Semiannual Report
September 30, 1998
[AFBA LOGO]
"In honor of General Eisenhower, our founder."
AFBA
FIVE STAR
FUND^sm
100% pure no-load
mutual funds
MESSAGE
To Our Shareholders
The six months ended September 30, 1998 has been a challenging time for
mutual fund shareholders. Various stock indices have declined
significantly, and market volatility has perplexed even professional
investors.
As pointed out in the Portfolio Management Review section following this
letter, such market conditions can be an opportunity to establish a
foundation for significant future gain. Please read this section
carefully, as it contains information concerning Fund performance,
economic and market trends, and other items of interest to investors.
Investment Results - Total Return
AFBA Five Star Fund
Since Since
One Month Inception One Year Inception
Ended 6/3/97 Ended 6/3/97
10/31/98 to 10/31/98 9/30/98 to 9/30/98
Balanced 4.38% 6.38% -7.59% 1.44%
Equity 5.05% 5.26% -11.63% 0.15%
High Yield -0.52% 0.64% -3.55% 0.88%
USA Global 5.35% 3.01% -9.20% -1.68%
Performance data contained in this report is for past periods only. Past
performance is not predictive of future performance. Investment return
and share value will fluctuate, and redemption value may be more or less
than original cost.
The AFBA Five Star Equity Fund is now listed in The Wall Street Journal.
We appreciate the opportunity to serve all of our investors, both old
and new, and will be happy to answer your questions and comments, or to
provide additional information about your investments.
Sincerely,
/s/C.C. Blanton
C.C. Blanton
Chairman
Portfolio Management Review
Rarely have we seen investor attitudes change more rapidly than in the
past several months. In this short period sentiment toward the U.S.
economy and stock market has gone from a state of near nirvana to one of
fear and panic. The Asian flu, which at the time of our March annual
report appeared to be contained, has since spread like a firestorm
hitting Russia, Latin America and now the United States and Europe. With
a growing proportion of the world's major continents now in or heading
into recession the U.S. and European stock markets are beginning to
anticipate the same. We have little doubt that the U.S. economy will
slow down in coming quarters. We could even see a mild recession in
early 1999. However, the stock market routinely discounts events some
six months into the future. Therefore, this bear market should be closer
to the end for most stocks, particularly those of both smaller and
beaten-down cyclical companies. While the market could remain range-
bound at these lower levels for some time, we would view any significant
decline from here as a major, long-term buying opportunity.
Our advice to shareholders is don't panic. We believe new purchases
should be dollar-cost averaged* during this downturn. If you analyze the
history of the stock market,
statistics show that purchases made during downturns are generally
viewed favorably 2-3 years later. Since the Great Depression, according
to Stocks, Bonds & Inflation by Ibbotson & Associates, there have been
16 separate years in which large company stocks ended with a negative
return. This works out to a negative return about once every 4 years.
However, in the two years following a negative year the returns have
historically been very good, averaging roughly 18% annually. The message
is very simple, but often emotionally difficult - you want to put new
money to work when times are tough and uncertainty is high.
While the past does not dictate the future, we believe the fundamental
backdrop for the U.S. stock market is only temporarily derailed and
stocks could be poised for a powerful recovery by the year 2000. To gain
the proper perspective for this forecast we believe it is necessary to
understand what is presently going on around the globe. It is
particularly important to understand the circumstances and prospects for
recovery in those emerging countries whose economies, currencies and
financial markets have collapsed to only a fraction of their former
levels.
Let's start with East Asia. Up until mid 1997 no other region of the
world was experiencing more rapid economic growth. Taiwan, Korea, China,
Singapore, Thailand, Malaysia, Indonesia and Hong Kong all contributed
to the "Asian Miracle" so often referred to in the press. Having
learned from the economic success of Japan and the failure of Russia,
Asian leaders decided throughout the 1970s and 1980s that various forms
of capitalism, not communism, were the path to growth. Asian capitalism
suffered from too much corruption, but in general they established
relatively free markets for goods and services. These countries still
have many things going for them including: huge population bases,
educated work forces, low taxation and high savings rates.
In a world where an increasingly free flow of capital was chasing the
highest returns available, Asia got more than its fair share in the mid
1990s. This included a flood of loans from Japanese, American and
European banks, and massive inflows from U.S. based and other foreign
corporations, mutual funds, pension funds and hedge funds. Many Asian
companies were so confident in the strength and stability of their own
currencies that they borrowed money in U.S. dollars. The end result was
too much easy money which led to rampant asset inflation and a
construction boom throughout Asia, which paralleled the Japanese and
U.S. real estate booms of the mid 1980s. In each of the latter cases the
boom led to a bust. This is exactly what is happening throughout East
Asia at the present.
