment Communities, Inc. 705,000 20,000 Cali Realty Corp. 592,500 30,500 Camden Property Trust 895,937 31,300 CenterPoint Properties Corp. 939,000 34,400 Federal Realty Investment Trust 898,700 14,000 Glimcher Realty Trust 280,000 26,400 Highwoods Properties, Inc. 798,600 25,250 Kimco Realty Corp. 795,375 39,500 LTC Properties, Inc. 701,125 26,600 Liberty Property Trust 638,400 50,000 Manufactured Home Communities, Inc. 1,100,000 15,000 Meditrust 553,125 12,000 New Plan Realty Trust 264,000 32,100 Omega Healthcare Investors 1,051,275 25,000 Post Properties, Inc. 993,750 40,000 RFS Hotel Investors, Inc. 745,000 45,000 Security Central Pacific Trust 1,001,250 25,080 Simon DeBartolo Group, Inc. 758,670 71,500 Sizeler Property Investment, Inc. 723,938 37,500 Starwood Lodging Trust 1,396,875 40,000 Storage Trust Realty 1,000,000 19,840 Storage USA, Inc. 756,400 31,800 Summit Properties, Inc. 639,975 22,000 Sun Communities, Inc. 717,750 22,500 Weingarten Realty Investors 964,688 46,800 Winston Hotels, Inc. 614,250 - ---------------------------------------------------------------------- TOTAL REAL ESTATE INVESTMENT TRUSTS (IDENTIFIED COST $15,697,421) 21,602,953 - ---------------------------------------------------------------------- FIXED INCOME OBLIGATIONS 19.3% - ---------------------------------------------------------------------- CLOSED-END INVESTMENT COMPANIES 0.5% 50,000 First Commonwealth Fund Inc. 587,500 - ----------------------------------------------------------------------
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE STELLAR FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- ENERGY 1.0% $250,000 Ashland, Inc., 7.90%, 8/5/2006 259,417 800,000 Occidental Petroleum Corp., 8.50%, 11/9/2001 840,464 - ---------------------------------------------------------------------- Total 1,099,881 - ---------------------------------------------------------------------- FINANCE 1.3% 500,000 Citicorp, 8.625%, 12/1/2002 536,795 250,000 International Lease Finance Corp., 6.25%, 10/15/2000 245,895 250,000 International Lease Finance Corp., 8.375%, 12/15/2004 268,385 400,000 Meditrust, 7.82%, 9/10/2026 410,824 500,000 United Dominion Realty Trust, Inc., 7.95%, 7/12/2006 519,725 - ---------------------------------------------------------------------- Total 1,981,624 - ---------------------------------------------------------------------- FOREIGN 0.4% 500,000 Alcan Aluminum, Ltd., 9.20%, 3/15/2001 511,970 - ---------------------------------------------------------------------- HEALTHCARE 0.6% 250,000 Columbia HCA Healthcare Corp., 6.125%, 12/15/2000 244,327 500,000 Columbia HCA Healthcare Corp., 6.91%, 6/15/2005 489,910 - ---------------------------------------------------------------------- Total 734,237 - ---------------------------------------------------------------------- INDUSTRIAL 1.3% 225,919 Dow Chemical Co., 7.60%, 1/2/2002 229,810 1,000,000 TransCanada Pipelines Ltd., 9.125%, 4/20/2006 1,117,010 200,000 TransCanada Pipelines Ltd., 9.875%, 1/1/2021 246,868 - ---------------------------------------------------------------------- Total 1,593,688 - ---------------------------------------------------------------------- PAPER 0.0% 30,000 International Paper Co., 7.625%, 1/15/2007 30,726 - ---------------------------------------------------------------------- TOBACCO 0.1% 70,000 Philip Morris Cos., Inc., 6.375%, 1/15/1998 70,172 - ---------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES 5.3% 1,500,000 Federal Home Loan Mortgage Corp., 6.50%, 2/15/2023 1,453,725 740,465 Federal Home Loan Mortgage Corp., 7.00%, 9/17/2031 715,015 1,000,000 Federal National Mortgage Association, 5.50%, 3/25/2014 994,290 761,365 Federal National Mortgage Association, 6.00%, 7/25/2012 760,451 500,000 Federal National Mortgage Association, 6.14%, 11/25/2005 478,395 225,000 Federal National Mortgage Association, 6.54%, 10/3/2005 221,211 250,000 Federal National Mortgage Association, 6.85%, 8/22/2005 250,682 851,000 Federal National Mortgage Association, 7.25%, 1/17/2021 862,829 500,000 Federal National Mortgage Association, 9.50%, 6/25/2020 535,630 - ---------------------------------------------------------------------- Total 6,272,228 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- U.S. TREASURY SECURITIES 8.4% $850,000 U.S. Treasury Bonds, 6.75%, 8/15/2026 $826,897 1,150,000 U.S. Treasury Bonds, 7.50%, 11/15/2016 1,212,710 250,000 U.S. Treasury Bonds, 8.125%, 8/15/2019 281,273 1,750,000 U.S. Treasury Bonds, 8.875%, 8/15/2017 2,103,920 100,000 U.S. Treasury Bonds, 12.75%, 11/15/2010 138,105 2,250,000 U.S. Treasury Notes, 5.875%, 3/31/1999 2,240,235 2,300,000 U.S. Treasury Notes, 6.75%, 5/31/1999 2,324,058 750,000 U.S. Treasury Notes, 7.75%, 11/30/1999 774,908 - ---------------------------------------------------------------------- Total 9,902,106 - ---------------------------------------------------------------------- UTILITY 0.4% 500,000 Georgia Power Co., 6.625%, 4/1/2003 488,110 - ---------------------------------------------------------------------- TOTAL FIXED INCOME OBLIGATIONS (IDENTIFIED COST $23,272,242) 23,272,242 - ---------------------------------------------------------------------- CASH EQUIVALENTS 12.6% - ---------------------------------------------------------------------- ENERGY 1.7% 2,000,000 Occidental Petroleum Corp., 9.50%, 8/15/1997 2,018,420 - ---------------------------------------------------------------------- FINANCE 3.8% 1,000,000 (c)General Electric Capital Corp., 5.56%, 8/11/1997 1,000,270 1,255,000 International Lease Finance Corp., 6.25%, 6/15/1998 1,258,313 100,000 Lehman Brothers Holdings, Inc., 6.375%, 6/1/1998 100,203 2,000,000 Lehman Brothers Holdings, Inc., 6.375%, 6/1/1998 2,003,640 85,000 NationsBank Corp., 6.625%, 1/15/1998 85,507 - ---------------------------------------------------------------------- Total 4,447,933 - ---------------------------------------------------------------------- INDUSTRIAL 0.4% 500,000 Du Pont (E.I.) de Nemours & Co., 8.65%, 12/1/1997 507,645 - ---------------------------------------------------------------------- TELECOMMUNICATIONS 0.3% 315,000 GTE Corp., 8.85%, 3/1/1998 321,817 - ---------------------------------------------------------------------- U.S. GOVERNMENT AGENCIES 6.4% 559,050 Federal Home Loan Mortgage Corp., 5.50%, 5/1/1998 555,595 531,195 Federal Home Loan Mortgage Corp., 5.50%, 10/15/2002 530,786 1,275,000 Federal National Mortgage Association, 5.50%, 2/16/2001 1,227,595 467,007 Federal National Mortgage Association, 6.25%, 2/25/2004 466,461 144,515 Federal National Mortgage Association, 7.00%, 7/25/2017 144,311 195,689 Federal National Mortgage Association, 7.25%, 1/25/2019 196,460 4,143 Government National Mortgage Association, 9.00%, 6/15/1998 4,196
(See Notes to the Portfolios of Investments) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE STELLAR FUND (Continued)
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- $4,500,000 Student Loan Marketing Association, Floating Rate Notes, 5.50%-5.66%, 1/21/1998-8/2/1999 $4,501,025 - ---------------------------------------------------------------------- Total 7,626,429 - ---------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (IDENTIFIED COST $15,011,123) 14,922,244 - ---------------------------------------------------------------------- MUTUAL FUND SHARES 6.4% 3,087,286 Flex Funds 3,087,286 4,500,000 Government Money Market Fund 4,500,000 - ---------------------------------------------------------------------- TOTAL MUTUAL FUNDS (AT NET ASSET VALUE) 7,587,286 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- (D) COMMERCIAL PAPER 2.0% - ---------------------------------------------------------------------- TELECOMMUNICATION 2.0% $2,332,000 NYNEX Corp. (at amortized cost) $2,331,637 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $99,089,708) $117,781,774 - ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- Notes to Portfolios of Investments (a) Non-income producing security. (b) Includes securities held in a segregated account to cover written option contracts. (c) Current rate and next reset date shown. (d) Each issue shows the rate of discount at the time of purchase for discount issues, or the coupon for interest bearing issues. (e) Denotes when-issued security.
The following acronyms are used throughout these portfolios: ADR--American Depository Receipt PC--Participation Certificate CP--Commercial Paper PLC--Public Limited Company GTD--Guaranteed REIT--Real Estate Investment Trust LP--Limited Partnership REMIC--Real Estate Mortgage Investment Conduit LTD--Limited SA--Support Agreement
Net Unrealized Gross Gross Cost of Appreciation/ Unrealized Unrealized Investments (Depreciation) Appreciation Depreciation for for for for Federal Federal Tax Federal Tax Federal Tax Tax Total Net Star Funds Purposes Purposes Purposes Purposes Assets* Star Capital Appreciation Fund $63,258,957 $11,251,956 $12,738,842 $1,486,886 $73,783,847 Star Growth Equity Fund $98,354,100 $26,637,559 $27,092,846 $ 455,287 $125,506,003 Star Relative Value Fund 1$85,108,836 $109,060,505 1$09,570,962 $ 510,457 $294,965,418 Star Strategic Income Fund 1$33,340,689 $ 765,991 $2,643,914 $1,877,923 $136,612,806 Star U.S. Government Income Fund 1$33,775,423 $ (380,560) $ 737,650 $1,118,210 $135,408,009 The Stellar Fund $99,256,771 $18,525,003 $19,482,844 $ 957,841 $118,476,332
* The categories of investments are shown as a percentage of net assets at May 31, 1997. (See Notes which are an integral part of the Financial Statements) - -------------------------------------------------------------------------------- Statements of Assets & Liabilities MAY 31, 1997 (UNAUDITED)
STAR STAR CAPITAL GROWTH APPRECIATION EQUITY FUND FUND - --------------------------------------------------------------------------------------------------------------- ASSETS: Total investments in securities, at value $74,510,913 $124,991,659 Cash 291 775 Income receivable 67,949 244,697 Receivable for investments sold -- 1,870,527 Receivable for Fund shares sold 9,564 148,221 Deferred expenses 3,340 11,120 - --------------------------------------------------------------------------------------------------------------- Total assets 74,592,057 127,266,999 - --------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 788,000 1,701,723 Payable for Fund shares redeemed -- 275 Options written, at value -- 32,025(a) Income distribution payable -- -- Accrued expenses 20,210 26,973 - --------------------------------------------------------------------------------------------------------------- Total liabilities 808,210 1,760,996 - --------------------------------------------------------------------------------------------------------------- NET ASSETS: Paid in capital 60,236,042 94,005,107 Net unrealized appreciation (depreciation) of investments and options 11,251,956 26,640,026 Accumulated net realized gain (loss) on investments and options 2,366,342 4,614,252 Undistributed net investment income (Distributions in excess of net investment income) -- 246,618 Net operating loss (70,493) -- - --------------------------------------------------------------------------------------------------------------- Total Net Assets $73,783,847 $125,506,003 - --------------------------------------------------------------------------------------------------------------- NET ASSETS: $73,783,847 $125,506,003 -- -- - --------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING: 5,637,735 8,128,156 -- -- - --------------------------------------------------------------------------------------------------------------- Total shares outstanding 5,637,735 8,128,156 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- NET ASSET VALUE: $13.09 $15.44 -- -- - --------------------------------------------------------------------------------------------------------------- OFFERING PRICE PER SHARE+: $13.71* $15.44 -- -- - --------------------------------------------------------------------------------------------------------------- REDEMPTION PROCEEDS PER SHARE+: $13.09 $14.67*** -- -- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Investments, at identified cost $63,258,957 $98,354,100 - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- Investments, at tax cost $63,258,957 $98,354,100 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
(a) Premium received $34,491. (b) Premium received $132,381. (c) Premium received $24,874. (d) Represents Trust Shares of The Stellar Fund. The other Funds do not have class designations. (e) Represents Investment Shares of The Stellar Fund. The other Funds do not have class designations. * Computation of Offering price: 100/95.5 of net asset value. ** Computation of Offering price: 100/96 of net asset value. *** Computation of Offering price: 100/96.5 of net asset value. **** Computation of Redemption Proceeds: 95/100 of net asset value. See "What Shares Cost" in the prospectus. See "Contingent Deferred Sales Charge" in the prospectus. (See Notes which are an integral part of the Financial Statements) - -------------------------------------------------------------------------------- Statements of Operations SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
STAR STAR CAPITAL GROWTH APPRECIATION EQUITY FUND FUND - --------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest income $310,643 $117,997 Dividend income 98,905 1,000,571 - --------------------------------------------------------------------------------------------------------------- Total income 409,548 1,118,568 - --------------------------------------------------------------------------------------------------------------- EXPENSES: Investment advisory fee 356,189 403,492 Administrative personnel and services fee 33,696 50,470 Custodian fees 9,373 13,450 Transfer and dividend disbursing agent fees and expenses 15,972 39,719 Directors'+Trustees' fees -- -- Auditing fees 6,002 8,043 Legal fees -- 683 Portfolio accounting fees 22,248 28,940 Distribution services fee -- -- Shareholder services fee 18,747 26,900 Share registration costs 5,528 14,047 Printing and postage 10,034 6,053 Insurance premiums 1,062 983 Miscellaneous 1,190 3,233 - --------------------------------------------------------------------------------------------------------------- Total expenses 480,041 596,013 - --------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (OPERATING LOSS) (70,493) 522,555 - --------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS: Net realized gain (loss) on investments and options 3,053,670 4,668,552 Net change in unrealized appreciation (depreciation) on investments and options (43,959) 11,481,156 - --------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS 3,009,711 16,149,708 - --------------------------------------------------------------------------------------------------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $2,939,218 $16,672,263 - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
(a) Represents distribution services fee for the Investment Shares. (b) Represents shareholders services fees of $16,724 and $12,486 for Trust Shares and Investment Shares, respectively. (See Notes which are an integral part of the Financial Statements) - --------------------------------------------------------------------------------
