Annual Report
March 31, 1999
AFBA
Five Star
FundSM
100% pure no-load
mutual funds
MESSAGE
To Our Shareholders
We are encouraged by the recent improving trends reflected in the performance
of the AFBA Five Star Funds and appreciate your continuing loyalty.
Because so much has already been written in the financial press concerning
economic and market conditions in recent months, we are using this report as
an opportunity to begin a series of discussions concerning overall portfolio
and investment strategies of the various AFBA Five Star Funds. The Portfolio
Management Review immediately following this letter will discuss the strategic
approach utilized by Kornitzer Capital Management, Inc. with respect to AFBA
Five Star Equity Fund.
Total distributions per share for the Fund for the fiscal year ended March 31,
1999, were as follows:
Investment Short-Term
Income Capital Gains Total
Balanced $ .40 $ .02 $ .42
Equity $ .06 $ - $ .06
High Yield $ .58 $ .03 $ .61
USA Global $ .05 $ - $ .05
We would be very pleased 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
We often get questions regarding the overall strategies for the AFBA
Five Star Mutual Funds. In this report we will discuss how we select
stocks in the AFBA Five Star Equity Fund. While this discussion includes
the names of various securities we owned as of the date at which this
report went to press, as well as the reasons for owning these stocks,
please be aware that circumstances change, sometimes quickly, which
could cause us to sell any of these stocks. In
addition, we often rebalance holdings in the portfolios due to price
changes. This discussion should not be viewed as a
recommendation to purchase any individual stock, but to provide a better
understanding of how and why we choose companies in which to invest.
Certain styles or sectors dictate the management of most mutual funds.
For example, some funds buy only small companies; others buy only large
companies. Some funds focus on value stocks - typically companies that
are priced at relatively low ratios of price-to-earnings (P/E) or price-
to-book value. Yet other funds buy only growth stocks - stocks that
sell at high ratios of price-to-earnings and/or price-to-book value, but
usually having high earnings growth rates. When one of these "sectors"
is in favor, those portfolios using that particular management approach
tend to do well. Last year, "growth" stocks significantly outperformed
"value" stocks, therefore, growth-oriented funds did particularly
well. Similarly, large company stocks performed significantly better
than did small company stocks during 1998, hence the poor relative
performance of small capitalization mutual funds versus their large cap
cousins.
In this letter, we will discuss the overall strategic approach for the
management of the AFBA Five Star Equity Fund. The AFBA Five Star Equity
Fund does not buy stocks based on specific sector/style classifications.
Rather than focus solely on "value" or "growth" stocks, or companies
of a particular size, we favor an approach which we believe will provide
more consistent long-term fund performance. This approach is not
dependent on a particular style or sector of stocks performing well in
any given year. Our process begins by identifying and monitoring
positive long-term trends that are driving various industries. We are
looking for developments that will provide positive, long-term,
operating environments for our companies. This forces us to be unlike
many investors in that we care as much about the potential earnings of a
company three years from now as what that company may earn in the
current quarter. It is important to note that we also look very closely
at the valuation of the stock before we purchase it. Paying too much for
a stock not only makes the additional work of analyzing a company
worthless, but it can also lead to disastrous returns. Now let us take a
look at specific examples of events that we expect to be the drivers of
many of the holdings within the AFBA Five Star Equity Fund.
Trends That Will Shape The Next Ten Years
Demographics. The aging of the baby boom generation is probably one of
the most talked about trends taking place within the United States, with
most people only considering what it means for the solvency of the
Social Security program. The rapid growth in the birthrate during the
post World War II period through the early sixties, followed by the
"baby bust," which lasted until the early seventies, has led to
significant differences in the growth rate of certain age groups. This
"baby-boom," by which it has come to be known, will cause dramatic
shifts in spending as this large group progresses through its various
stages of life. The
following table shows the dramatic impact of the "baby boom"
generation.
Projections of Households and Age of Householder
Age Group 1998 2008 % Change
25 to 34 years 17,745,661 16,875,195 -4.9
35 to 44 years 23,766,619 21,398,771 -10.0
45 to 54 years 19,727,324 25,062,402 27.0
55 to 64 years 13,236,547 19,256,448 45.5
65 to 74 years 11,587,631 12,541,726 8.2
Total U.S. households 101,042,864 112,362,848 11.2
Source: U.S. Census Bureau
What are the implications of this table? We believe that the aging of
the baby boom generation will cause larger than expected increases in
spending for pharmaceuticals, leisure activities, larger homes, vacation
homes, furniture, and financial services. We base our conclusions on
analysis of spending patterns of households as they age - obtaining
data directly from corporations, the Bureau of Labor Statistics, and
from the U.S. Census Bureau. Ultimately,
services for the elderly will start to grow rapidly, but as the table
indicates, the boom times for nursing and funeral homes lie at least ten
years into the future. What stocks do we own in the AFBA Five Star
Equity Fund to take advantage of this demographic trend? We own the
pharmaceutical stocks Merck, Abbott Laboratories, Johnson and Johnson,
and Schering-Plough, leisure activity companies Brunswick and Mirage
Resorts, book retailer Barnes and Noble, home building products
companies Elcor and Republic Group, and motor home manufacturer Coachmen
Industries. We also own home furnishings provider Ethan Allen, and
financial service providers American Express, Allstate, Fleet Financial
Group, PNC Bank and Union Planters.