Boom/bust cycles are a part of history for all countries and typically
are self-correcting over time. For Asia the biggest uncertainty for
recovery is the element of time. The great influx of capital to Asia led
to heavy overbuilding of manufacturing capacity, office space, hotels,
etc. In many cases capital was misallocated based on the close ties
between politicians and corporate leaders. In other cases companies were
simply driven by greed and overconfidence. As foreign investors began to
sense problems in various Asian countries they began to withdraw their
capital. They started by selling the stocks and debt of Thai and
Malaysian companies. Speculators followed by outright selling of their
currencies. This forced a de-pegging of their currencies to the U.S.
dollar. Just as the free flow of capital came in, it began to flow out.
Because their financial markets were relatively illiquid to begin with,
the selling soon led to free-falling markets. Problems intensified when
the crisis spread to Korea. The largest companies in Korea were quasi-
government entities and were highly leveraged, many having borrowed
money in U.S. dollars. As the Korean Won collapsed, dollar denominated
debt ballooned and it quickly became evident it could not be repayed
without external help.
Having been burned in East Asia, developing country lenders and
investors have since pulled their money out of Russia and more recently
Latin America. In the wake of this capital flight, currencies and stock
markets have been decimated in the short term. In the case of Latin
America, previously growing economies are now suffering because of high
interest rates set in place to defend their currencies. Problems in
Latin America finally proved to be too much for the resilient U.S. and
European stock markets. The current declines appear to be due to an
anticipation of much slower growth of the U.S. and European economies
and a downturn in corporate profits. With another ratcheting down in
exports going to Latin America this appears to be a reasonable reaction.
So how do we get out of this mess and why do we believe the U.S. bull
market will resume by the year 2000? The bottom line; we believe one way
or another Asia will outgrow and fix its problems. We also believe there
remains powerful demographic forces in the U.S. that should reemerge as
this crisis subsides - pushing stocks much higher as baby boomers save
for retirement. In Asia there are near term problems that must be
solved. These include reducing corruption and establishing improved
legal, accounting and regulatory infrastructures. They must also
overcome the current wave of anti-capitalism sentiment affecting certain
countries. However, most of the positives that were of great benefit to
these countries before they got in trouble still exist. The countries'
high savings rates should gradually replace the foreign capital that
left. They remain formidable exporters and entrepreneurs. Asian
consumers who tasted the improved lifestyle of the middle and upper
class before the crisis will not soon forget it and will likely strive
to get it back. Excess capacity should be absorbed over time through
increased demand, partnerships and shutdowns. As unlikely as it seems
today, particularly given the sad state of the Japanese banking system,
foreign lenders and investors will again return to Asia to finance
companies with bright futures. The process will take time, probably
years, but if you believe free markets contain self-correcting
mechanisms for boom/bust cycles (we do!) then the outlook for world
economic growth will eventually brighten. A useful time in history to
remember is 1973-74 - the worst U.S. stock market downturn since the
Depression. The Dow was at 600, but at the time people could not see an
upturn on the horizon. Over the next 25 years, however, the market
proceeded to go up fifteen fold.
On a near-term basis the U.S. stock market may enjoy a bounce if the
Federal Reserve further cuts short-term interest rates. Lower short
rates will be positive from the standpoint that they will benefit banks.
In past months banks and bond investors have been charging much higher
rates on loans to corporations and generally making credit less
available due to the higher volatility and uncertainty in the financial
markets. Banks have also felt a need to charge higher rates due to the
flat yield curve. Margins have been squeezed because short-term deposit
rates have not fallen in tandem with long-term government rates. If the
Fed lowers short rates bank profit margins could improve and perhaps
ease the current rationing of credit. However, it is our opinion that
the U.S. market will not resume its previous uptrend just based on a Fed
easing. The market will likely remain volatile and range- bound until it
becomes more evident that international economies have clearly bottomed.
The last subject we want to address is the high yield bond market.
Recently this market has been negatively affected by the turmoil in the
financial markets. As mentioned earlier the risk premium charged by
banks and bond investors has risen sharply, which has increased
corporate bond yields and negatively affected bond prices. The impact
has been severe enough that the average high yield fund now has a
negative return for the year (prices have fallen more than the income
generated). We view this downturn as a great long-term opportunity for
income oriented investors. The high yield bond market is much less
liquid than the stock market or government bond market and will
occasionally experience huge price swings that are not commensurate with
underlying fundamentals. Certainly the profitability of high yield
issuers will be negatively impacted if we have even a mild recession,
thus it is necessary that we scrutinize our purchases very closely.
However, we believe our research efforts and experience will pay off
over the next several years as we lock in very attractive yields for the
funds.
The following is a snapshot and comment on how each of the Afba Funds
have performed over the past three and twelve months and since
inception.
Afba Five Star Balanced Fund
Afba Five Star Balanced Fund generated total returns (price change and
reinvested distributions) of -11.86% and -7.59% for the three months and
year ended September 30, 1998. Since inception (June 3, 1997) the Fund
has produced an average annualized return of 1.44%. The Lipper Balanced
Fund Index registered returns of -5.79%, 4.82% and 11.23%, for the
respective periods.