STAR STAR STAR U.S. RELATIVE STRATEGIC GOVERNMENT THE VALUE INCOME INCOME STELLAR FUND FUND FUND FUND - ------------------------------------------------------------------------ $294,169,341 $134,106,680 $133,394,863 $117,781,774 3,033 49,330 181 -- 764,965 1,628,342 2,406,006 786,798 -- 2,660,717 7,398,101 9,703 71,786 65,397 -- 8,051 -- 10,678 4,212 -- - ------------------------------------------------------------------------ 295,009,125 138,521,144 143,203,363 118,586,326 - ------------------------------------------------------------------------ -- 1,722,587 7,598,626 -- -- -- -- 15,171 -- 178,633(b) -- 33,750(c) -- -- 175,185 -- 43,707 7,118 21,543 61,073 - ------------------------------------------------------------------------ 43,707 1,908,338 7,795,354 109,994 - ------------------------------------------------------------------------ 179,774,553 137,481,804 138,730,756 93,885,063 109,060,505 740,136 (226,146) 18,683,191 5,394,525 (1,438,705) (3,125,384) 5,566,736 735,835 (170,429) 28,783 341,342 -- -- -- -- - ------------------------------------------------------------------------ $294,965,418 $136,612,806 $135,408,009 $118,476,332 - ------------------------------------------------------------------------ $294,965,418 $136,612,806 $135,408,009 $68,399,019(d) -- -- -- $50,077,313(e) - ------------------------------------------------------------------------ 14,141,801 13,319,697 14,190,745 5,026,830(d) -- -- -- 3,680,986(e) - ------------------------------------------------------------------------ 14,141,801 13,319,697 14,190,745 8,707,816 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ $20.86 $10.26 $9.54 $13.61(d) -- -- -- $13.60(e) - ------------------------------------------------------------------------ $21.84* $10.26 $9.89*** $13.61(d) -- -- -- $14.24(e)* - ------------------------------------------------------------------------ $20.86 $9.75*** $9.54 $13.61(d) -- -- -- $13.60(e) - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ $185,108,836 $133,320,292 $133,621,009 $99,089,708 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ $185,108,836 $133,340,689 $133,775,423 $99,256,771 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STAR STAR STAR U.S. RELATIVE STRATEGIC GOVERNMENT THE VALUE INCOME INCOME STELLAR FUND FUND FUND FUND - ------------------------------------------------------------------------ $213,322 $3,161,148 $4,644,744 $1,077,708 3,154,429 1,797,739 -- 1,488,394 - ------------------------------------------------------------------------ 3,367,751 4,958,887 4,644,744 2,566,102 - ------------------------------------------------------------------------ 976,114 579,822 409,398 554,997 122,121 57,290 64,080 54,864 32,537 15,258 17,058 14,605 48,759 32,868 23,665 64,213 2,712 910 1,346 1,703 9,352 7,094 8,462 9,101 3,094 1,793 554 2,036 35,117 29,250 30,266 37,324 -- -- -- 62,435(a) 65,074 30,517 34,116 29,210(b) 13,941 8,597 13,734 4,906 10,234 6,153 7,767 7,125 2,783 1,177 2,194 3,175 1,434 2,159 3,082 2,028 - ------------------------------------------------------------------------ 1,323,272 772,888 615,722 847,722 - ------------------------------------------------------------------------ 2,044,479 4,185,999 4,029,022 1,718,380 - ------------------------------------------------------------------------ 5,394,967 (163,296) (418,602) 5,503,079 39,381,780 (2,171,900) (3,625,218) (1,086,899) - ------------------------------------------------------------------------ 44,776,747 (2,335,196) (4,043,820) 4,416,180 - ------------------------------------------------------------------------ $46,821,226 $1,850,803 $(14,798) $6,134,560 - ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Statements of Changes In Net Assets [CAPTION] STAR STAR CAPITAL GROWTH APPRECIATION EQUITY FUND FUND SIX MONTHS SIX MONTHS ENDED YEAR ENDED YEAR MAY 31, ENDED MAY 31, ENDED 1997 NOVEMBER 30, 1997 NOVEMBER 30, (UNAUDITED) 1996 (UNAUDITED) 1996 - -------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS-- Net investment income (operating loss) ($70,493) ($167,843) $522,555 $794,667 Net realized gain (loss) on investments and options 3,053,670 (659,396) 4,668,552 5,752,898 Net change in net unrealized appreciation/depreciation of investments and options (43,959) 6,695,619 11,481,156 9,454,543 - -------------------------------------------------------------------------------------------------------- Change in net assets resulting from operations 2,939,218 5,868,380 16,672,263 16,002,108 - -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS-- Distributions from net investment income -- -- (465,001) (700,531) Distributions from net realized gain on investments and options -- (1,408,024) (5,807,119) (2,544,369) - -------------------------------------------------------------------------------------------------------- Change in net assets from distributions to shareholders -- (1,408,024) (6,272,120) (3,244,900) - -------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS Proceeds from sales of shares 4,436,209 31,488,956 36,287,077 34,897,506 Net assets value of shares issued to shareholders in payment of distributions declared -- 606,085 4,582,217 2,488,056 Cost of shares redeemed (12,754,389) (13,822,232) (11,074,824) (13,530,374) - -------------------------------------------------------------------------------------------------------- Change in net assets from share transactions (8,318,180) 18,272,809 29,794,470 23,855,188 - -------------------------------------------------------------------------------------------------------- Change in net assets (5,378,962) 22,733,165 40,194,613 36,612,396 NET ASSETS: Beginning of period 79,162,809 56,429,644 85,311,390 48,698,994 - -------------------------------------------------------------------------------------------------------- End of period $73,783,847 $79,162,809 $125,506,003 $85,311,390 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Undistributed net investment income included in net assets at end of period -- -- $246,618 $189,064 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Net gain (loss) as computed for federal tax purposes $3,053,670 ($657,799) $4,668,552 $5,807,183 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
(a) Represents income distributions of $948,590 and $646,184 for Trust Shares and Investment Shares, respectively. (b) Represents gain distributions of $2,461,154 and $1,845,547 for Trust Shares and Investment Shares, respectively. (c) Represents income distributions of $1,925,727 and $1,310,474 for Trust Shares and Investment Shares, respectively. (d) Represents gain distributions of $1,066,240 and $800,304 for Trust Shares and Investment Shares, respectively. (See Notes which are an integral part of the Financial Statements) - --------------------------------------------------------------------------------
STAR STAR STAR U.S. RELATIVE STRATEGIC GOVERNMENT THE VALUE INCOME INCOME STELLAR FUND FUND FUND FUND SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR MAY 31, ENDED MAY 31, ENDED MAY 31, ENDED MAY 31, ENDED 1997 NOVEMBER 30, 1997 NOVEMBER 30, 1997 NOVEMBER 30, 1997 NOVEMBER 30, (UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996 - ----------------------------------------------------------------------------------------------------------------------- $2,044,479 $2,849,808 $4,185,999 $5,272,079 $4,029,022 $6,885,390 $1,718,380 $3,193,081 5,394,967 4,395,132 (163,296) (1,275,409) (418,602) (1,134,865) 5,503,079 4,345,528 39,381,780 38,173,415 (2,171,900) 2,107,201 (3,625,218) 293,860 (1,086,899) 10,205,542 - ----------------------------------------------------------------------------------------------------------------------- 46,821,226 45,418,355 1,850,803 6,103,871 (14,798) 6,044,385 6,134,560 17,744,151 - ----------------------------------------------------------------------------------------------------------------------- (1,846,516) (2,646,694) (4,642,340) (5,063,250) (4,029,022) (6,869,461) (1,594,774(a) (3,236,201)(c) (4,395,625) (82,169) -- -- -- -- (4,306,701(b) (1,866,544)(d) - ----------------------------------------------------------------------------------------------------------------------- (6,242,241) (2,728,863) (4,642,340) (5,063,250) (4,029,022) (6,869,461) (5,901,475) (5,102,745) - ----------------------------------------------------------------------------------------------------------------------- 50,151,821 57,530,540 33,259,954 72,076,625 15,689,369 63,105,408 8,606,327 19,396,895 2,464,447 961,791 1,491,858 1,844,849 1,432,422 3,057,540 5,073,254 4,345,134 (14,073,078) (17,317,728) (6,122,284) (11,699,941) (16,543,543) (36,130,736) (12,578,249) (32,897,560) - ----------------------------------------------------------------------------------------------------------------------- 38,543,190 41,174,603 28,629,528 62,221,533 578,248 30,032,212 1,101,332 (9,155,531) - ----------------------------------------------------------------------------------------------------------------------- 79,122,175 83,864,095 25,837,991 63,262,154 (3,465,572) 29,207,136 1,334,417 3,485,875 215,843,243 131,979,148 110,774,815 47,512,661 138,873,581 109,666,445 117,141,915 113,656,040 - ----------------------------------------------------------------------------------------------------------------------- $294,965,418 $215,843,243 $136,612,806 $110,774,815 $135,408,009 $138,873,581 $118,476,332 $117,141,915 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- $735,835 $537,972 -- $285,912 $28,783 -- $341,342 $217,736 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- $5,394,967 $4,395,132 ($163,296) ($1,254,679) ($418,602) ($1,143,487) $5,503,079 $4,329,998 - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Financial Highlights STAR FUNDS (For a share outstanding throughout each period)
DISTRIBUTIONS NET NET REALIZED AND FROM NET ASSET INVESTMENT UNREALIZED DISTRIBUTIONS DISTRIBUTIONS NET REALIZED VALUE, INCOME/ GAIN/(LOSS) ON TOTAL FROM FROM NET IN EXCESS OF GAIN YEAR ENDED BEGINNING (OPERATING INVESTMENTS INVESTMENT INVESTMENT NET INVESTMENT ON INVESTMENTS NOVEMBER 30 OF PERIOD LOSS) AND OPTIONS OPERATIONS INCOME INCOME (I) AND OPTIONS - ------------------------------------------------------------------------------------------------------------------------------ STAR CAPITAL APPRECIATION FUND 1994(a) $10.00 -- 0.15 0.15 -- -- -- 1995 $10.15 0.03 1.72 1.75 (0.04) (0.00) (0.04) 1996 $11.82 (0.03) 1.05 1.02 -- -- (0.29) 1997(b) $12.55 (0.01) 0.55 0.54 -- -- -- STAR GROWTH EQUITY FUND 1995(c) $10.00 0.24 2.67 2.91 (0.21) -- -- 1996 $12.70 0.17 3.12 3.29 (0.16) -- (0.66) 1997(b) $15.17 0.07 1.29 1.36 (0.07) -- (1.02) STAR RELATIVE VALUE FUND 1991(d) $10.00 0.22 (0.66) (0.44) (0.13) -- -- 1992 $9.43 0.30 1.12 1.42 (0.33) -- -- 1993 $10.52 0.20 1.30 1.50 (0.22) -- -- 1994 $11.80 0.23 (0.40) (0.17) (0.23) -- (0.04) 1995 $11.36 0.29 3.65 3.94 (0.28) -- -- 1996 $15.02 0.27 4.01 4.28 (0.26) -- (0.01) 1997(b) $19.03 0.15 2.21 2.36 (0.15) -- (0.38) STAR STRATEGIC INCOME FUND 1995(e) $10.00 0.69 0.55 1.24 (0.67) -- (0.04) 1996 $10.53 0.73 (0.04) 0.69 (0.72) -- -- 1997(b) $10.50 0.35 (0.20) 0.15 (0.39) -- -- STAR U.S. GOVERNMENT INCOME FUND 1993(f) $10.00 0.51 0.25 0.76 (0.51) -- -- 1994 $10.25 0.55 (0.90) (0.35) (0.55) -- (0.11) 1995 $9.24 0.60 0.74 1.34 (0.60) -- -- 1996 $9.98 0.57 (0.15) 0.42 (0.57) -- -- 1997(b) $9.83 0.28 (0.29) (0.01) (0.28) -- -- THE STELLAR FUND TRUST SHARES 1994(g) $11.34 0.21 (0.48) (0.27) (0.17) -- -- 1995 $10.90 0.38 1.32 1.70 (0.38) -- (0.05) 1996 $12.17 0.37 1.62 1.99 (0.37) -- (0.20) 1997(b) $13.59 0.20 0.51 0.71 (0.19) -- (0.50) INVESTMENT SHARES 1991(h) $10.00 0.05 (0.25) (0.20) -- -- -- 1992 $9.80 0.29 0.74 1.03 (0.31) -- -- 1993 $10.52 0.24 0.99 1.23 (0.28) (0.03) (0.10) 1994 $11.34 0.29 (0.41) (0.12) (0.24) -- (0.08) 1995 $10.90 0.34 1.33 1.67 (0.35) -- (0.05) 1996 $12.17 0.34 1.62 1.96 (0.34) -- (0.20) 1997(b) $13.59 0.18 0.50 0.68 (0.17) -- (0.50) - ------------------------------------------------------------------------------------------------------------------------------
(a) Reflects operations for the period from June 13, 1994 (date of initial public investment) to November 30, 1994. (b) Six months ended May 31, 1997 (unaudited). (c) Reflects operations for the period from December 12, 1994 (date of initial public investment) to November 30, 1995. (d) Reflects operations for the period from June 5, 1991 (date of initial public investment) to November 30, 1991. For the period from January 31, 1989 (start of business) to June 4, 1991, all income was distributed to the administrator. (e) Reflects operations for the period from December 12, 1994 (date of initial public investment) to November 30, 1995. (f) Reflects operations for the period from January 5, 1993 (date of initial public investment) to November 30, 1993. For the period from November 23, 1992 (start of business) to January 4, 1993, all income was distributed to the administrator. (g) Reflects operations for the period from April 11, 1994 (date of initial public investment) to November 30, 1994. For the period from April 5, 1994 (start of business) to April 10, 1994, all income was distributed to the administrator. (h) Reflects operations for the period from October 18, 1991 (date of initial public investment) to November 30, 1991. For the period from July 30, 1991 (start of business) to October 17, 1991, all income was distributed to the administrator. (i) Distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These distributions did not represent a return of capital for federal income tax purposes. (j) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge if applicable. (k) Computed on an annualized basis. (l) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (m) Represents total commissions paid on portfolio securities divided by total portfolio shares purchased or sold on which commissions were charged. This disclosure is required for fiscal years beginning on or after September 1, 1995. (See Notes which are an integral part of the Financial Statements) - --------------------------------------------------------------------------------
DISTRIBUTIONS IN EXCESS OF RATIOS TO AVERAGE NET ASSETS NET REALIZED NET GAIN ON INVESTMENT EXPENSE NET ASSETS, AVERAGE INVESTMENTS NET ASSET INCOME WAIVER/ END COMMISSION AND TOTAL VALUE, END TOTAL (OPERATING REIMBURSE- OF PERIOD RATE OPTIONS (I) DISTRIBUTIONS OF PERIOD RETURN (J) EXPENSES LOSS) MENT (L) (000 OMITTED) PAID (M) - ---------------------------------------------------------------------------------------------------------------------------- -- -- $10.15 1.50% 1.58%(k) 0.08%(k) 0.10%(k) $30,013 -- -- (0.08) $11.82 17.35% 1.47% 0.28% 0.01% $56,430 -- -- (0.29) $12.55 8.95% 1.32% (0.24%) -- $79,163 $ 0.0703 -- -- $13.09 4.30% 1.28%(k) (0.19%)(k) -- $73,784 $ 0.0798 -- (0.21) $12.70 29.44% 1.17%(k) 2.00%(k) 0.03%(k) $48,699 -- -- (0.82) $15.17 27.34% 1.19% 1.31% -- $85,311 $ 0.0007 -- (1.09) $15.44 9.85% 1.11%(k) 0.97%(k) -- $125,506 $ 0.0130 -- (0.13) $9.43 (4.31%) 0.40%(k) 4.75%(k) 0.93%(k) $33,015 -- -- (0.33) $10.52 15.39% 0.47% 3.01% 1.00% $38,154 -- -- (0.22) $11.80 14.47% 1.19% 1.79% 0.31% $49,701 -- -- (0.27) $11.36 (1.54%) 1.15% 2.02% -- $74,094 -- -- (0.28) $15.02 35.10% 1.06% 2.17% -- $131,979 -- -- (0.27) $19.03 28.86% 1.04% 1.71% -- $215,843 $ 0.0905 -- (0.53) $20.86 12.77% 1.02%(k) 1.57%(k) -- $294,965 $ 0.1016 (0.00) (0.71) $10.53 12.71% 1.47%(k) 7.41%(k) 0.10%(k) $47,513 -- -- (0.72) $10.50 6.99% 1.36% 7.26% -- $110,775 $ 0.0043 -- (0.39) $10.26 1.38% 1.27%(k) 6.86%(k) -- $136,613 $ 0.0007 -- (0.51) $10.25 7.63% 1.12%(k) 5.55%(k) 0.30%(k) $44,187 -- -- (0.66) $9.24 (3.53%) 0.97% 5.87% 0.03% $87,924 -- -- (0.60) $9.98 14.90% 0.92% 6.23% -- $109,666 -- -- (0.57) $9.83 4.46% 0.92% 5.88% -- $138,874 -- -- (0.28) $9.54 (0.05%) 0.90%(k) 5.90%(k) -- $135,408 -- -- (0.17) $10.90 (1.81%) 1.43%(k) 3.57%(k) -- $60,822 -- -- (0.43) $12.17 15.97% 1.40% 3.23% -- $64,754 -- -- (0.57) $13.59 16.94% 1.39% 2.85% -- $67,047 $ 0.0671 -- (0.69) $13.61 5.47% 1.34%(k) 3.05%(k) -- $68,399 $ 0.1081 -- -- $9.80 (2.00%) 1.44%(k) 5.32%(k) 0.29%(k) $13,942 -- -- (0.31) $10.52 10.68% 1.53% 3.03% 0.33% $35,544 -- -- (0.41) $11.34 11.99 1.45% 1.87% 0.25% $73,197 -- -- (0.32) $10.90 (1.22%) 1.55% 2.32% 0.12% $50,648 -- -- (0.40) $12.17 15.67% 1.65% 2.98% -- $48,902 -- -- (0.54) $13.59 16.64% 1.66% 2.76% -- $50,094 $ 0.0671 -- (0.67) $13.60 5.27% 1.59%(k) 2.80%(k) -- $50,077 $ 0.1081 - ---------------------------------------------------------------------------------------------------------------------------- PORTFOLIO TURNOVER RATE 36% 144% 174% 67% 171% 96% 35% 38% 45% 59% 30% 24% 16% 8% 258% 201% 57% 105% 148% 236% 158% 78% 79% 104% 65% 34% 18% 98% 87% 79% 104% 65% 34% - -------------
- -------------------------------------------------------------------------------- Combined Notes to Financial Statements MAY 31, 1997 (UNAUDITED) (1) ORGANIZATION Star Funds (the "Trust"), is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The following portfolios comprise the Trust: _________________________________PORTFOLIO NAME_________________________________ Star Capital Appreciation Fund ("Capital Appreciation Fund") Star Growth Equity Fund ("Growth Equity Fund") Star Relative Value Fund ("Relative Value Fund") Star Strategic Income Fund ("Strategic Income Fund") Star Tax-Free Money Market Fund ("Tax-Free Money Market Fund") Star Treasury Fund ("Treasury Fund") Star U.S. Government Income Fund ("U.S. Government Income Fund") The Stellar Fund ("Stellar Fund") The Stellar Insured Tax-Free Bond Fund ("Stellar Tax-Free Bond Fund")* * Stellar Tax-Free Bond Fund became effective on December 24, 1996. The financial statements of the following portfolios (individually referred to as the "Fund", or collectively as the "Funds") are presented herein along with each Fund's investment objective:
PORTFOLIO NAME INVESTMENT OBJECTIVE - ------------------------------------------------------- Capital Appreciation Fund Maximize capital appreciation. Growth Equity Fund Maximize capital appreciation. Relative Value Fund Maximize total return, a combination of income and capital appreciation. Stellar Fund Maximize total return, a combination of dividend income and capital appreciation. Strategic Income Fund Generate high current income. U.S. Government Income Fund Provide current income.