Performance data contained in this report is for past periods only.
Past performance is not predictive of future performance. Investment
return and share value will fluctuate, and redemption value may be more
or less than original cost.
Investment Results - Total Return
THREE MONTHS ONE SINCE
ENDED YEAR INCEPTION
9/30/98 9/30/98 6/3/97
AFBA FIVE STAR
BALANCED FUND -11.86% -7.59% 1.44%
Lipper Balanced
Fund Index -5.79% 4.82% 11.23%
AFBA Five Star Equity Fund
AFBA Five Star Equity Fund generated total returns (price change and
reinvested distributions) of -16.37% and -11.63% for the three months
and year ended September 30, 1998. Since inception (June 3, 1997) the
Fund has produced an average annualized return of 0.15%. The Lipper
Capital Appreciation Fund Index registered returns of -14.35%,
- -4.10% and 8.85%, for the respective periods.
Investment Results - Total Return
THREE MONTHS ONE SINCE
ENDED YEAR INCEPTION
9/30/98 9/30/98 6/3/97
AFBA FIVE STAR
EQUITY FUND -16.37% -11.63% 0.15%
Lipper Capital Appreciation
Fund Index -14.35% -4.10% 8.85%
AFBA Five Star High Yield Fund
Afba Five Star High Yield Fund generated total returns (price change and
reinvested distributions) of -6.27% and -3.55% for the three months and
year ended September 30, 1998. Since inception (June 3, 1997) the Fund
has produced an average annualized return of 0.88%. The Lipper High
Yield Bond Fund Index registered returns of -7.55%, -1.65% and 3.85%,
for the respective periods.
Investment Results - Total Return
THREE MONTHS ONE SINCE
ENDED YEAR INCEPTION
9/30/98 9/30/98 6/3/97
AFBA FIVE STAR
HIGH YIELD FUND -6.27% -3.55% 0.88%
Lipper High Yield Bond
Fund Index -7.55% -1.65% 3.85%
Afba Five Star USA Global Fund
Afba Five Star USA Global Fund generated total returns (price change and
reinvested distributions) of -10.25% and
- -9.20% for the three months and year ended September 30, 1998. Since
inception (June 3, 1997) the Fund has produced an annualized return of -
1.68%. The Lipper Capital Appreciation Fund Index registered returns of
- -14.35%, -4.10% and 8.85%, for the respective periods.
Investment Results - Total Return
THREE MONTHS ONE SINCE
ENDED YEAR INCEPTION
9/30/98 9/30/98 6/3/97
AFBA FIVE STAR
USA GLOBAL FUND -10.25% -9.20% -1.68%
Lipper Capital Appreciation
Fund Index -14.35% -4.10% 8.85%
All of us on the KCM team appreciate your support of the Afba Five Star
Fund and we will continue our drive to make ownership of the Fund a
rewarding experience over the long term. When you discuss investments
with your friends, family and business associates we hope you will
mention the Afba Five Star Fund. We look forward to tracking each Fund's
progress for you in future letters.
Sincerely,
/s/John C. Kornitzer /s/Kent W. Gasaway
John C. Kornitzer Kent W. Gasaway
President Sr. Vice President
/s/Tom W. Laming
Tom W. Laming
Sr. Vice President
*This strategy does not assure a profit and does not protect against
loss in declining markets. An investor should be prepared to continue
his or her program of investing at regular intervals, even during
economic down-turns, in order to fully utilize a dollar cost averaging
program.