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. The Funds, except Stellar Fund, are offered without class designation. Shares of Stellar Fund are offered in two classes: Trust Shares and Investment Shares. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS Equity securities traded on a securities exchange and securities traded in the over-the-counter market are valued at the last reported sales price on the day of valuation; other securities for which no sale was reported on that date, are valued at the last quoted bid price. Corporate and municipal bonds, asset backed securities and U.S. government securities are valued using the last quoted bid price as furnished by an independent pricing service. Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. B. REPURCHASE AGREEMENTS It is the policy of the Funds to require a custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Funds to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Funds will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Funds' adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Funds could receive less than the repurchase price on the sale of collateral securities. C. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). D. FEDERAL TAXES It is each Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal taxes are necessary. At November 30, 1996, Capital Appreciation Fund, Strategic Income Fund and U.S. Government Income Fund for federal tax purposes, had capital loss carryforwards, as noted below, which will reduce the Funds' taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Funds of any liability for federal tax.
TOTAL TAX-LOSS FUND CARRYFORWARD - -------------------------------------------- Capital Appreciation Fund $657,799 Stategic Income Fund 1,254,579 U.S. Government Income Fund 2,551,119 - --------------------------------------------
Pursuant to the Code, such capital loss carryforwards will expire as follows:
CAPITAL APPRECIATION FUND - ---------------------------------------- EXPIRATION YEAR EXPIRATION AMOUNT - ---------------------------------------- 2004 $657,799 - ---------------------------------------- STRATEGIC INCOME FUND - ---------------------------------------- EXPIRATION YEAR EXPIRATION AMOUNT - ---------------------------------------- 2004 $1,254,579 - ---------------------------------------- U.S. GOVERNMENT INCOME FUND - ---------------------------------------- EXPIRATION YEAR EXPIRATION AMOUNT - ---------------------------------------- 2002 $1,407,632 2004 1,143,487 - ----------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Funds may engage in when-issued or delayed delivery transactions. The Funds record when-issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES The costs incurred by each Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering its shares, have been deferred and are being amortized over a period not to exceed five years from each Fund's commencement date. G. OPTION CONTRACTS WRITTEN Capital Appreciation Fund, Growth Equity Fund, Strategic Income Fund, U.S. Government Income Fund and Stellar Fund, may write "covered" call option contracts. All of the preceding Funds, except U.S. Government Income Fund may also write "covered" put options. A written option obligates the Funds to deliver (a call), or to receive (a put), the contract amount upon exercise by the holder of the option. The principal reason for writing call or put options is to obtain, through receipt of premiums, a greater current return than would be realized on underlying securities alone. By writing call options, the Funds' may forego potential gains on the underlying security. By writing a put option, the Fund risks becoming obligated to purchase the underlying security for more than its current market price upon exercise. Premiums received from writing options are recorded as a liability and an unrealized gain or loss is measured by the difference between the current value and the premium received. For the period ended May 31, 1997, Capital Appreciation Fund, Growth Equity Fund, Strategic Income Fund and Stellar Fund and had realized a gain (loss) on options contracts of ($256,812), $38,183, $55,725 and ($1,734), respectively. At May 31, 1997, Capital Appreciation Fund and U.S. Government Income Fund had no outstanding options. U.S. Government Income Fund had no option activity for the period ended May 31, 1997. At May 31, 1997, Growth Equity Fund, Strategic Income Fund and Stellar Fund had the following outstanding options:
GROWTH EQUITY FUND - -------------------------------------------------------------------------------------------------------- NUMBER UNREALIZED EXPIRATION STRIKE OF APPRECIATION MARKET ISSUE TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE - -------------------------------------------------------------------------------------------------------- S> Atlantic Richfield Co. Put 7/1/97 $110.00 13 $(682) $3,900 Conrail Put 7/1/97 110.00 100 6,474 625 SLMA Put 7/15/97 50.00 50 (3,326) 27,500 ---------------------------- Total 2,466 32,025 ----------------------------
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STRATEGIC INCOME FUND - --------------------------------------------------------------------------------------------------------------- NUMBER UNREALIZED EXPIRATION STRIKE OF APPRECIATION MARKET ISSUE TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE - --------------------------------------------------------------------------------------------------------------- Atlantic Richfield Co. Call 6/1/97 $145.00 34 ($1,785) $10,200 Central & SouthWest Corp. Call 6/1/97 20.00 250 (19,375) 32,813 DTE Energy Co. Call 10/1/97 30.00 100 2,250 3,750 Ford Motor Co. Call 6/1/97 32.50 100 (45,502) 100,000 Occidental Petroleum Corp. Put 11/1/97 22.50 100 649 18,750 SLMA Put 6/1/97 115.00 75 17,511 13,120 --------------------------- Total ($46,252) $178,633
STELLAR FUND - ----------------------------------------------------------------------------------------------------------- NUMBER UNREALIZED EXPIRATION EXERCISE OF APPRECIATION MARKET ISSUE TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE - ----------------------------------------------------------------------------------------------------------- British Petroleum Call 7/18/97 $140.00 50 ($8,875) $33,750
The following is a summary of the Capital Appreciation Fund, Growth Equity Fund, Strategic Income Fund, and Stellar Fund options activity:
CAPITAL APPRECIATION FUND ---------------------------- NUMBER OF CONTRACTS PROCEEDS* ---------------------------- Outstanding at November 30, 1996 0 $0 Contracts opened 300 223,875 Contracts expired 0 0 Contracts exercised 0 0 Contracts closed (300) (223,875) ---------------------------- Outstanding at May 31, 1997 0 $0 ----------------------------
GROWTH EQUITY FUND -------------------------- NUMBER OF CONTRACTS PROCEEDS* -------------------------- Outstanding at November 30, 1996 400 $212,765 Contracts opened 1,383 280,815 Contracts expired (150) (25,749) Contracts exercised 0 0 Contracts closed (1,470) (433,340) -------------------------- Outstanding at May 31, 1997 163 $34,491 --------------------------
STRATEGIC INCOME FUND -------------------------- NUMBER OF CONTRACTS PROCEEDS* -------------------------- Outstanding at November 30, 1996 395 $67,863 Contracts opened 3,694 815,155 Contracts expired (390) (46,008) Contracts exercised (590) (100,297) Contracts closed (2,250) (604,332) -------------------------- Outstanding at May 31, 1997 859 $132,381 --------------------------
STELLAR FUND ---------------------------- NUMBER OF CONTRACTS PROCEEDS* ---------------------------- Outstanding at November 30, 1996 0 $0 Contracts opened 780 154,230 Contracts expired (30) (1,734) Contracts exercised (700) (127,621) Contracts closed 0 0 ---------------------------- Outstanding at May 31,1997 50 $24,875 ----------------------------
*Represents premium received less commissions paid. H. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. I. OTHER Investment transactions are accounted for on the trade date. - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
CAPITAL APPRECIATION FUND ------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 1997 1996 ------------------------------- Shares sold 351,209 2,651,433 Shares issued to share- holders in payment of distributions declared -- 54,406 Shares redeemed (1,019,673) (1,172,964) ------------------------------- Net change resulting from Fund share transactions (668,464) 1,532,875 -------------------------------
GROWTH EQUITY FUND ------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 1997 1996 ------------------------------- Shares sold 2,946,511 2,614,772 Shares issued to share- holders in payment of distributions declared 330,424 201,504 Shares redeemed (774,222) (1,025,812) ------------------------------- Net change resulting from Fund share transactions 2,502,713 1,790,464 -------------------------------
RELATIVE VALUE FUND ------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 1997 1996 ------------------------------- Shares sold 3,394,142 3,556,654 Shares issued to share- holders in payment of distributions declared 132,900 59,691 Shares redeemed (726,069) (1,062,532) ------------------------------- Net change resulting from Fund share transactions 2,800,973 2,553,813 -------------------------------
STELLAR FUND ------------------------------------------------ YEAR ENDED SIX MONTHS ENDED NOVEMBER 30, MAY 31, 1997 1996 ---------------------- ------------------------ TRUST SHARES SHARES DOLLARS SHARES DOLLARS - ------------------------------------------------------------------ --------- ----------- ---------- ------------ Shares sold 527,861 $7,050,620 1,265,521 $15,807,714 Shares issued to shareholders in payment of distributions declared 200,238 2,624,032 185,421 2,275,467 Shares redeemed ( 635,310) (8,452,141) (1,837,574) (23,021,408) ------------------------------------------------ Net change resulting from Trust Share transactions 92,789 1,222,511 (386,632) (4,938,227) ------------------------------------------------
STELLAR FUND ---------------------------------------------- YEAR ENDED SIX MONTHS ENDED NOVEMBER 30, MAY 31, 1997 1996 ---------------------- ---------------------- INVESTMENT SHARES SHARES DOLLARS SHARES DOLLARS - -------------------------------------------------------------------- --------- ----------- --------- ----------- Shares sold 117,135 $1,555,707 288,055 $3,589,181 Shares issued to shareholders in payment of distributions declared 186,929 2,449,222 168,747 2,069,667 Shares redeemed ( 309,549) (4,126,108) ( 788,848) (9,876,152) ---------------------------------------------- Net change resulting from Investment Share transactions (5,485) ($]121,179) (332,046) ($4,217,304) ---------------------------------------------- Net change resulting from Fund share transactions (87,304) ($1,101,332) (718,678) ($9,155,531) ----------------------------------------------
- --------------------------------------------------------------------------------
STRATEGIC INCOME FUND ------------------------------- SIX MONTHS YEAR ENDED ENDED MAY 31, NOVEMBER 30, 1997 1996 ------------------------------- Shares sold 3,222,517 6,987,337 Shares issued to share- holders in payment of distributions declared 145,045 178,887 Shares redeemed (594,463) (1,133,224) ------------------------------- Net change resulting from Fund share transactions 2,773,099 6,033,000 -------------------------------
U.S. GOVERNMENT INCOME FUND ------------------------------- SIX MONTHS YEAR ENDED ENDED MAY 31, NOVEMBER 30, 1997 1996 ------------------------------- Shares sold 1,634,925 6,580,878 Shares issued to share- holders in payment of distributions declared 149,915 316,007 Shares redeemed (1,725,910) (3,751,557) ------------------------------- Net change resulting from Fund share transactions 58,930 3,145,328 -------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES A. INVESTMENT ADVISORY FEE Star Bank, N.A., the Funds' investment adviser (the "Adviser"), receives for its services an annual investment advisory fee based on a percentage of each Fund's average daily net assets (see below).