AFBA FIVE STAR
Balanced Fund
STATEMENT OF NET ASSETS
September 30, 1998 (unaudited)
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 48.84%
Basic Materials - 4.32%
6,200 Republic Group, Inc. $ 82,537
6,000 Steel Dynamics, Inc. 78,000
160,537
Capital Goods - 2.74%
500 Lockheed Martin Corp. 50,406
1,000 Raytheon Co. Cl. B 51,392
101,798
Consumer Cyclical - 13.79%
2,000 Carnival Corp. 63,625
3,000 Dillard's, Inc. Cl. A 84,938
4,000 Elcor Corp. 84,500
2,000 Ethan Allen Interiors, Inc. 72,500
5,000 Interface, Inc. Cl. A 60,000
5,000 Kmart Corp. 59,688
3,000 Modine Manufacturing Co. 87,000
512,251
Consumer Staples - 1.59%
2,000 PepsiCo, Inc. 58,875
Energy - 5.03%
11,500 Frontier Oil Corp. 74,750
2,700 McDermott International, Inc. 72,731
3,000 Ocean Energy, Inc. 39,375
186,856
Financial - 5.68%
1,000 Allstate Corp. 41,688
1,000 CIT Group, Inc. Cl. A 25,625
1,000 Fleet Financial Group, Inc. 73,437
2,000 Kansas City Southern Industries, Inc. 70,000
210,750
HEALTH CARE - 4.91%
1,000 Merck & Co. 129,562
500 Pfizer, Inc. 52,969
182,531
Technology - 6.14%
2,000 Alcatel Alsthom ADR 34,000
3,000 Diebold, Inc. 66,000
1,000 International Business Machines Corp. 128,000
228,000
Transportation & Services - 2.42%
4,500 Southwest Airlines Co. 90,000
Utilities - 2.22%
1,500 GTE Corp. 82,500
Total Common Stocks 1,814,098
Convertible Preferred Stocks - 11.53%
1,600 Bethlehem Steel Corp., $3.50, 144A 62,600
1,000 Cyprus Amax Minerals Co., $4, Series A 41,250
2,000 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. 0.05 pfd. cv. stepup 32,250
4,200 ICO Holdings, Inc.,
dep. shrs. repstg. 1/4 pfd. cv. 76,125
1,500 Kmart Financing I, 7.750% tr. cv. pfd. secs. 75,000
800 Loral Space & Communications Ltd.,
6% 144A, Series C 35,600
4,000 Tesoro Petroleum Corp.,
prem. income equity secs-pies. dep. shrs. 57,000
1,500 TXI Capital Trust I, 5.50% trust pfd. sec. 48,375
Total Convertible Preferred StockS 428,200
FACE
AMOUNT DESCRIPTION MARKET VALUE
Corporate Bonds - 11.52%
$ 30,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 31,950
40,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 39,800
125,000 Frontier Oil Corp, 9.125% sr. note, due 2-15-06 116,875
5,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 5,025
5,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 4,900
20,000 Kmart Corp., 8.25% note, due 1-1-22 19,973
50,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 49,250
5,000 Nortek, Inc., 9.875% sr. sub. note, due 3-1-04 5,013
5,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 5,075
75,000 Specialty Retailers, Inc.,
9.00% sr. sub. note, due 7-15-07 67,125
55,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 44,275
50,000 Wiser Oil Co.Delaware,
9.50% sr. sub. note, due 5-15-07 38,750
Total Corporate Bonds 428,011
Convertible Corporate Bonds - 20.75%
15,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 11,906
30,000 Allwaste, Inc., 7.25% sub. deb., due 6-1-14 8,700
96,000 Argosy Gaming Co., 12.00% sub. note, due 6-1-01 95,640
125,000 HMT Technology Corp., 5.75% sub. note, due 1-15-04 82,188
40,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 27,200
130,000 Intevac, Inc., 6.50% sub. note 144A, due 3-1-04 91,325
125,000 Key Energy Group, Inc.,
5.00% sub. note, due 9-15-04 77,812
100,000 Lomak Petroleum, Inc., 6.00% sub. deb., due 2-1-07 79,000
100,000 Micron Technology, Inc.,
7.00% sub. note, due 7-1-04 92,875
10,000 Moran Energy, Inc., 8.75% sub. deb., due 1-15-08 9,750
100,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 88,500
10,000 OHM Corp., 8.00% sub. deb., due 10-1-06 9,038
10,000 Oryx Energy Co., 7.50% sub. deb., due 5-15-14 9,350
50,000 Southern Mineral Corp., 6.875%, due 10-1-07 30,625
5,000 Swift Energy Co., 6.25% sub. note, due 11-15-06 4,037
50,000 VLSI Technology, Inc., 8.25% sub. note, due 10-1-05 43,375
10,000 Weston (Roy F.), Inc., 7.00% sub. deb., due 4-15-02 9,363
Total Convertible Corporate Bonds 770,684
Repurchase Agreement - 8.88%
330,000 UMB Bank, n.a., 4.85%, due 10-1-98
(Collateralized by U.S. Treasury Notes,
5.875%, due 3-31-99) 330,000
Total Investments - 101.52% $ 3,770,993
Other assets less liabilities - (1.52%) (56,496)
Total Net Assets - 100.00%
(equivalent to $9.82 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
378,399 shares outstanding) $ 3,714,497
See accompanying Notes to Financial Statements.
AFBA Five Star
Equity Fund
STATEMENT OF NET ASSETS
September 30, 1998 (unaudited)
SHARES COMPANY MARKET VALUE
Common Stocks - 78.92%
Basic Materials - 3.28%
2,600 Republic Group, Inc. $ 34,612
4,600 Sigma Aldrich Corp. 132,825
167,437
Capital Goods - 3.47%
3,100 Allied Signal, Inc. 109,663
800 Boeing Co. 27,450
400 Lockheed Martin Corp. 40,325
177,438
Consumer Cyclical - 10.85%
3,300 Brunswick Corp. 42,694
6,500 CompUSA, Inc. 112,531
4,000 Dillard's, Inc. Cl. A 113,250
3,000 Elcor Corp. 63,375
2,500 Ethan Allen Interiors, Inc. 90,625
4,000 Interface, Inc. Cl. A 48,000
7,000 Kmart Corp. 83,562
554,037
Consumer Staples - 8.53%
1,200 McDonald's Corp. 71,625
3,500 PepsiCo, Inc. 103,031
2,300 Sara Lee Corp. 124,200
5,100 Viad Corp. 136,744
435,600
Energy - 9.20%
1,100 British Petroleum PLC Sh F ADR 95,975
2,900 Enron Corp. 153,156
2,000 Royal Dutch Petroleum Co.,
NY Registry Shr. Par N Gldr 1.25 95,250
2,500 Schlumberger Ltd. 125,781
470,162
Financial -17.89%
1,000 Aetna, Inc. 69,500
4,700 Allstate Corp. 195,931
1,400 American Express Co. 108,675
2,400 American Financial Group, Inc. 77,700
4,400 CIT Group, Inc. Cl. A 112,750
1,700 Fleet Financial Group, Inc. 124,844
1,100 Golden West Financial Corp. Delaware 89,994
1,200 PNC Bank Corp. 54,000
1,600 Union Planters Corp. 80,400
913,794
Health Care - 7.99%
2,200 Johnson & Johnson 172,150
1,100 Merck & Company, Inc. 142,519
900 Schering-Plough Corp. 93,206
407,875
Technology - 9.77%
2,925 Cisco Systems, Inc. 180,802
4,800 Diebold, Inc. 105,600
2,700 HMT Technology Corp. 21,094
1,900 Loral Space & Communications, Ltd. 28,025
900 Microsoft Corp. 99,056
5,900 National Semiconductor Corp. 57,156
2,500 SCC Communications Corp. 7,500
499,233
Transportation & Services - 5.14%
2,500 FDX Corp. 112,813
7,500 Southwest Airlines Co. 150,000
262,813
Utilities - 2.80%
2,600 GTE Corp. 143,000
Total Common Stocks 4,031,389
FACE
AMOUNT DESCRIPTION MARKET VALUE
Repurchase Agreement - 16.15%
$ 825,000 UMB Bank, n.a., 4.85%, due 10-1-98
(Collateralized by U.S. Treasury Notes,
5.875%, due 3-31-99) 825,000
Total Investments - 95.07% $ 4,856,389
Other assets less liabilities - 4.93% 252,090
Total Net Assets - 100.00%
(equivalent to $9.91 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
515,295 shares outstanding) $ 5,108,479
See accompanying Notes to Financial Statements.
AFBA Five Star
High Yield Fund
STATEMENT OF NET ASSETS
September 30, 1998 (unaudited)
SHARES COMPANY MARKET VALUE
Common Stock - 0.17%
1,022 Fedders Corp. Cl. A (non-voting) $ 4,727
Convertible Preferred Stocks - 16.40%
1,000 Bethlehem Steel Corp., $3.50, 144A 39,125
1,000 Cyprus Amax Minerals Co., $4, Series A 41,250
1,800 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. gold pfd. 29,025
4,200 ICO Holdings, Inc., dep. shrs. repstg. 1/4 pfd. cv. 76,125
1,000 Kmart Financing I, 7.750% tr. cv. pfd. secs. 50,000
1,300 Loral Space & Communications Ltd.,
6% 144A, Series C 57,850
3,000 Tesoro Petroleum Corp., prem. income equity secs.-
pies. dep. shrs. 42,750
1,000 TXI Capital Trust I, 5.50% trust pfd. sec. 32,250
2,000 Union Pacific Capital Trust,
term income deferrable equity secs. 90,000
Total Convertible Preferred Stocks 458,375
FACE
AMOUNT DESCRIPTION MARKET VALUE
Corporate Bonds - 34.17%
$ 45,000 Argosy Gaming Co.,
13.25% 1st. mtg. note, due 6-1-04 47,925
35,000 Callon Petroleum Co. Delaware,
10.00% sr. sub. note, due 12-15-01 34,344
111,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 110,445
150,000 Frontier Oil Corp., 9.125% sr. note, due 2-15-06 140,250
5,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 5,025
30,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 29,400
20,000 Kmart Corp., 8.25% note, due 1-1-22 19,973
25,000 Kmart Corp. Pass Thru Trust,
9.35% pass thru ctfs., Series 95 K-4, due 1-2-20 26,250
44,000 Kmart Corp. Pass Thru Trust,
9.78% mortgage pass thru cfts., due 1-5-20 47,080
125,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 123,125
5,000 Nortek, Inc., 9.875% sr. sub. note, due 3-1-04 5,012
30,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 30,450
125,000 Plains Resources, Inc.,
10.25% sr. sub. note, Series B, due 3-15-06 120,625
125,000 Specialty Retailers, Inc.,
9.00% sr. sub. note, due 7-15-07 111,875