FUND ANNUAL RATE - -------------------------------------------- Capital Appreciation Fund 0.95% Growth Equity Fund 0.75% Relative Value Fund 0.75% Stellar Fund 0.95% Strategic Income Fund 0.95% U.S. Government Income Fund 0.60% - --------------------------------------------
B. ADMINISTRATIVE FEE Federated Administrative Services ("FAS") provides each Fund with certain administrative personnel and services for which it receives a fee. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. C. DISTRIBUTION SERVICES FEE The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Funds will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Funds to finance activities intended to result in the sale of the Funds' Investment Shares. The Plan provides that the Funds may incur distribution expenses up to 0.25% of the average daily net assets of the Investment Shares annually, to compensate FSC. Currently, only Stellar Fund is accruing and paying 12b-1 fees. The other Star Funds will not accrue or pay any distribution expenses pursuant to the Plan until a second class of shares has been registered with the Securities and Exchange Commission. D. SHAREHOLDER SERVICES FEE Under the terms of the Shareholder Services Agreement with Star Bank, N.A., each Fund will pay Star Bank, N.A. up to 0.25% of average daily net assets for the period. For the foreseeable future, Star Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average daily net assets. This fee is to obtain certain services for shareholder and to maintain shareholder accounts. Star Bank N.A. can modify or terminate this limitation at any time at its sole discretion. E. TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. F. PORTFOLIO ACCOUNTING FEES FServ also maintains the Funds' accounting records for which it receives a fee. The fee is based on the level of each Fund's average net assets for the period, plus out-of-pocket expenses. G. CUSTODIAN FEES Star Bank, N.A., is the Funds' custodian for which it receives a fee. The fee is based on the level of each Fund's average net assets for the period, plus out-of-pocket expenses. H. ORGANIZATIONAL EXPENSES Organizational expenses were initially borne by FAS. The Funds have agreed to reimburse FAS for the organizational expenses during the five year period following each Fund's effective date. - --------------------------------------------------------------------------------
AMOUNTS EXPENSES REIMBURSED TO OF FAS FOR THE ORGANIZING PERIOD ENDED THE MAY 31, EFFECTIVE DATE FUND 1997 - ---------------------------------------------------------------- Capital Appreciation Fund May 16, 1994 $ 30,000 $ 2,437 Growth Equity Fund November 14, 1994 30,000 2,859 Strategic Income Fund November 14, 1994 30,000 2,569 U.S. Government Income Fund November 23, 1992 25,000 3,853 - ----------------------------------------------------------------
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended May 31, 1997, were as follows:
PURCHASES SALES - ------------------------------------------------------ Capital Appreciation Fund $47,271,838 $57,471,670 Growth Equity Fund 54,114,546 36,179,896 Relative Value Fund 54,916,724 19,815,106 Strategic Income Fund 96,264,648 68,122,013 U.S. Government Fund 105,225,329 103,832,161 Stellar Fund 37,141,048 43,234,288 - ------------------------------------------------------
(6) CONCENTRATION OF CREDIT RISK Stellar Fund and Strategic Income Fund invests in equity and fixed income securities of non-U.S. issuers. Although, these funds maintain diversified investment portfolios, the political or economic developments within a particular country or region may have an adverse effect on the ability of domiciled issuers to meet their obligations. Additionally, political or economic developments may have an effect on the liquidity and volatility of portfolio securities and currency holdings. - -------------------------------------------------------------------------------- Trustees Officers Thomas L. Conlan Jr. Edward C. Gonzales Edward C. Gonzales PRESIDENT AND TREASURER Dr. Alfred Gottschalk Joseph S. Machi Dr. Robert J. Hill VICE PRESIDENT AND ASSISTANT TREASURER Dawn M. Hornback C. Grant Anderson Lawrence M. Turner SECRETARY William H. Zimmer III
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government or the Federal Deposit Insurance Corporation. Investment in mutual funds involves investment risk, including the possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Trust's prospectus which contains facts concerning its objectives and policies, management fees, expenses and other information. CUSIP 854911500 CUSIP 854911880 CUSIP 854911708 ------------------------------ CUSIP 854911609 STAR BANK, N.A. CUSIP 854911401 Investment Adviser CUSIP 854911864 ------------------------------ CUSIP 854911807 FEDERATED SECURITIES CORP. G00446-01 (7/97) Distributor TR 4962 ------------------------------ THE STELLAR INSURED TAX-FREE BOND FUND [Logo] STARFUNDS - -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED MARCH 31, 1997 Portfolio of the Star Funds, and Open-End, Management Investment Company Dated July 11, 1997 A. Please insert the following "Financial Highlights" table for The Stellar Insured Tax-Free Bond Fund immediately following the section entitled "Star Capital Appreciation Fund Financial Highlights" on page 11 of the prospectus. THE STELLAR INSURED TAX-FREE BOND FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PERIOD ENDED MAY 31, 1997(A) (UNAUDITED) - ----------------------------------------------------------------------------------------------- ----------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 - ----------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------------------------- Net investment income 0.20 - ----------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.01 - ----------------------------------------------------------------------------------------------- ------- Total from investment operations 0.21 - ----------------------------------------------------------------------------------------------- ------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------------------------- Distributions from net investment income (0.20) - ----------------------------------------------------------------------------------------------- ------- NET ASSET VALUE, END OF PERIOD $ 10.01 - ----------------------------------------------------------------------------------------------- ------- TOTAL RETURN (B) 2.10% - ----------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------------------- Expenses 0.79%* - ----------------------------------------------------------------------------------------------- Net investment income 4.73%* - ----------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.25%* - ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $117,333 - ----------------------------------------------------------------------------------------------- Portfolio turnover 11% - -----------------------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 30, 1996 (date of initial public investments) to 31, 1997. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) B. Please delete the first paragraph of the section entitled "Voting Rights" on page 44 of the prospectus and replace it with the following: "Each share of a Fund gives the shareholder one vote in Trustee elections and other matters submitted to shateholders for vote. All shares of each Fund or class in the Trust have equal voting rights, except that only shares of a particular Fund or class are entitiled to vote on matters affecting only that Fund or class. 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 operation of the Trust or a Fund and for the election of Trustees under certain circumstances. As of March 3, 1997, Firstcinco, acting in various capacities for numerous accounts, was the owner of record of more than 25% of the outstanding shares of the designated Fund: 8,815,822 shares (60.52%) of U.S. Government Income Fund; 3,389,872 shares (28.46%) of Strategic Income Fund; 2,667,461 shares (53.33%) of The Stellar Fund--Trust Shares; 4,944,632 shares (35.76%) of Relative Value Fund; 4,546,782 shares (59.43%) of Growth Equity Fund; and 4,514,112 shares (73.37%) of Capital Appreciation Fund, and therefore, may, for certain purposes, be deemed to control these Funds and be able to affect the outcome of certain matters presented for a vote of shareholders. As of June 9, 1997, Firstcinco, acting in various capacities for numerous accounts, was the owner of record of 10,532,238 shares (89.49%) of the The Stellar Tax-Free Bond Fund, and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders." C. Please insert the following "Financial Statements" for The Stellar Insured Tax-Free Bond Fund immediately following the section entitled "Performance Information" which begins on page 45 of the prospectus. In addition, please add the heading "Financial Statements--The Stellar Insured Tax-Free Bond Fund" to the Table of Contents page after the heading "Performance Information." THE STELLAR INSURED TAX-FREE BOND FUND PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED) - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--95.4% - ---------------------------------------------------------------------------------- ALABAMA--7.3% -------------------------------------------------------------------- $2,500,000 Alabama Water PCA, Revenue Bonds, 5.50% (AMBAC INS), 8/15/2012 AAA/Aaa $ 2,518,625 -------------------------------------------------------------------- 1,750,000 Alabama Water PCA, Revenue Bonds, 6.70% (AMBAC INS)/(Original Issue Yield: 6.75%), 8/15/2006 AAA/Aaa 1,882,423 -------------------------------------------------------------------- 2,500,000 Bessemer, AL Water Revenue, Revenue Refunding Bonds, 5.75% (AMBAC INS)/(Original Issue Yield: 5.922%), 7/1/2016 AAA/Aaa 2,541,875 -------------------------------------------------------------------- 1,500,000 Jefferson County, AL, Sewer Refunding Revenue Bonds, 5.65% (MBIA INS)/(Original Issue Yield: 5.80%), 9/1/2008 AAA/Aaa 1,599,135 -------------------------------------------------------------------- -------------- Total 8,542,058 -------------------------------------------------------------------- -------------- CALIFORNIA--0.9% -------------------------------------------------------------------- 1,000,000 Oakland, CA, Refunding Revenue Bonds, 7.35% (FGIC INS)/(Original Issue Yield: 7.45%), 8/1/2003 AAA/Aaa 1,053,900 -------------------------------------------------------------------- -------------- COLORADO--1.1% -------------------------------------------------------------------- 1,250,000 Colorado Postsecondary Educational Facilities, Revenue Bonds, 5.75% (Auraria Foundation Project)/(FSA INS)/ (Original Issue Yield: 5.85%), 9/1/2010 AAA/Aaa 1,286,675 -------------------------------------------------------------------- -------------- FLORIDA--1.7% -------------------------------------------------------------------- 845,000 Cape Coral, FL, Special Obligation Wastewater Revenue Bond, 6.25% (FSA INS)/(Original Issue Yield: 6.359%), 6/1/2006 AAA/Aaa 912,051 --------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- FLORIDA--CONTINUED -------------------------------------------------------------------- $1,000,000 St. Petersburg, FL Public Utility, Revenue Refunding Bonds, 6.55%, 10/1/2002 AA-/Aa $ 1,067,770 -------------------------------------------------------------------- -------------- Total 1,979,821 -------------------------------------------------------------------- -------------- ILLINOIS--13.8% -------------------------------------------------------------------- 2,000,000 Chicago, IL Park District, GO UT, 5.60% (MBIA INS)/ (Original Issue Yield: 5.75%), 1/1/2014 AAA/Aaa 2,000,900 -------------------------------------------------------------------- 1,100,000 Chicago, IL, GO UT Refunding Bonds, 5.375% (MBIA INS)/(Original Issue Yield: 5.60%), 1/1/2013 AAA/Aaa 1,095,347 -------------------------------------------------------------------- 1,500,000 Cook County, IL, GO UT, 5.375% (MBIA INS)/(Original Issue Yield: 5.65%), 11/15/2012 AAA/Aaa 1,496,835 -------------------------------------------------------------------- 2,500,000 Illinois Health Facilities Authority, Revenue Refunding Bonds, 5.80% (Advocate Health Care Network)/(MBIA INS)/(Original Issue Yield: 5.90%), 8/15/2016 AAA/Aaa 2,509,525 -------------------------------------------------------------------- 1,410,000 Illinois State, GO UT, 5.75% (MBIA INS)/(Original Issue Yield: 6.00%), 5/1/2021 AAA/Aaa 1,413,891 -------------------------------------------------------------------- 2,400,000 McHenry County, IL Community Unit School District No. 200, Series A GO UT, 5.85% (FSA INS)/(Original Issue Yield: 5.848%), 1/1/2016 AAA/Aaa 2,436,768 -------------------------------------------------------------------- 2,500,000 Regional Transportation Authority, Series-A Revenue Bonds, 6.00% (AMBAC INS)/(Original Issue Yield: 6.20%), 6/1/2009 AAA/Aaa 2,629,500 -------------------------------------------------------------------- 2,500,000 Will County, IL Forest Preservation District, GO UT Refunding Bonds, 6.00% (AMBAC INS)/(Original Issue Yield: 6.30%), 12/1/2006 AAA/Aaa 2,635,550 -------------------------------------------------------------------- -------------- Total 16,218,316 -------------------------------------------------------------------- -------------- INDIANA--1.7% -------------------------------------------------------------------- 2,000,000 Indiana Transportation Finance Authority, Airport Lease Revenue Refunding Bonds (Series A), 5.00% (AMBAC INS), 11/1/2007 AAA/Aaa 2,003,940 -------------------------------------------------------------------- --------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- KENTUCKY--0.5% -------------------------------------------------------------------- $ 500,000 Kentucky Infrastructure Authority, Revenue Bonds, 7.50%, 6/1/2004 A/A $ 536,670 -------------------------------------------------------------------- -------------- MASSACHUSETTS--2.1% -------------------------------------------------------------------- 2,500,000 Massachusetts Water Resources Authority, Revenue Bonds, 5.40% (FGIC INS)/(Original Issue Yield: 5.50%), 11/1/2011 AAA/Aaa 2,513,650 -------------------------------------------------------------------- -------------- MICHIGAN--7.3% -------------------------------------------------------------------- 1,200,000 Haslett, MI Public School District, GO UT, 5.70% (MBIA INS)/(Original Issue Yield: 5.75%), 5/1/2016 AAA/Aaa 1,207,608 -------------------------------------------------------------------- 1,500,000 Lansing, MI Sewer Disposal System, Revenue Bonds, 6.25% (MBIA INS)/(Original Issue Yield: 6.795%), 5/1/2007 AAA/Aaa 1,604,220 -------------------------------------------------------------------- 2,500,00 Michigan State Comprehensive Transportation Board, Refunding Revenue Bonds, 5.75%, 5/15/2004 AA-/A1 2,639,775 -------------------------------------------------------------------- 1,065,000 Richmond, MI Community School District, GO UT School Improvements, 5.60% (AMBAC INS)/(Original Issue Yield: 5.85%), 5/1/2018 AAA/Aaa 1,062,998 -------------------------------------------------------------------- 2,000,000 Ypsilanti, MI School District, GO UT, 5.60% (FGIC INS)/ (Original Issue Yield: 5.65%), 5/1/2012 AAA/Aaa 2,028,320 -------------------------------------------------------------------- -------------- Total 8,542,921 -------------------------------------------------------------------- -------------- NEBRASKA--0.9% -------------------------------------------------------------------- 1,000,000 Omaha, NE Public Power District, Series-B Electric Revenue Bonds, 6.00%, 2/1/2007 escrowed to maturity -/Aa2 1,081,830 -------------------------------------------------------------------- -------------- NEVADA--6.6% -------------------------------------------------------------------- 2,500,000 Clark County, NV School District, GO UT, 5.75% (FGIC INS), 6/15/2010 AAA/Aaa 2,575,875 -------------------------------------------------------------------- 2,500,000 Clark County, NV School District, GO UT, 5.80% (MBIA INS)/(Original Issue Yield: 5.85%), 6/15/2011 AAA/Aaa 2,569,100 -------------------------------------------------------------------- 1,000,000 Clark County, NV, Refunding Revenue Bonds, 5.90% (MBIA INS)/(Original Issue Yield: 5.95%), 6/1/2009 AAA/Aaa 1,047,150 --------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- NEVADA--CONTINUED -------------------------------------------------------------------- $1,500,000 Washoe County, NV School District, GO UT, 5.75% (MBIA INS)/(Original Issue Yield: 5.85%), 6/1/2011 AAA/Aaa $ 1,535,430 -------------------------------------------------------------------- -------------- Total 7,727,555 -------------------------------------------------------------------- -------------- OHIO--21.1% -------------------------------------------------------------------- 2,555,000 Clermont County, OH , GO UT Refunding Bonds, 6.00% (AMBAC INS), 5/15/2007 AAA/Aaa 2,715,786 -------------------------------------------------------------------- 2,500,000 Cleveland, OH Waterworks, Refunding & Improvement Revenue Bonds (Series H), 5.75% (MBIA INS)/(Original Issue Yield: 5.84%), 1/1/2016 AAA/Aaa 2,528,500 -------------------------------------------------------------------- 1,000,000 Columbus, OH Sewer System, Revenue Refunding Bonds, 6.25% (Original Issue Yield: 6.60%), 6/1/2008 AA-/A1 1,073,800 -------------------------------------------------------------------- 3,000,000 Columbus, OH Water System, Revenue Refunding Bonds, 6.375%, 11/1/2010 AA-/A1 3,184,650 -------------------------------------------------------------------- 3,500,000 Greater Cleveland Regional Transportation Authority, OH, GO UT, 5.65% (FGIC INS)/(Original Issue Yield: 5.73%), 12/1/2016 AAA/Aaa 3,522,050 -------------------------------------------------------------------- 1,000,000 Hamilton County, OH Hospital Facilities Authority, Refunding Revenue Bonds, 5.20% (Children's Hospital Medical Center, Akron)/(FGIC INS)/(Original Issue Yield: 5.35%), 5/15/2009 AAA/Aaa 1,007,510 -------------------------------------------------------------------- 2,000,000 Montgomery County, OH, Water Revenue Bonds, 6.25% (Greater Moraine-Beaver Creek)/(FGIC INS)/(Original Issue Yield: 6.45%), 11/15/2012 AAA/Aaa 2,127,760 -------------------------------------------------------------------- 1,000,000 Ohio State Building Authority, Adult Correctional Facilities Revenue Bonds, 5.70% (Adult Correctional Facilities)/(MBIA INS)/(Original Issue Yield: 5.80%), 10/1/2006 AAA/Aaa 1,058,910 -------------------------------------------------------------------- 1,000,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State Facilities-Administration Building)/(MBIA INS)/ (Original Issue Yield: 6.05%), 10/1/2008 AAA/Aaa 1,069,560 -------------------------------------------------------------------- 1,225,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State Facilities-Administration Building)/(MBIA INS)/ (Original Issue Yield: 6.10%), 10/1/2009 AAA/Aaa 1,301,783 --------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- OHIO--CONTINUED -------------------------------------------------------------------- $1,000,000 Ohio State Turnpike Commission, Series A, 5.70% (MBIA INS)/(Original Issue Yield: 5.75%), 2/15/2013 AAA/Aaa $ 1,020,390 -------------------------------------------------------------------- 2,000,000 Ohio State Water Development Authority, Pollution Control Revenue Bonds, 5.25% (MBIA INS)/(Original Issue Yield: 5.35%), 12/1/2009 AAA/Aaa 2,016,260 -------------------------------------------------------------------- 1,000,000 Ohio State Water Development Authority, Revenue Bonds, 5.80% (AMBAC INS)/(Original Issue Yield: 5.90%), 12/1/2011 AAA/Aaa 1,039,300 -------------------------------------------------------------------- 1,000,000 Sylvania, OH City School District, GO UT, 5.80% (FGIC INS), 12/1/2015 AAA/Aaa 1,026,660 -------------------------------------------------------------------- -------------- Total 24,692,919 -------------------------------------------------------------------- -------------- PENNSYLVANIA--3.0% -------------------------------------------------------------------- 1,320,000 Pennsylvania Infrastructure Investment Authority, Subseries-A Revenue Bonds, 6.90%, 9/1/2003 AA+/- 1,417,112 -------------------------------------------------------------------- 2,000,000 Somerset County, PA General Authority, Commonwealth Lease Revenue Bonds, 6.60% (FGIC INS)/(Original Issue Yield: 6.70%), 10/15/2001 (@100) AAA/Aaa 2,161,280 -------------------------------------------------------------------- -------------- Total 3,578,392 -------------------------------------------------------------------- -------------- TEXAS--8.7% -------------------------------------------------------------------- 2,500,000 Harris County, TX HFDC, Revenue Refunding Bonds, 5.75% (Memorial Hospital System)/(MBIA INS)/(Original Issue Yield: 5.77%), 6/1/2019 AAA/Aaa 2,501,075 -------------------------------------------------------------------- 2,500,000 Port Houston Authority, TX Harris County, Revenue Refunding Bonds, 6.50% (MBIA INS)/(Original Issue Yield: 6.59%), 5/1/2005 AAA/Aaa 2,665,000 -------------------------------------------------------------------- 2,490,000 Texas State Public Finance Authority, Revenue Bonds, 5.10% (AMBAC INS)/(Original Issue Yield: 5.15%), 8/1/2009 AAA/Aaa 2,475,334 --------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- TEXAS--CONTINUED -------------------------------------------------------------------- $2,500,000 Texas Water Development Board, Revenue Bonds, 5.50% (Original Issue Yield: 5.55%), 7/15/2010 AAA/Aa1 $ 2,547,400 -------------------------------------------------------------------- -------------- Total 10,188,809 -------------------------------------------------------------------- -------------- UTAH--4.4% -------------------------------------------------------------------- 2,500,000 Davis County, UT School District, GO UT, 5.70% (MBIA INS)/(Original Issue Yield: 5.75%), 6/1/2007 AAA/Aaa 2,612,350 -------------------------------------------------------------------- 2,400,000 Jordan, UT School District, GO UT, 5.90%, 6/15/2004 -/Aa3 2,532,480 -------------------------------------------------------------------- -------------- Total 5,144,830 -------------------------------------------------------------------- -------------- VIRGINIA--3.3% -------------------------------------------------------------------- 1,000,000 Chesapeake Bay Bridge & Tunnel District, VA, Revenue Bonds, 5.60% (FGIC INS)/(Original Issue Yield: 5.75%), 7/ 1/2007 AAA/Aaa 1,049,860 -------------------------------------------------------------------- 1,600,000 Virginia State Public Building Authority, Revenue Refunding Bonds (Series A), 6.00%, 8/1/2003 AA/Aa 1,700,976 -------------------------------------------------------------------- 1,000,000 Virginia State Public School Authority, Revenue Refunding Bonds, 6.25% (Original Issue Yield: 6.30%), 1/1/2004 AA/Aa 1,076,170 -------------------------------------------------------------------- -------------- Total 3,827,006 -------------------------------------------------------------------- -------------- WASHINGTON--4.5% -------------------------------------------------------------------- 2,500,000 Seattle, WA Municipal Lighting & Power , Revenue Bonds, 6.10%, 7/1/2005 AA/Aa 2,693,875 -------------------------------------------------------------------- 2,500,000 Tacoma, WA Electric System, Revenue Refunding Bonds, 6.15% (AMBAC INS)/(Original Issue Yield: 6.25%), 1/1/ 2008 AAA/Aaa 2,638,000 -------------------------------------------------------------------- -------------- Total 5,331,875 -------------------------------------------------------------------- -------------- WISCONSIN--6.5% -------------------------------------------------------------------- 1,000,000 Beloit, WI School District, GO UT, 6.125% (MBIA INS)/ (Original Issue Yield: 6.20%), 10/1/2007 AAA/Aaa 1,040,920 --------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT CREDIT OR SHARES RATING* VALUE - ------------ -------------------------------------------------------------------- ------------- -------------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------------------- WISCONSIN--CONTINUED -------------------------------------------------------------------- $2,460,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, 5.60% (Aurora Medical Group)/(FSA INS), 11/15/2016 AAA/Aaa $ 2,398,795 -------------------------------------------------------------------- 2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, 6.00% (Meriter Hospital, Inc.)/(MBIA INS)/(Original Issue Yield: 6.125%), 12/1/2017 AAA/Aaa 2,050,960 -------------------------------------------------------------------- 2,095,000 Wisconsin State, GO UT, 5.50% (FGIC INS)/(Original Issue Yield: 5.60%), 5/1/2010 AAA/Aaa 2,137,424 -------------------------------------------------------------------- -------------- Total 7,628,099 -------------------------------------------------------------------- -------------- TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $108,971,911) 111,879,266 -------------------------------------------------------------------- -------------- MUTUAL FUND SHARES--3.0% - ---------------------------------------------------------------------------------- 3,561,388 SEI Tax Exempt Trust (AT NET ASSET VALUE) -- 3,561,388 -------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (IDENTIFIED COST $112,533,299) (A) $ 115,440,654 -------------------------------------------------------------------- --------------
(a) The cost of investments for federal tax purposes amounts to $112,533,299. The net unrealized appreciation of investments on a federal tax basis amounts to $2,907,355 which is comprised of $2,939,691 appreciation and $32,336 depreciation at May 31, 1997. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Note: The categories of investments are shown as a percentage of net assets ($117,332,711) at May 31, 1997. The following acronyms are used throughout this portfolio: AMBAC--American Municipal Bond Assurance Corporation FGIC--Financial Guaranty Insurance Company FSA--Financial Security Assurance GO--General Obligation HFDC--Health Facility Development Corporation INS--Insured MBIA--Municipal Bond Investors Assurance PCA--Pollution Control Authority UT--Unlimited Tax (See Notes which are an integral part of the Financial Statements) THE STELLAR INSURED TAX-FREE BOND FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------------------------- Total investments in securities, at value (identified and tax cost $112,533,299) $ 115,440,654 - -------------------------------------------------------------------------------------------------- Income receivable 1,935,930 - -------------------------------------------------------------------------------------------------- -------------- Total assets 117,376,584 - -------------------------------------------------------------------------------------------------- LIABILITIES: - --------------------------------------------------------------------------------------- Accrued expenses $ 43,873 - --------------------------------------------------------------------------------------- --------- Total liabilities 43,873 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 11,717,533 shares outstanding $ 117,332,711 - -------------------------------------------------------------------------------------------------- -------------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------------------------- Paid in capital $ 114,168,693 - -------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 2,907,355 - -------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments 254,176 - -------------------------------------------------------------------------------------------------- Undistributed net investment income 2,487 - -------------------------------------------------------------------------------------------------- -------------- Total Net Assets $ 117,332,711 - -------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - -------------------------------------------------------------------------------------------------- Net Asset Value Per Share ($117,332,711 / 11,717,533 shares outstanding) $10.01 - -------------------------------------------------------------------------------------------------- -------------- Offering Price Per Share (100/99.55 of $10.01)* $10.06 - -------------------------------------------------------------------------------------------------- -------------- Redemption Proceeds Per Share $10.01 - -------------------------------------------------------------------------------------------------- --------------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) THE STELLAR INSURED TAX-FREE BOND FUND STATEMENT OF OPERATIONS PERIOD ENDED MAY 31, 1997 (UNAUDITED)* - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 2,661,522 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------------- Investment advisory fee $ 358,736 - --------------------------------------------------------------------------------------- Administrative personnel and services fee 44,444 - --------------------------------------------------------------------------------------- Custodian fees 11,958 - --------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 7,048 - --------------------------------------------------------------------------------------- Directors'/Trustees' fees 1,672 - --------------------------------------------------------------------------------------- Legal fees 2,128 - --------------------------------------------------------------------------------------- Portfolio accounting fees 22,554 - --------------------------------------------------------------------------------------- Shareholder services fee 23,916 - --------------------------------------------------------------------------------------- Share registration costs 23,266 - --------------------------------------------------------------------------------------- Printing and postage 2,736 - --------------------------------------------------------------------------------------- Insurance premiums 1,672 - --------------------------------------------------------------------------------------- Miscellaneous 1,824 - --------------------------------------------------------------------------------------- ----------- Total expenses 501,954 - --------------------------------------------------------------------------------------- Waivers-- - -------------------------------------------------------------------------- Waiver of investment advisory fee $ (119,579) - -------------------------------------------------------------------------- ----------- Total waivers (119,579) - --------------------------------------------------------------------------------------- ----------- Net expenses 382,375 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income 2,279,147 - ---------------------------------------------------------------------------------------------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - ---------------------------------------------------------------------------------------------------- Net realized gain on investments 254,176 - ---------------------------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 2,907,355 - ---------------------------------------------------------------------------------------------------- ------------ Net realized and unrealized gain on investments 3,161,531 - ---------------------------------------------------------------------------------------------------- ------------ Change in net assets resulting from operations $ 5,440,678 - ---------------------------------------------------------------------------------------------------- ------------
* For the period from December 30, 1996 (date of initial public investment) to May 31, 1997. (See Notes which are an integral part of the Financial Statements) THE STELLAR INSURED TAX-FREE BOND FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED (UNAUDITED) MAY 31, 1997* INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------------------------------------- Net investment income $ 2,279,147 - ----------------------------------------------------------------------------------------------- Net realized gain (loss) on investments ($254,176 as computed for federal tax purposes) 254,176 - ----------------------------------------------------------------------------------------------- Net change in unrealized appreciation 2,907,355 - ----------------------------------------------------------------------------------------------- ----------------- Change in net assets resulting from operations 5,440,678 - ----------------------------------------------------------------------------------------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ----------------------------------------------------------------------------------------------- Distributions from net investment income (2,276,660) - ----------------------------------------------------------------------------------------------- ----------------- SHARE TRANSACTIONS-- - ----------------------------------------------------------------------------------------------- Proceeds from sale of shares 121,725,282 - ----------------------------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 1,858 - ----------------------------------------------------------------------------------------------- Cost of shares redeemed (7,558,447) - ----------------------------------------------------------------------------------------------- ----------------- Change in net assets resulting from share transactions 114,168,693 - ----------------------------------------------------------------------------------------------- ----------------- Change in net assets 117,332,711 - ----------------------------------------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------------------------------------- Beginning of period 0 - ----------------------------------------------------------------------------------------------- ----------------- End of period (including undistributed net investment income of $2,487) $ 117,332,711 - ----------------------------------------------------------------------------------------------- -----------------
* For the period from December 30, 1996 (date of initial public investment) to May 31, 1997. (See Notes which are an integral part of the Financial Statements) THE STELLAR INSURED TAX-FREE BOND FUND NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- (1) ORGANIZATION Star Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of The Stellar Insured Tax-Free Bond Fund (the "Fund"), a diversified portfolio. 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. The investment objective of The Stellar Insured Tax-Free Bond Fund is to provide current income which is exempt from federal income tax. (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. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue, and any other factors or market data the pricing service deems relevant. U.S. government securities, listed corporate bonds, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains 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. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
PERIOD ENDED MAY 31, 1997* Shares sold 12,475,158 - ----------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 187 - ----------------------------------------------------------------------------------------------- Shares redeemed (757,812) - ----------------------------------------------------------------------------------------------- ----------------- Net change resulting from Share transactions 11,717,533 - ----------------------------------------------------------------------------------------------- -----------------
* For the period from December 30, 1996 (date of initial public investment) to May 31, 1997. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Star Bank, N.A., the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.75% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The fee paid to FAS is based on the level of average aggregate net assets of the Trust for the period. DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's shares. The Plan provides that the Fund may incur distribution expenses up to 0.25% of the average daily net assets of the Fund shares, annually, to compensate FSC. Currently, the Fund will not accrue or pay any distribution expenses pursuant to the plan. SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to 0.25% of average daily net assets of the Fund for the period. For the foreseeable future, Star Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average net assets of the Fund. The fee is to obtain certain services for shareholders and to maintain shareholder accounts. Star Bank, N.A. can modify or terminate this limitation at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund for which it receives a fee. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. CUSTODIAN FEES--Star Bank N.A. is the Fund's custodian for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $2,398 were borne initially by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following effective date. For the period ended May 31, 1997, no payments were made pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended May 31, 1997, were as follows:
PURCHASES $ 120,391,353 - -------------------------------------------------------------------------------------------------- -------------- SALES $ 11,663,324 - -------------------------------------------------------------------------------------------------- --------------
Trustees Officers - -------------------------------------------------------------------------------- Thomas L. Conlan, Jr. Edward C. Gonzales Edward C. Gonzales President and Treasurer Dr. Alfred Gottschalk Joseph S. Machi Dr. Robert J. Hill Vice President and Assistant Treasurer Dawn M. Hornback C. Grant Anderson Lawrence M. Turner Secretary William H. Zimmer III