80,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 64,400
50,000 Wiser Oil Co. Delaware,
9.50% sr. sub. note, due 5-15-07 38,750
Total Corporate Bonds 954,929
Convertible Corporate Bonds - 32.92%
15,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 11,906
32,000 Allwaste, Inc., 7.25% sub. deb., due 6-1-14 9,280
95,000 Argosy Gaming Co., 12.00% sub. note, due 6-1-01 94,644
100,000 HMT Technology Corp., 5.75% sub. note, due 1-15-04 65,750
45,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 30,600
100,000 Intevac, Inc., 6.50% sub. note 144A, due 3-1-04 70,250
125,000 Key Energy Group, Inc., 5.00% sub. note, due 9-15-04 77,812
100,000 Lomak Petroleum, Inc., 6.00% sub. deb., due 2-1-07 79,000
90,000 Micron Technology, Inc., 7.00% sub. note, due 7-1-04 83,588
10,000 Moran Energy, Inc., 8.75% sub. deb., due 1-15-08 9,750
100,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 88,500
35,000 OHM Corp., 8.00% sub. deb., due 10-1-06 31,631
70,000 Oryx Energy Co., 7.50% sub. deb., due 5-15-14 65,450
50,000 Southern Mineral Corp., 6.875% deb., due 10-1-07 30,625
82,000 Swift Energy Co., 6.25% sub. note, due 11-15-06 66,215
110,000 VLSI Technology, Inc., 8.25% sub. note, due 10-1-05 95,425
10,000 Weston (Roy F.), Inc., 7.00% sub. deb., due 4-15-02 9,363
Total Convertible Corporate Bonds 919,789
Repurchase Agreement - 15.57%
435,000 UMB Bank, n.a., 4.85%, due 10-1-98
(Collateralized by U.S. Treasury Notes,
5.875%, due 3-31-99) 435,000
Total Investments - 99.23% $ 2,772,820
Other assets less liabilities - 0.77% 21,631
Total Net Assets - 100.00%
(equivalent to $9.65 per share;
10,000,000 shares
of $1.00 par value capital shares authorized;
289,698 shares outstanding) $ 2,794,451
See accompanying Notes to Financial Statements.
AFBA Five Star
USA GLOBAL Fund
STATEMENT OF NET ASSETS
September 30, 1998 (unaudited)
SHARES COMPANY MARKET VALUE
Common Stocks - 63.69%
Basic Materials - 1.00%
1,200 Praxair, Inc. $ 39,225
Capital Goods - 6.42%
2,200 Air Products & Chemicals, Inc. 65,450
1,200 Boeing Co. 41,175
1,600 Rockwell International Corp. 57,800
2,500 Teleflex, Inc. 87,500
251,925
Consumer Cyclical - 3.78%
6,900 Interface, Inc. Cl. A 82,800
1,500 Lear Corp. 65,625
148,425
Consumer Staples - 12.69%
2,000 Bestfoods, Inc. 96,875
800 Coca-Cola Co. 46,100
600 Gillette Co. 22,950
2,100 McDonald's Corp. 125,344
2,000 Sara Lee Corp. 108,000
1,300 Wrigley, (Wm.) Jr. Co. 98,719
497,988
Energy - 5.73%
1,300 McDermott International, Inc. 35,019
500 McDermott (J. Ray) SA 23,500
1,100 Mobil Corp. 83,531
600 Pride International, Inc. 4,800
1,100 Texaco, Inc. 68,956
900 Triton Energy Ltd. 8,944
224,750
Financial - 1.45%
2,000 AFLAC, Inc. 57,125
Health Care - 11.33%
1,000 American Home Products Corp. 52,375
1,000 Bristol Myers-Squibb 103,875
1,700 Johnson & Johnson 133,025
1,500 Schering-Plough Corp. 155,344
444,619
Technology - 21.29%
2,000 AMP, Inc. 71,500
2,500 Analog Devices, Inc. 40,156
200 Applied Materials, Inc. 5,050
1,250 Applied Micro Circuits Corp. 18,594
2,400 Cisco Systems, Inc. 148,350
1,600 Hewlett-Packard Co. 84,700
6,500 HMT Technology Corp. 50,781
3,900 Integrated Device Technology, Inc. 20,719
500 Intel Corp. 42,875
4,500 Intevac, Inc. 32,062
700 Microsoft Corp. 77,044
700 Motorola, Inc. 29,881
2,600 National Semiconductor Corp. 25,187
2,500 OSI Systems, Inc. 19,063
2,100 Seagate Technology 52,631
2,000 SED International Holdings, Inc. 10,125
1,500 Thermoquest Corp. 14,625
8,600 Western Digital Corp. 92,450
835,793
Total Common Stocks 2,499,850
FACE
AMOUNT DESCRIPTION MARKET VALUE
Repurchase Agreement - 34.02%
$ 1,335,000 UMB Bank, n.a., 4.85%, due 10-1-98
(Collateralized by U.S. Treasury Notes,
5.875%, due 3-31-99) 1,335,000
Total Investments - 97.71% $ 3,834,850
Other assets less liabilities - 2.29% 89,858
Total Net Assets - 100.00%
(equivalent to $9.72 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
403,818 shares outstanding) $ 3,924,708
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (identified cost
$4,299,059, $5,229,547, $3,015,446
and $4,129,831, respectively) $ 3,770,993 $ 4,856,389 $ 2,772,820 $ 3,834,850
Cash - 320 176 -
Dividends receivable 6,271 6,829 876 2,239
Interest receivable 33,371 - 46,071 -