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government or the the Federal Deposit Insurance Corporation. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. STAR BANK, N.A. Investment Adviser FEDERATED SECURITIES CORP. Distributor G00446-03 (7/96) [LOGO OF STAR FUNDS] STAR TREASURY FUND SEMI-ANNUAL REPORT Portfolio of the Star Funds, Dated May 31, 1997 PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Semi-Annual Report to Shareholders for the Star Treasury Fund. The Report covers activity in the fund over the six-month period from December 1, 1996 through May 31, 1997. It begins with the portfolio manager's discussion about the interest rate environment during the period, fund yields and strategy. Next is a list of fund holdings and the financial statements. Star Treasury Fund is a practical way to put your ready cash to work pursing daily income by investing in U.S. Treasury money market securities. Of course, the fund also gives you the additional advantages of easy access to your money and relative stability.* During the period, the fund paid dividends totaling $0.02 per share for shareholders of Investment Shares. Shareholders of Trust Shares, a new share class that began operation on March 25, 1997, received dividends totaling $0.01 per share through May 31, 1997. The fund's assets reached $996.8 million by the end the period. Whatever your needs--an emergency cash reserve for planned or unplanned expenses, a "parking place" for cash in-between investments, or a highly conservative investment for potential income-- the Star Treasury Fund is a practical choice. Thank you for participating in the daily earning power of this fund. Sincerely, Edward C. Gonzales President July 11, 1997 * Although money market funds seek to maintain a share value of $1.00, there is no guarantee that they will do so. Investments in money market mutual funds are neither insured nor guaranteed by the U.S. government. INVESTMENT REVIEW - -------------------------------------------------------------------------------- Q The first quarter of 1997 was marked by the first change in monetary policy in over a year. Can you comment? A The first quarter of 1997 continued the impressive economic strength from the fourth quarter of 1996. Economic growth was fed by strong personal income expansion and ample liquidity. By March, however, the Federal Reserve Board (the "Fed") carried out their well advertised warning that higher short-term interest rates were necessary to keep the economy and inflation in check. Yields for one-year maturities have risen 46 basis points during the past six-month period. Q How did the Star Treasury Fund's yield respond? A Our outlook for short-term interest rates was relatively neutral throughout the period. With yields rising over the past six months, we have been able to reinvest maturing notes at higher yield levels. More importantly, about 75% of the portfolio is invested in overnight investments which are now offering higher yields. We responded to short-rate volatility during the past six months by keeping the fund's average maturity close to that of the average of U.S. Treasury securities and repurchase agreements. Consequently, the yield of the Star Treasury Fund remained within a few basis points of the peer average. Also, the yield volatility of the Star Treasury Fund was less than some of it's competitors because we choose not to aggressively extend the fund's average maturity past that benchmark. Q What is your outlook for short-term rates and your strategy for the remainder of 1997? A Our outlook calls for moderate growth in the economy and "limited" inflationary pressures. We say limited pressures because we believe the only source of inflation is wage rates. Averages hourly earnings continue to move upward as the unemployment rate declines. Benefit costs have nearly stopped declining as most firms now have HMO's. Conversely, leading indicators of inflation show encouraging signs that inflation rates will remain stable. The National Association of Purchasing Managers price index, industrial prices, agricultural prices, gold, and value of the dollar have all shown little inflation concerns in the past twelve months. In terms of economic growth, we expect a slower pace of economic growth for the remainder of 1997 from the rapid 6+% real growth rate posted in the first quarter. We believe the Fed is not entering a period of sustained rate increases, but may need to increase rates another 50 basis points to ensure low inflation. STAR TREASURY FUND PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED) - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR SHARES VALUE - -------------- ------------------------------------------------------------------------------- -------------- U.S. TREASURY--19.4% - ----------------------------------------------------------------------------------------------- $ 22,000,000 U.S. Treasury Bills, 6/26/1997-2/5/1998 $ 21,723,562 ------------------------------------------------------------------------------- 171,000,000 U.S. Treasury Notes, 5.00%-9.00%, 6/30/1997-5/31/1998 171,944,592 ------------------------------------------------------------------------------- -------------- TOTAL U.S. TREASURY 193,668,154 ------------------------------------------------------------------------------- -------------- MUTUAL FUND SHARES--4.1% - ----------------------------------------------------------------------------------------------- 41,000,000 Merrill Lynch Institutional Treasury Fund (at net asset value) 41,000,000 ------------------------------------------------------------------------------- -------------- (A) REPURCHASE AGREEMENTS--76.5% - ----------------------------------------------------------------------------------------------- $ 45,000,000 Bear, Stearns and Co., 5.52%, dated 5/30/1997, due 6/2/1997 45,000,000 ------------------------------------------------------------------------------- 45,000,000 CS First Boston Corp., 5.40%, dated 5/30/1997, due 6/2/1997 45,000,000 ------------------------------------------------------------------------------- 45,000,000 Dean Witter Reynolds, Inc., 5.50%, dated 5/30/1997, due 6/2/1997 45,000,000 ------------------------------------------------------------------------------- 238,958,000 Donaldson, Lufkin and Jenrette Securities Corp., 5.50%, dated 5/30/1997, due 6/2/1997 238,958,000 ------------------------------------------------------------------------------- 45,000,000 HSBC Securities, Inc., 5.50%, dated 5/30/1997, due 6/2/1997 45,000,000 ------------------------------------------------------------------------------- 20,000,000 (b)Lehman Brothers, Inc., 5.42%, dated 5/21/1997, due 6/30/1997 20,000,000 ------------------------------------------------------------------------------- 40,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.40%, dated 5/30/1997, due 6/2/1997 40,000,000 ------------------------------------------------------------------------------- 45,000,000 Morgan Stanley Group, Inc., 5.45%, dated 5/30/1997, due 6/2/1997 45,000,000 ------------------------------------------------------------------------------- 238,956,000 SBC Capital Markets, Inc., 5.50%, dated 5/30/1997, due 6/2/1997 238,956,000 ------------------------------------------------------------------------------- -------------- TOTAL REPURCHASE AGREEMENTS 762,914,000 ------------------------------------------------------------------------------- -------------- TOTAL INVESTMENTS (AT AMORTIZED COST) (C) $ 997,582,154 ------------------------------------------------------------------------------- --------------
(a) The repurchase agreements are fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. (b) Although final maturity falls beyond seven days, a liquidity feature is included in each transaction to permit termination of the repurchase agreement within seven days. (c) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($996,885,910) at May 31, 1997. (See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------ Investments in repurchase agreements $ 762,914,000 - ------------------------------------------------------------------------------ Investments in securities 234,668,154 - ------------------------------------------------------------------------------ --------------- Total investments, at amortized cost and value $ 997,582,154 - ----------------------------------------------------------------------------------------------- Cash 5,772 - ----------------------------------------------------------------------------------------------- Income receivable 3,187,190 - ----------------------------------------------------------------------------------------------- ---------------- Total assets 1,000,775,116 - ----------------------------------------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------------------------------------- Income distribution payable 3,889,206 - ----------------------------------------------------------------------------------------------- ---------------- NET ASSETS for 996,885,910 shares outstanding $ 996,885,910 - ----------------------------------------------------------------------------------------------- ---------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ----------------------------------------------------------------------------------------------- TRUST SHARES: - ----------------------------------------------------------------------------------------------- $790,080,483 / 790,080,483 shares outstanding $1.00 - ----------------------------------------------------------------------------------------------- ---------------- INVESTMENT SHARES: - ----------------------------------------------------------------------------------------------- $206,805,427 / 206,805,427 shares outstanding $1.00 - ----------------------------------------------------------------------------------------------- ----------------
(See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------------------------- Interest $ 24,692,820 - --------------------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------------- Investment advisory fee $ 2,267,426 - ------------------------------------------------------------------------------------- Administrative personnel and services fee 425,755 - ------------------------------------------------------------------------------------- Custodian fees 113,371 - ------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 30,655 - ------------------------------------------------------------------------------------- Directors'/Trustees' fees 11,221 - ------------------------------------------------------------------------------------- Auditing fees 8,984 - ------------------------------------------------------------------------------------- Legal fees 3,789 - ------------------------------------------------------------------------------------- Portfolio accounting fees 54,263 - ------------------------------------------------------------------------------------- Distribution services fee--Investment Shares 25,216 - ------------------------------------------------------------------------------------- Shareholder services fee--Trust Shares 20,284 - ------------------------------------------------------------------------------------- Shareholder services fee--Investment Shares 206,459 - ------------------------------------------------------------------------------------- Share registration costs 23,606 - ------------------------------------------------------------------------------------- Printing and postage 9,716 - ------------------------------------------------------------------------------------- Insurance premiums 4,082 - ------------------------------------------------------------------------------------- Miscellaneous 1,127 - ------------------------------------------------------------------------------------- ------------ Total Expenses 3,205,954 - ------------------------------------------------------------------------------------- WAIVER-- - ------------------------------------------------------------------------------------- Waiver of distribution services fee--Investment Shares (20,173) - ------------------------------------------------------------------------------------- ------------ Net expenses 3,185,781 - --------------------------------------------------------------------------------------------------- ------------- Net investment income $ 21,507,039 - --------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
SIX MONTHS ENDED (UNAUDITED) YEAR ENDED MAY 31, 1997 NOVEMBER 30, 1996 - ----------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------- Net investment income $ 21,507,039 $ 33,607,634 - ----------------------------------------------------------------- ---------------------- ---------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ----------------------------------------------------------------- Distributions from net investment income - ----------------------------------------------------------------- Trust Shares (1,942,700) -- - ----------------------------------------------------------------- Investment Shares (19,564,339) (33,607,634) - ----------------------------------------------------------------- ---------------------- ---------------------- Change in net assets resulting from distributions to shareholders (21,507,039) (33,607,634) - ----------------------------------------------------------------- ---------------------- ---------------------- SHARE TRANSACTIONS-- - ----------------------------------------------------------------- Proceeds from sale of shares 3,134,690,665 7,139,876,502 - ----------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 263,849 102,722 - ----------------------------------------------------------------- Cost of shares redeemed (2,967,327,695) (6,965,683,064) - ----------------------------------------------------------------- ---------------------- ---------------------- Change in net assets resulting from share transactions 167,626,819 174,296,160 - ----------------------------------------------------------------- ---------------------- ---------------------- Change in net assets 167,626,819 174,296,160 - ----------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------- Beginning of period 829,259,091 654,962,931 - ----------------------------------------------------------------- ---------------------- ---------------------- End of period $ 996,885,910 $ 829,259,091 - ----------------------------------------------------------------- ---------------------- ----------------------
(See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND FINANCIAL HIGHLIGHTS--TRUST SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PERIOD ENDED (UNAUDITED) MAY 31, 1997 (A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - -------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------------------------------- Net investment income 0.01 - -------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------------------------------------------------------- Distributions from net investment income (0.01) - -------------------------------------------------------------------------------------------------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 - -------------------------------------------------------------------------------------------------- ------- TOTAL RETURN (B) 0.90% - -------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------------------------------- Expenses 0.71%* - -------------------------------------------------------------------------------------------------- Net investment income 4.79%* - -------------------------------------------------------------------------------------------------- Expense waiver/reimbursement (c) -- - -------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $790,080 - --------------------------------------------------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 25, 1997 (date of initial public investment) to May 31, 1997. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND FINANCIAL HIGHLIGHTS--INVESTMENT SHARES - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED (UNAUDITED) MAY 31, YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993 1992 1991 1990 NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------- Net investment income 0.02 0.05 0.05 0.03 0.03 0.03 0.06 0.07 - ------------------------------- LESS DISTRIBUTIONS - ------------------------------- Distributions from net investment income (0.02) (0.05) (0.05) (0.03) (0.03) (0.03) (0.06) (0.07) - ------------------------------- ------ --------- --------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------- ------ --------- --------- --------- --------- --------- --------- --------- TOTAL RETURN (B) 2.38% 4.80% 5.23% 3.30% 2.56% 3.41% 5.72% 7.72% - ------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------- Expenses 0.70%* 0.70% 0.71% 0.70% 0.70% 0.71% 0.71% 0.73% - ------------------------------- Net investment income 4.71%* 4.69% 5.14% 3.24% 2.53% 3.33% 5.51% 7.44% - ------------------------------- Expense waiver/ reimbursement (c) 0.00%* -- -- -- 0.25% 0.25% 0.10% 0.03% - ------------------------------- SUPPLEMENTAL DATA - ------------------------------- Net assets, end of period (000 omitted) $206,805 $829,259 $654,963 $358,766 $386,020 $346,508 $307,278 $226,519 - ------------------------------- 1989(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 - ------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------- Net investment income 0.05 - ------------------------------- LESS DISTRIBUTIONS - ------------------------------- Distributions from net investment income (0.05) - ------------------------------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 - ------------------------------- ----------- TOTAL RETURN (B) 5.36% - ------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------- Expenses 0.77%* - ------------------------------- Net investment income 8.28%* - ------------------------------- Expense waiver/ reimbursement (c) 0.01%* - ------------------------------- SUPPLEMENTAL DATA - ------------------------------- Net assets, end of period (000 omitted) $174,062 - -------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from April 14, 1989 (date of initial public investment) to November 30, 1989. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) STAR TREASURY FUND NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- (1) ORGANIZATION Star Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Star Treasury 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. The Fund offers two classes of shares: Trust Shares and Investment Shares. Effective March 25, 1997 the Fund added Trust Shares. The Funds investment objective is to achieve stability of principal and current income consistent with stability of principal. (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. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its portfolio securities in accordance with Rule 2a-7 under the Act. Investments in other open-end regulated investment companies are valued at net asset value. 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 under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals 102% of repurchase price to be paid under the repurchase agreement transaction. 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 the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal STAR TREASURY FUND - -------------------------------------------------------------------------------- Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains 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. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares. Transactions in shares were as follows:
PERIOD ENDED MAY 31, 1997* ----------------- TRUST SHARES SHARES - ----------------------------------------------------------------------------------------------- ----------------- Shares sold 865,227,407 - ----------------------------------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared -- - ----------------------------------------------------------------------------------------------- Shares redeemed (75,146,924) - ----------------------------------------------------------------------------------------------- ----------------- Net change resulting from Trust Share transactions 790,080,483 - ----------------------------------------------------------------------------------------------- -----------------
* Reflects operations for the period from March 25, 1997 (date of initial public investment) to May 31, 1997. STAR TREASURY FUND - --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MAY 31, 1997 NOVEMBER 30, 1996 ---------------------- ---------------------- INVESTMENT SHARES SHARES SHARES - ----------------------------------------------------------------- ---------------------- ---------------------- Shares sold 2,269,463,258 7,139,876,502 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 263,849 102,722 - ----------------------------------------------------------------- Shares redeemed (2,892,180,771) (6,965,683,064) - ----------------------------------------------------------------- ---------------------- ---------------------- Net change resulting from Investment Share transactions (622,453,664) 174,296,160 - ----------------------------------------------------------------- ---------------------- ---------------------- Net change resulting from fund share transactions 167,626,819 174,296,160 - ----------------------------------------------------------------- ---------------------- ----------------------
At May 31, 1997, capital paid-in aggregated $996,885,910. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Star Bank N.A., the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Fund's average daily net assets. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The fee paid to FAS is based on the level of average aggregate net assets of the Trust for the period. DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund's Investment Shares to finance activities intended to result in the sale of the Fund's Investment Shares. The Plan provides that the Fund may incur distribution expenses up to 0.25% of the average daily net assets of the Investment Shares annually, to compensate FSC. FSC may voluntarily choose to waive a portion of its fee. FSC may modify or terminate this voluntary waiver at any time at its sole discretion. SHAREHOLDER SERVICES FEE--Under the terms of the Shareholder Services Agreement with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to 0.25% of average daily net assets of the Fund for the period. For the foreseeable future, Star Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average daily net assets of the Fund. This fee is to obtain certain services for shareholder and to maintain shareholder accounts. Star Bank N.A. can modify or terminate this limitation at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund for which it receives a fee. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. STAR TREASURY FUND - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. CUSTODIAN FEES--Star Bank N.A. is the Fund's custodian. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. TRUSTEES OFFICERS - -------------------------------------------------------------------------------- Thomas L. Conlan Jr. Edward C. Gonzales Edward C. Gonzales President and Treasurer Dr. Alfred Gottschalk Joseph S. Machi Dr. Robert J. Hill Vice President and Assistant Treasurer Dawn M. Hornback C. Grant Anderson Lawrence M. Turner Secretary William H. Zimmer III
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government or the Federal Deposit Insurance Corporation. Investment in mutual funds involves investment risks, including possible loss of principal. Although money market funds seek to maintain a stable net asset value of $1.00 per share, there is no assurance that they will be able to do so. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Trust's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. Cusip 854911849 Star Bank, N.A. Cusip 854911104 Investment Adviser G00446-04 (7/97) Federated Securities Corp. TR 4960 Distributor [LOGO OF STAR FUNDS] STAR TAX-FREE MONEY MARKET FUND SEMI-ANNUAL REPORT Portfolio of the Star Funds, Dated May 31, 1997 PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Semi-Annual Report to Shareholders of the Star Tax-Free Money Market Fund. The Report covers activity in the fund over the six-month period from December 1, 1996 through May 31, 1997. It begins with the portfolio manager's discussion about the interest rate environment during the period, fund yields and strategy. Next is a list of fund holdings and the financial statements. Designed for tax-sensitive investors, the Star Tax-Free Money Market Fund is a practical way to put your ready cash to work pursing tax-free daily income by investing in high-quality money market securities issued by municipalities across the United States*. Of course, the fund also gives you the additional advantages of easy access to your money and relative stability.** During the period, the fund paid tax-free dividends totaling $0.01 per share during the six-month period. The fund's assets stood at $131.9 million by the end of the period. Whatever your needs--an emergency cash reserve for planned or unplanned expenses, a "parking place" for cash in-between investments, or a highly conservative investment for potential tax-free income--the Star Tax-Free Money Market Fund is a practical choice. Thank you for participating in the daily earning power of this fund. Sincerely, Edward C. Gonzales President July 11, 1997 * Income may be subject to the federal alternative minimum tax and state and local taxes. ** Although money market funds seek to maintain a share value of $1.00, there is no guarantee that they will do so. Investments in money market mutual funds are neither insured nor guaranteed by the U.S. government. INVESTMENT REVIEW - -------------------------------------------------------------------------------- Q After much market uncertainty over the direction of the economy, the Federal Reserve Board (the "Fed") finally raised the Federal Funds rate on March 25. Can you comment? A The first quarter of 1997 continued the impressive economic strength from the fourth quarter of 1996. Economic growth was fed by strong personal income expansion and ample liquidity. By March, however, the Fed carried out their well advertised warning that higher short-term interest rates were necessary to keep the economy and inflation in check. Yields for one-year maturities have risen 46 basis points during the past six-month period. Q How did the Star Tax-Free Money Market Fund respond? A Our outlook for short-term interest rates was relatively neutral throughout the period. With yields rising over the past six months, we have been able to reinvest maturing notes at higher yield levels. In addition, about 60% of the portfolio is invested in overnight investments which are now offering higher yields. We responded to short-rate volatility during the past six months by keeping the fund's average maturity close to that of the average of U.S. Treasury securities and repurchase agreements. Consequently, the yield of the Star Tax-Free Money Market Fund remained within a few basis points of the peer average. Also, the yield volatility of the Star Tax-Free Money Market Fund was less than some of it's competitors because we chose not to aggressively extend the fund's average maturity past that benchmark. Q What is your outlook for short-term rates and your strategy for the remainder of 1997? A Our outlook calls for moderate growth in the economy and "limited" inflationary pressures. We say limited pressures because we believe the only source of inflation is wage rates. Average hourly earnings continue to move upward as the unemployment rate declines. Benefit costs have nearly stopped declining as most firms now have HMO's. Conversely, leading indicators of inflation show encouraging signs that inflation rates will remain stable. The National Association of Purchasing Managers price index, industrial prices, agricultural prices, gold, and value of the dollar have all shown little inflation concerns in the past twelve months. In terms of economic growth, we expect a slower pace of economic growth for the remainder of 1997 from the rapid 6+% real growth rate posted in the first quarter. We believe the Fed is not entering a period of sustained rate increases, but may need to increase rates another 50 basis points to ensure low inflation. STAR TAX-FREE MONEY MARKET FUND PORTFOLIO OF INVESTMENTS MAY 31, 1997 (UNAUDITED) - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--98.6% - -------------------------------------------------------------------------------- ALABAMA--0.9% ------------------------------------------------------------------ $ 1,200,000 Montgomery, AL BMC Special Care Facilities Finance Authority, Refunding Revenue Bonds (Series G) Weekly VRDNs (VHA Alabama, Inc.)/(AMBAC INS) A1/- $ 1,200,000 ------------------------------------------------------------------ -------------- COLORADO--1.5% ------------------------------------------------------------------ 2,000,000 Smith Creek Metropolitan District of Colorado, Revenue Bonds Weekly VRDNs (Nationsbank, Fort Worth LOC) A1+/- 2,000,000 ------------------------------------------------------------------ -------------- FLORIDA--5.9% ------------------------------------------------------------------ 1,560,000 Escambia County, FL, Refunding Revenue Bonds Weekly VRDNs (Pacer Industries, Inc.)/(Trust Co. Bank LOC) -/Aa3 1,560,000 ------------------------------------------------------------------ 3,000,000 University of Florida Athletic Association Daily VRDNs (University of Florida Stadium)/(SunTrust Bank, Central Florida LOC) VMIG1 3,000,000 ------------------------------------------------------------------ 3,200,000 University of Florida Athletic Association, Capital Improvement Revenue Bonds (Series 1994) Daily VRDNs (University of Florida Stadium)/(SunTrust Bank, Central Florida LOC) VMIG1 3,200,000 ------------------------------------------------------------------ -------------- Total 7,760,000 ------------------------------------------------------------------ -------------- GEORGIA--1.5% ------------------------------------------------------------------ 1,000,000 Fulton County, GA Development Authority Weekly VRDNs (Arthritis Foundation Inc.)/(SunTrust Bank, Atlanta LOC) -/Aa3 1,000,000 ------------------------------------------------------------------ 1,000,000 Fulton County, GA Development Authority, Revenue Bonds Weekly VRDNs (Robert W. Woodruff Arts Center)/(SunTrust Bank, Atlanta LOC) -/Aa3 1,000,000 ------------------------------------------------------------------ -------------- Total 2,000,000 ------------------------------------------------------------------ --------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- ILLINOIS--14.8% ------------------------------------------------------------------ $ 1,000,000 Chicago, IL, GO UT Weekly VRDNs (Canadian Imperial Bank of Commerce, Toronto LOC) VMIG1/A1+ $ 1,000,000 ------------------------------------------------------------------ 1,055,000 Illinois Development Finance Authority, Revenue Bonds Weekly VRDNs (Lake Forest Academy)/(Northern Trust Corp. LOC) A1+ 1,055,000 ------------------------------------------------------------------ 2,000,000 Illinois Development Finance Authority, Revenue Bonds Weekly VRDNs (Roosevelt University)/(American National Bank, Chicago LOC) A1+ 2,000,000 ------------------------------------------------------------------ 1,500,000 Illinois Development Finance Authority, Series A Weekly VRDNs (Presbyterian Home Lake)/(Lasalle National Bank, Chicago LOC) VMIG1/A1+ 1,500,000 ------------------------------------------------------------------ 2,500,000 Illinois Educational Facilities Authority, Refunding Revenue Bonds Weekly VRDNs (Newberry Library Project)/(Northern Trust Corp. LOC) VMIG1 2,500,000 ------------------------------------------------------------------ 1,000,000 Illinois Health Facilities Authority, Revenue Bonds (Series C), 3.85% (Victory Health Project)/(First National Bank of Chicago LOC) 7/17/1997 (PU+BD) VMIG1 1,000,000 ------------------------------------------------------------------ 1,000,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs (Gottlieb Health Resources, Inc.)/ (Harris Trust & Savings Bank, Chicago LOC) VMIG1 1,000,000 ------------------------------------------------------------------ 3,000,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs (Gottlieb Health Resources, Inc.)/ (Harris Trust & Savings Bank, Chicago LOC) VMIG1 3,000,000 ------------------------------------------------------------------ 4,700,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs (West Suburban Hospital Medical Center)/(First National Bank of Chicago LOC) VMIG1 4,700,000 ------------------------------------------------------------------ 1,530,000 Schaumburg, IL, IDR Refunding Bonds Weekly VRDNs (La Quita Motor Inns)/(Nationsbank, Fort Worth LOC) -/Aa3 1,530,000 ------------------------------------------------------------------ $ 250,000 Springfield, IL , Community Improvement Refunding Revenue Bonds Weekly VRDNs (Kent Family Project)/ (PNC Bank, N.A. LOC) -/A1 $ 250,000 ------------------------------------------------------------------ -------------- Total 19,535,000 ------------------------------------------------------------------ --------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- INDIANA--CONTINUED ------------------------------------------------------------------ INDIANA--4.7% ------------------------------------------------------------------ 2,000,000 Indiana Bond Bank, Series A-2, 4.25% TANs, 1/21/1998 SP-1+/MIG1 2,006,813 ------------------------------------------------------------------ 3,195,000 Logansport, IN, Revenue Bonds Weekly VRDNs (MMM Invest, Inc.)/(Bank One, Indianapolis, IN LOC) NR 3,195,000 ------------------------------------------------------------------ 1,000,000 Purdue University, IN, Revenue Bonds (Series K) Weekly VRDNs VMIG1/A1+ 1,000,000 ------------------------------------------------------------------ -------------- Total 6,201,813 ------------------------------------------------------------------ -------------- KENTUCKY--5.0% ------------------------------------------------------------------ 1,000,000 Boone County, KY, IDRB (Series 1994A) Weekly VRDNs (Square D. Co.)/(Societe Generale, Paris LOC) SP/A1+ 1,000,000 ------------------------------------------------------------------ 4,000,000 Fulton, KY, Revenue Bonds Weekly VRDNs (Community Health System of Kentucky)/(First Union National Bank, Charlotte, N.C. LOC) -/VMIG1 4,000,000 ------------------------------------------------------------------ 1,600,000 Louisville, KY, Refunding Bonds Weekly VRDNs (Two Twenty-Two Project)/(PNC Bank, Kentucky LOC) A1 1,600,000 ------------------------------------------------------------------ -------------- Total 6,600,000 ------------------------------------------------------------------ -------------- MAINE--1.1% ------------------------------------------------------------------ 1,500,000 Maine State, GO UT, 4.50% TANs, 6/27/1997 SP-1+/MIG1 1,500,642 ------------------------------------------------------------------ -------------- MARYLAND--1.7% ------------------------------------------------------------------ 1,700,000 Baltimore, MD EDA Weekly VRDNs (Field Container Co. L.P.) (American National BL+LOC) A1+ 1,700,000 ------------------------------------------------------------------ 540,000 Maryland State IDFA, (Series 1991) Weekly VRDNs (Maryland Academy of Sciences Facility)/(Nationsbank, N.A., Charlotte LOC) VMIG1 540,000 ------------------------------------------------------------------ -------------- Total 2,240,000 ------------------------------------------------------------------ --------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- MICHIGAN--2.3% ------------------------------------------------------------------ $ 2,500,000 Cornell, MI Economic Development Corp., Industrial Development Revenue Refunding Bonds (Series 1990), 3.85% CP (Mead-Escanaba Paper Co. Project)/(Credit Suisse, Zurich LOC), Mandatory Tender 6/9/1997 A1+ $ 2,500,000 ------------------------------------------------------------------ 535,000 Lenawee County, MI EDC, Revenue Bonds Weekly VRDNs (Hardwoods of Michigan, Inc.)/(National City Bank, Cleveland, OH LOC) VMIG1 535,000 ------------------------------------------------------------------ -------------- Total 3,035,000 ------------------------------------------------------------------ -------------- MISSISSIPPI--1.5% ------------------------------------------------------------------ 2,000,000 Forest, MS, IDR Refunding Bonds Weekly VRDNs (Sara Lee Corp.) AA-/- 2,000,000 ------------------------------------------------------------------ -------------- MISSOURI--10.2% ------------------------------------------------------------------ 800,000 Independence, MO IDA, IDRB Weekly VRDNs (Shoney's Inn)/(Wachovia Bank of NC, NA, LOC) NR 800,000 ------------------------------------------------------------------ 4,100,000 Independence, MO, Water Utility Revenue Bonds, 3.80% CP (Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender 6/10/1997 VMIG1 4,100,000 ------------------------------------------------------------------ 4,500,000 Missouri State Environmental Improvement & Energy Authority, (Series 1985A), 3.75% CP (Union Electric Co.)/(Union Bank of Switzerland, Zurich LOC), Mandatory Tender 7/1/1997 A1+/P1 4,500,000 ------------------------------------------------------------------ 4,000,000 Missouri State Environmental Improvement & Energy Authority, Refunding Revenue Bonds Weekly VRDNs (Kansas City Power And Light Co.) A1/VMIG1 4,000,000 ------------------------------------------------------------------ -------------- Total 13,400,000 ------------------------------------------------------------------ -------------- MONTANA--0.8% ------------------------------------------------------------------ 1,000,000 Forsyth, Rosebud County MT, PCR Bonds Weekly VRDNs (Portland General Electric Company)/(Swiss Bank Corp., Basle LOC) A1+/P1 1,000,000 ------------------------------------------------------------------ --------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- NEW MEXICO--1.1% ------------------------------------------------------------------ $ 1,400,000 Belen, NM, IDR Refunding Bonds (Series 1991) Weekly VRDNs (United Desiccants, Inc.)/(National City Bank, Kentucky LOC) NR $ 1,400,000 ------------------------------------------------------------------ -------------- OHIO--20.9% ------------------------------------------------------------------ 1,250,000 Butler County, OH, 3.70% BANs, 3/20/1998 NR 1,253,850 ------------------------------------------------------------------ 2,000,000 Butler County, OH, 3.85% BANs, 10/23/1997 NR 2,003,038 ------------------------------------------------------------------ 490,000 Centerville, OH, Health Care Revenue Bonds Weekly VRDNs (Bethany Lutheran Village)/(PNC Bank, Ohio, N.A. LOC) VMIG1 490,000 ------------------------------------------------------------------ 1,240,000 Clear Fork Valley, OH Richland County Local School District, 3.55% BANs, 9/25/1997 NR 1,242,492 ------------------------------------------------------------------ 2,500,000 Columbus, OH Sewer System, Revenue Bonds (Series 1994) Weekly VRDNs A1+/VMIG1 2,500,000 ------------------------------------------------------------------ 2,000,000 Dublin, OH City School District, GO UT, 4.33% Bonds, 5/13/1998 SP-1+/MIG1 2,006,340 ------------------------------------------------------------------ 2,000,000 Franklin County, OH Hospital Facility Authority, Series A Weekly VRDNs (U.S. Health Corporation of Columbus)/(Morgan Guaranty Trust Co., New York LOC) VMIG1 2,000,000 ------------------------------------------------------------------ 2,000,000 Hamilton County, OH Hospital Facilities Authority, (Series 1997A) Weekly VRDNs (Children's Hospital Medical Center)/(PNC Bank, Ohio, N.A. LOC) -/VMIG1 2,000,000 ------------------------------------------------------------------ 3,000,000 Hamilton County, OH, (Series A), 4.25% BANs, 7/10/1997 -/MIG1 3,001,131 ------------------------------------------------------------------ 1,320,000 Marion County, OH Hospital Authority, (Series 1991) Weekly VRDNs (Marion County, OH Pooled Hospital Program)/(Bank One, Columbus, N.A. LOC) A1+ 1,320,000 ------------------------------------------------------------------ 2,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program Certificates of Participation, 4.53% RANs, 6/30/1997 -/MIG1 2,000,809 ------------------------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- OHIO--CONTINUED ------------------------------------------------------------------ $ 310,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) -/A1 $ 310,000 ------------------------------------------------------------------ 385,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) -/A1 385,000 ------------------------------------------------------------------ 485,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) -/A1 485,000 ------------------------------------------------------------------ 450,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) -/A1 450,000 ------------------------------------------------------------------ 360,000 Ohio State IDR, Refunding Revenue Bonds Weekly VRDNs (Cincinnati Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) -/A1 360,000 ------------------------------------------------------------------ 750,000 University of Cincinnati, OH, Series AA, 3.65% BANs, 3/19/1998 SP-1+/MIG1 753,459 ------------------------------------------------------------------ 4,000,000 University of Cincinnati, OH, Series T , 4.25% BANs, 8/28/1997 SP1+/MIG1 4,003,714 ------------------------------------------------------------------ 1,000,000 Westlake, OH City School District, Voted Unlimited Tax GO's, 4.20% BANs, 7/28/1997 NR 1,000,926 ------------------------------------------------------------------ -------------- Total 27,565,759 ------------------------------------------------------------------ -------------- PENNSYLVANIA--13.1% ------------------------------------------------------------------ 600,000 Allegheny County, PA HDA, (Series 1990 B) Daily VRDNs (Presbyterian University Hospital)/(MBIA INS) A1/VMIG1 600,000 ------------------------------------------------------------------ 4,200,000 Allegheny County, PA HDA, (Series 1990 D) Daily VRDNs (Presbyterian University Hospital)/(MBIA INS) A-1/VMIG1 4,200,000 ------------------------------------------------------------------ 435,000 Allegheny County, PA HDA, Revenue Bonds Daily VRDNs (Presbyterian University Hospital)/(PNC Bank, N.A. LOC) VMIG1 435,000 ------------------------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- PENNSYLVANIA--CONTINUED ------------------------------------------------------------------ $ 4,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.65% PUT (Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce, Toronto LOC), Mandatory Tender 10/30/1997 A1+/P1 $ 4,000,000 ------------------------------------------------------------------ 2,000,000 Commonwealth of Pennsylvania, 4.50% TANs, 6/30/1997 SP-1+/MIG1 2,001,237 ------------------------------------------------------------------ 1,000,000 East Penn, PA IDA, IDR Refunding Bonds Weekly VRDNs (Electronic Data Systems Corp.)