Receivable for investments sold - 244,941 - 88,701
Total assets 3,810,635 5,108,479 2,819,943 3,925,790
LIABILITIES AND NET ASSETS:
Cash overdraft 45,155 - - 1,082
Payable for investments purchased 50,983 - 25,492 -
Total liabilities 96,138 - 25,492 1,082
NET ASSETS $ 3,714,497 $ 5,108,479 $ 2,794,451 $ 3,924,708
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 4,195,414 $ 5,734,312 $ 3,027,296 $ 4,285,046
Accumulated undistributed net investment
income 8,328 4,881 9,019 3,212
Accumulated undistributed net realized gain
(loss)
on investment transactions 38,821 (257,556) 762 (68,569)
Net unrealized depreciation in
value of investments (528,066) (373,158) (242,626) (294,981)
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 3,714,497 $ 5,108,479 $ 2,794,451 $ 3,924,708
Capital shares, $1.00 par value
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 378,399 515,295 289,698 403,818
NET ASSET VALUE PER SHARE $ 9.82 $ 9.91 $ 9.65 $ 9.72
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS
OF OPERATIONS
Six Months Ended September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 22,416 $ 25,462 $ 11,135 $ 14,850
Interest 60,182 20,101 66,545 20,509
82,598 45,563 77,680 35,359
Expenses (Note 2):
Management fees 16,318 24,358 11,505 17,876
Registration fees and expenses 12,668 12,564 12,734 12,563
28,986 36,922 24,239 30,439
Net investment income 53,612 8,641 53,441 4,920
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 444,943 1,705,225 51,000 296,814
Cost of investments sold 414,808 1,964,944 59,090 326,035
Net realized gain (loss) from sales of investments 30,135 (259,719) (8,090) (29,221)
Gain from option contracts written - 3,090 - -
Net realized gain (loss) from investment transactions 30,135 (256,629) (8,090) (29,221)
Unrealized depreciation on investments:
Beginning of period 78,079 256,370 18,251 182,301
End of period (528,066) (373,158) (242,626) (294,981)
Increase in net unrealized depreciation on investments (606,145) (629,528) (260,877) (477,282)
Net loss on investments (576,010) (886,157) (268,967) (506,503)
Decrease in net assets resulting from operations $ (522,398) $ (877,516) $ (215,526) $ (501,583)
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED FUND
SIX MONTHS ENDED FOR THE PERIOD FROM
SEPTEMBER 30, 1998 JUNE 3, 1997 (INCEPTION)
(unaudited) TO MARCH 31, 1998
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 53,612 $ 26,722
Net realized gain (loss) from investment transactions 30,135 12,060
Net unrealized appreciation (depreciation) of investments during the period (606,145) 78,079
Net increase (decrease) in net assets resulting from operations (522,398) 116,861
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (47,960) (24,099)
Net realized gain from investment transactions - (3,374)
In excess of realized gains - -
Total distributions to shareholders (47,960) (27,473)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 3,150,951 1,510,881
Net asset value of shares issued for reinvestment
of distributions 46,168 25,275
3,197,119 1,536,156
Cost of shares repurchased (617,369) (20,492)
Net increase from capital share transactions 2,579,750 1,515,664
Total increase in net assets 2,009,392 1,605,052
NET ASSETS:
Beginning of period 1,705,105 100,053
End of period (including undistributed net investment income
of $8,328, $4,881, $9,019 and $3,212, respectively) $ 3,714,497 $ 1,705,105
*Shares issued and repurchased:
Number of shares sold 279,660 139,198
Number of shares issued for reinvestment of distributions 4,453 2,331
Number of shares repurchased (55,372) (1,871)
Net increase 228,741 139,658
**Distributions to shareholders:
Income dividends per share $ .1400 $ .2343
Capital gains distribution per share $ - $ .0357
</TABLE>
(STATEMENTS OF CHANGES
IN NET ASSETS continued)
<TABLE>
<CAPTION>
EQUITY FUND HIGH YIELD FUND USA GLOBAL FUND
SIX MONTHS FOR THE PERIOD SIX MONTHS FOR THE PERIOD SIX MONTHS FOR THE PERIOD
ENDED FROM ENDED FROM ENDED FROM
SEPTEMBER 30, JUNE 3, 1997 SEPTEMBER 30, JUNE 3, 1997 SEPTEMBER 30, JUNE 3, 1997
1998 (INCEPTION) 1998 (INCEPTION) 1998 (INCEPTION)
(unaudited) TO MARCH 31, (unaudited) TO MARCH 31, (unaudited) TO MARCH 31,
1998 1998 1998
</CAPTION>
<C> <C> <C> <C> <C> <C>