/(Wachovia Bank of Georgia NA, Atlanta LOC) -/Aa2 1,000,000 ------------------------------------------------------------------ 3,000,000 Pennsylvania State Higher Education Facilities Authority, College & University Revenue Bonds Daily VRDNs (Council of Independent Colleges)(PNC Bank LOC) VMIG1 3,000,000 ------------------------------------------------------------------ 2,000,000 Philadelphia, PA School District, 4.50% TRANs, 6/30/1997 SP-1/MIG1 2,000,765 ------------------------------------------------------------------ -------------- Total 17,237,002 ------------------------------------------------------------------ -------------- TENNESSEE--3.4% ------------------------------------------------------------------ 1,000,000 Greenville, TN IDB, IDRB Weekly VRDNs (Ball Corp.)/ (Wachovia Bank of Georgia NA, Atlanta LOC) A1+ 1,000,000 ------------------------------------------------------------------ 3,540,000 Sullivan County, TN Health Educational & Housing Facilities Board, Revenue Bonds Weekly VRDNs (Asbury Center)/(Nationsbank, N.A., Charlotte LOC) NR 3,540,000 ------------------------------------------------------------------ -------------- Total 4,540,000 ------------------------------------------------------------------ -------------- TEXAS--5.3% ------------------------------------------------------------------ 2,380,000 Bexar County, Health Facilities Development Authority Weekly VRDNs (Army Retirement Resources Foundation)/(Rabobank Nederland, Utrecht LOC) A1+ 2,380,000 ------------------------------------------------------------------ 1,100,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist Hospital, Harris County, TX) A1+ 1,100,000 ------------------------------------------------------------------ 600,000 Harris County, TX HFDC, (Series D) Daily VRDNs (St. Luke's Episcopal Hospital) A1+ 600,000 ------------------------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ------------ ------------------------------------------------------------------ --------------- -------------- SHORT-TERM MUNICIPALS--CONTINUED - -------------------------------------------------------------------------------- TEXAS--CONTINUED ------------------------------------------------------------------ $ 600,000 Lone Star, TX Airport Improvement Authority, Revenue Bonds (Series A-1) Daily VRDNs (American Airlines)/ (Royal Bank of Canada, Montreal LOC) VMIG1 $ 600,000 ------------------------------------------------------------------ 400,000 Lone Star, TX Airport Improvement Authority, Revenue Bonds (Series B-1) Daily VRDNs (American Airlines)/ (Royal Bank of Canada, Montreal LOC) VMIG1 400,000 ------------------------------------------------------------------ 1,900,000 San Antonio, TX IDA Weekly VRDNs (San Antonio River Center Associates)/(PNC Bank, N.A. LOC) -/A1 1,900,000 ------------------------------------------------------------------ -------------- Total 6,980,000 ------------------------------------------------------------------ -------------- VIRGINIA--1.4% ------------------------------------------------------------------ 1,810,000 Rockbridge County, VA IDA, IDR Bonds, 3.65% PUT (Safeway, Inc.)/(Bankers Trust Co., New York LOC), Mandatory Tender 8/1/1997 A1/- 1,810,000 ------------------------------------------------------------------ -------------- WISCONSIN--1.5% ------------------------------------------------------------------ 2,000,000 Racine County, WI School District, 4.25% TRANs, 8/22/ 1997 SP-1+/- 2,001,730 ------------------------------------------------------------------ -------------- TOTAL SHORT-TERM MUNICIPALS 130,006,946 ------------------------------------------------------------------ -------------- MUTUAL FUND SHARES--0.8% - -------------------------------------------------------------------------------- 1,085,326 SEI Tax Exempt Trust (AT NET ASSET VALUE) 1,085,326 ------------------------------------------------------------------ -------------- TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $ 131,092,272 ------------------------------------------------------------------ --------------
(a) Also represents cost for federal tax purposes. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. Note: The categories of investments are shown as a percentage of net assets ($131,879,976) at May 31, 1997. STAR TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- The following acronyms are used throughout this portfolio: AMBAC-- American Municipal Bond Assurance Corporation BANs-- Bond Anticipation Notes CP-- Commercial Paper EDA-- Economic Development Authority EDC-- Economic Development Commission GO-- General Obligation HDA-- Hospital Development Authority HFDC-- Health Facility Development Corporation IDA-- Industrial Development Authority IDB-- Industrial Development Bond IDR-- Industrial Development Revenue IDRB-- Industrial Development Revenue Bond IDFA-- Industrial Development Finance Authority INS-- Insured LOC-- Letter of Credit LP-- Limited Partnership MBIA-- Municipal Bond Investors Assurance MMM-- Money Market Municipal PCR-- Pollution Control Revenue RANs-- Revenue Anticipation Notes TANs-- Tax Anticipation Notes TOBs-- Tender Option Bonds TRANs-- Tax and Revenue Anticipation Notes UT-- Unlimited Tax VHA-- Veterans Housing Administration VRDNs-- Variable Rate Demand Notes (See Notes which are an integral part of the Financial Statements) STAR TAX-FREE MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------------------------- Total investments in securities, at amortized cost and value $ 131,092,272 - ------------------------------------------------------------------------------------------------- Income receivable 1,158,971 - ------------------------------------------------------------------------------------------------- -------------- Total assets 132,251,243 - ------------------------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------------- Income distribution payable $ 340,846 - ------------------------------------------------------------------------------------- Accrued expenses 30,421 - ------------------------------------------------------------------------------------- ---------- Total liabilities 371,267 - ------------------------------------------------------------------------------------------------- -------------- NET ASSETS for 131,879,976 shares outstanding $ 131,879,976 - ------------------------------------------------------------------------------------------------- -------------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------------------------- $131,879,976 / 131,879,976 shares outstanding $1.00 - ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements) STAR TAX-FREE MONEY MARKET FUND STATEMENT OF OPERATIONS SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------------------------- Interest $ 2,558,010 - ---------------------------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------------- Investment advisory fee $ 391,907 - ---------------------------------------------------------------------------------------- Administrative personnel and services fee 66,952 - ---------------------------------------------------------------------------------------- Custodian fees 17,814 - ---------------------------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 15,756 - ---------------------------------------------------------------------------------------- Directors'/Trustees' fees 3,238 - ---------------------------------------------------------------------------------------- Auditing fees 7,808 - ---------------------------------------------------------------------------------------- Legal fees 1,578 - ---------------------------------------------------------------------------------------- Portfolio accounting fees 24,133 - ---------------------------------------------------------------------------------------- Shareholder services fee 35,628 - ---------------------------------------------------------------------------------------- Printing and postage 2,132 - ---------------------------------------------------------------------------------------- Insurance premiums 1,032 - ---------------------------------------------------------------------------------------- Miscellaneous 961 - ---------------------------------------------------------------------------------------- ---------- Total expenses 568,939 - ---------------------------------------------------------------------------------------- Waiver-- - ---------------------------------------------------------------------------------------- Waiver of investment advisory fee (71,256) - ---------------------------------------------------------------------------------------- ---------- Net expenses 497,683 - ---------------------------------------------------------------------------------------------------- ------------ Net investment income $ 2,060,327 - ---------------------------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) STAR TAX-FREE MONEY MARKET FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
SIX MONTHS ENDED (UNAUDITED) YEAR ENDED MAY 31, 1997 NOVEMBER 30, 1996 - ----------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------- Net investment income $ 2,060,327 $ 5,133,251 - ----------------------------------------------------------------- ---------------------- ---------------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ----------------------------------------------------------------- Distributions from net investment income (2,060,327) (5,133,251) - ----------------------------------------------------------------- ---------------------- ---------------------- SHARE TRANSACTIONS-- - ----------------------------------------------------------------- Proceeds from sale of shares 247,337,156 573,340,058 - ----------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,011 890 - ----------------------------------------------------------------- Cost of shares redeemed (268,714,898) (587,441,413) - ----------------------------------------------------------------- ---------------------- ---------------------- Change in net assets resulting from share transactions (21,375,731) (14,100,465) - ----------------------------------------------------------------- ---------------------- ---------------------- Change in net assets (21,375,731) (14,100,465) - ----------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------- Beginning of period 153,255,707 167,356,172 - ----------------------------------------------------------------- ---------------------- ---------------------- End of period $ 131,879,976 $ 153,255,707 - ----------------------------------------------------------------- ---------------------- ----------------------
(See Notes which are an integral part of the Financial Statements) STAR TAX-FREE MONEY MARKET FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS ENDED (UNAUDITED) MAY 31, YEAR ENDED NOVEMBER 30, 1997 1996 1995 1994 1993 1992 1991(A) NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------ Net investment income 0.01 0.03 0.03 0.02 0.02 0.03 0.03 - ------------------------------------------ LESS DISTRIBUTIONS - ------------------------------------------ Distributions from net investment income (0.01) (0.03) (0.03) (0.02) (0.02) (0.03) (0.03) - ------------------------------------------ ------ --------- --------- --------- --------- --------- ----------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------------------ ------ --------- --------- --------- --------- --------- ----------- TOTAL RETURN (B) 1.46% 2.91% 3.32% 2.15% 1.91% 2.59% 2.84% - ------------------------------------------ RATIOS TO AVERAGE NET ASSETS - ------------------------------------------ Expenses 0.70%* 0.70% 0.66% 0.65% 0.65% 0.66% 0.55%* - ------------------------------------------ Net investment income 2.89%* 2.87% 3.26% 2.12% 1.90% 2.54% 3.95%* - ------------------------------------------ Expense waiver/reimbursement (c) 0.10%* 0.11% 0.15% 0.15% 0.40% 0.40% 0.48%* - ------------------------------------------ SUPPLEMENTAL DATA - ------------------------------------------ Net assets, end of period (000 omitted) $131,880 $153,256 $167,356 $135,427 $135,022 $144,487 $113,731 - ------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from March 15, 1991 (date of initial public investment) to November 30, 1991. (b) Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. (c) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) STAR TAX-FREE MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS MAY 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- (1) ORGANIZATION Star Funds (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of nine diversified portfolios. The financial statements included herein are only those of Star Tax-Free Money Market 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. The investment objective of the Fund is to provide current income exempt from federal regular income tax consistent with stability of principal. (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. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its portfolio securities in accordance with Rule 2a-7 under the Act. Investments in other open-end regulated investment companies are valued at net asset value. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains 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. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. OTHER--Investment transactions are accounted for on the trade date. STAR TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
SIX MONTHS ENDED YEAR ENDED MAY 31, 1997 NOVEMBER 30, 1996 - ------------------------------------------------------------------------ ---------------- ---------------------- Shares sold 247,337,156 573,340,058 - ------------------------------------------------------------------------ Shares issued to shareholders in payment of distributions declared 2,011 890 - ------------------------------------------------------------------------ Shares redeemed (268,714,898) (587,441,413) - ------------------------------------------------------------------------ ---------------- ---------------------- Net change resulting from share transactions (21,375,731) (14,100,465) - ------------------------------------------------------------------------ ---------------- ----------------------
As of May 31, 1997, capital paid-in aggregated $131,879,976. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Star Bank N.A., the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.55% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The fee paid to FAS is based on the level of average aggregate net assets of the Trust for the period. SHAREHOLDER SERVICES FEE--Under the terms of the Shareholder Services Agreement with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to 0.25 % of average daily net assets of the Fund for the period. For the foreseeable future, Star Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average daily net assets of the Fund. This fee is to obtain certain services for shareholder and to maintain shareholder accounts. Star Bank N.A. can modify or terminate this limitation at any time at its sole discretion. TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company ("FServ"), through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Funds for which it receives a fee. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. STAR TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- PORTFOLIO ACCOUNTING FEES--FServ maintains the Funds' accounting records for which it receives a fee. The fee is based on the level of each Fund's average daily net assets for the period, plus out-of-pocket expenses. CUSTODIAN FEES--Star Bank N.A. is the Fund's custodian. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. TRUSTEES OFFICERS - -------------------------------------------------------------------------------- Thomas L. Conlan Jr. Edward C. Gonzales Edward C. Gonzales President and Treasurer Dr. Alfred Gottschalk Joseph S. Machi Dr. Robert J. Hill Vice President and Assistant Treasurer Dawn M. Hornback C. Grant Anderson Lawrence M. Turner Secretary William H. Zimmer III
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government or the Federal Deposit Insurance Corporation. Investment in mutual funds involves investment risk, including possible loss of principal. Although money market funds seek to maintain a stable net asset value of $1.00 per share, there is no assurance that they will be able to do so. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Trust's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. Cusip 854911302 Star Bank, N.A. G00446-05 (7/97) Investment Adviser TR 4961 Federated Securities Corp. Distributor EX-99.COVER 2 STAR FUNDS Federated Investors Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (412) 288-1900 July 11, 1997 EDGAR Operations Branch Securities and Exchange Commission Division of Investment Management 450 Fifth Street, Northwest Washington, DC 20549 RE: STAR FUNDS (The "Trust") Star Capital Appreciation Fund Star Growth Equity Fund Star Relative Value Fund The Stellar Fund Star Strategic Income Fund Star U.S. Government Income Fund Star Treasury Fund Star Tax-Free Money Market Fund The Stellar Insured Tax-Free Bond Fund 1933 Act File No. 33-26915 1940 Act File No. 811-5762 Dear Sir or Madam: Pursuant to Rule 30(b)(2) of the Investment Company Act of 1940, and Rule 30b2-1 thereunder, the semi-annual reports of the above-referenced Trust dated May 31, 1997 (except for The Stellar Insured Tax-Free Bond Fund, which is dated July 11, 1997), are hereby electronically transmitted. If you have any questions regarding this filing, please call me at (412) 288-8094. Very truly yours, /s/ J. Martin Levine J. Martin Levine Compliance Analyst Enclosures -----END PRIVACY-ENHANCED MESSAGE-----