$ 8,641 $ 16,155 $ 53,441 $ 31,743 $ 4,920 $ 16,295
(256,629) 14,372 (8,090) 8,991 (29,221) (39,084)
(629,528) 256,370 (260,877) 18,251 (477,282) 182,301
(877,516) 286,897 (215,526) 58,985 (501,583) 159,512
(8,784) (11,184) (46,991) (29,227) (6,961) (11,095)
- (14,372) - (139) - -
- (927) - - - (264)
(8,784) (26,483) (46,991) (29,366) (6,961) (11,359)
3,071,239 3,321,890 1,740,840 1,244,279 1,634,581 2,825,803
8,707 26,084 44,575 26,676 6,880 11,160
3,079,946 3,347,974 1,785,415 1,270,955 1,641,461 2,836,963
(676,983) (116,625) (124,027) (5,041) (153,379) (139,999)
2,402,963 3,231,349 1,661,388 1,265,908 1,488,082 2,696,964
1,516,663 3,491,763 1,398,871 1,295,527 979,538 2,845,117
3,591,816 100,053 1,395,580 100,053 2,945,170 100,053
$ 5,108,479 $ 3,591,816 $ 2,794,451 $ 1,395,580 $ 3,924,708 $ 2,945,170
267,370 303,234 165,888 119,303 153,956 265,844
758 2,466 4,447 2,558 648 1,116
(57,976) (10,557) (12,014) (484) (14,490) (13,256)
210,152 295,143 158,321 121,377 140,114 253,704
$ .0200 $ .0465 $ .1800 $ .3184 $ .0200 $ .0498
$ - $ .0635 $ - $ .0016 $ - $ .0012
</TABLE>
See accompanying Notes to Financial Statements.
1. SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management investment company of the
series type. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements.
A. Security Valuation - Corporate stocks, bonds and options traded on a
national securities exchange or national market are valued at the latest
sales price thereof, or if no sale was reported on that date, the mean
between the closing bid and asked price is used.
Securities which are traded over-the-counter are priced at the mean
between the latest bid and asked price. Securities not currently traded
are valued at fair value as determined by the Board of Directors.
B. Federal and State Taxes - The Fund complied with the requirements of
the Internal Revenue Code applicable to regulated investment companies
and therefore, no provision for federal or state tax is required.
C. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Realized gains and
losses from investment transactions and unrealized appreciation and
depreciation of investments are reported on the identified cost basis.
2. MANAGEMENT FEES:
Management fees are paid to AFBA Investment Management Company at the
rate of 1% per annum of the average daily net asset values of the Fund
for services which include administration, and all other operating
expenses of the Fund except the cost of acquiring and disposing of
portfolio securities, the taxes, if any, imposed directly on the Fund
and its shares and the cost of qualifying the Funds' shares for sale in
any jurisdiction. Certain officers and/or directors of the Fund are also
officers and/or directors of Jones & Babson, Inc.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the period ended September 30, 1998,
(excluding maturities of short-term commercial notes and repurchase
agreements) are as follows:
Balanced Fund
Purchases $ 3,132,834
Proceeds from sales 444,943
Equity Fund
Purchases $ 3,407,411
Proceeds from sales 1,705,225
High Yield Fund
Purchases $ 1,815,542
Proceeds from sales 51,000
USA Global Fund
Purchases $ 1,016,361
Proceeds from sales 296,814
4. COVERED CALL OPTIONS:
There were no outstanding covered call options as of September 30, 1998.
Transactions in call options written for the period ended September 30,
1998, were as follows:
Number of Premium
Contracts Amount
Equity Fund
Balance at March 31, 1998 - $ -
Opened 12 3,090
Closing buys (12) (3,090)
Balance at September 30, 1998 - $ -
This report has been prepared for the information of the Shareholders of
the AFBA Five Star Fund, and is not to be construed as an offering of
the shares of the Fund. Shares of the Fund are offered only by the
Prospectus, a copy of which may be obtained from Jones & Babson, Inc.
AFBA Five Star Fund^sm
AFBA Five Star Balanced Fund
AFBA Five Star Equity Fund
AFBA Five Star High Yield Fund
AFBA Five Star USA Global Fund
[AFBA LOGO]
"In honor of General Eisenhower, our founder."
AFBA
Five Star
Fund^sm
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314
1-800-243-9865
Shareholder Inquiries 1-888-578-2733
JB17E-1 11/98
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