Increasing Demand for Communications Bandwidth. Today's communications
infrastructure is being placed under considerable strain by a host of
new uses, and the demand for bandwidth (essentially, faster
communication speed) will increase geometrically in the foreseeable
future. What drives this need? The growing uses of the Internet, video-
conferencing, and eventually voice communications over IP (Internet
Protocol) networks. We believe that it will be very difficult to predict
the Internet winners in such areas as retail since most of the business
models appear to be unsustainable. For example, Amazon.com prices books
for sale to yield a mid-twenties percent gross margin while Shopping.com
sells its books at zero gross margin (yes, they sell books and other
items to you at cost and hope to make money on advertising). We do
believe, however, that the predictable long-term winners will be
companies involved with the "build out" of on-line infrastructure -
independent of who wins the electronic-commerce battle. We own Cisco
Systems because of its dominant position in equipment needed for the
continued evolution of the Internet and the potential for the growth of
a totally new infrastructure for voice communications. At the component
level, we own Atmel, a company involved in high-speed semiconductor
technology that is important to the wireless communications market.
Internet Commerce. The ease of establishing a commerce site on the
Internet underscores the low barriers to entry that lead to cutthroat
pricing. Picking the long-term winners may be impossible. However, there
are relatively few ways to ship the goods purchased over the Internet,
and even fewer ways to invest in those shippers. We own Federal Express
for its dominant worldwide delivery
capability and significant level of value added to the entire
electronic commerce industry.
The Shift from Analog to Digital Photography. Since digital cameras are
made primarily of semiconductors, performance and price tend to follow
typical semiconductor learning curves. Hence, they double in performance
every 18 months. This rate of improvement in the product assures that
conventional cameras are sitting ducks, and will be overtaken by their
digital cousins in the not too distant future. There will be little need
to take film anywhere for developing. Consumers will be able to edit and
print their pictures right at home, e-mail them to friends, and cut and
paste them into documents. We believe that Hewlett-Packard is the
biggest beneficiary of this trend via its sale of color printers, photo
quality paper, ink cartridges, and digital cameras.
Deregulation of Electric Utilities. Much like long distance telephone
deregulation during the 1980's, the electric utility industry is just
beginning the process of deregulation. Enron Corporation's web site,
www.enron.com, contains an excellent summary of the status of the
progress towards deregulation in each state. Customers will soon be
choosing their electric power provider the way they currently choose a
long distance provider. There will be many more losers than winners as
electric utility producers will enter into competition for the first
time, and those with the highest power-generation costs will suffer
greatly. The days of owning a utility stock for safety and dividends are
a thing of the past. Who will be the winners? We believe only companies
with the lowest-cost power-generation capabilities, and those having the
ability to purchase and distribute electricity nationally, will be the
primary beneficiaries, companies such as Enron Corporation.
International Growth of Recognized Branded Products. The combination of
generally high economic growth rates and low penetration rates for the
adoption and use of many consumer products makes many international
economies strong prospects for investment. Companies that have worldwide
distribution capabilities and globally recognized brand names are in the
best position to capitalize on these opportunities. For example,
according to survey data, Coca-Cola is one of the most recognized brand
names in China, yet the average Chinese citizen drank only six Coca-Cola
products last year, versus 371 per capita per year in Mexico. That is
what we mean by low penetration. McDonald's, PepsiCo and Sara Lee
capture the potential for strong growth of international markets for the
AFBA Five Star Equity Fund.
The Shift from Analog to Digital Cable. Cable companies are rolling out
new digital services in response to direct broadcast satellite (DBS)
systems, such as Direct TV. These services will include digital
broadcast of television signals, video-on-demand, cable modem connection
to the Internet, and cable telephony (voice communications over your
cable line instead of your existing telephone line). The biggest
beneficiaries should be the suppliers of cable set-top boxes. Here we
own Scientific-Atlanta, from which Time-Warner, which has 12 million
customers, recently committed to purchase 1.1 million of Scientific-
Atlanta's Explorer 2000 set-tops.
Expansion of Media Distribution Channels. On average, the number of
cable channels available in the home grew from nineteen in 1985 to
forty-five by 1996. Over the next few years, as cable systems are
upgraded and digital transmission is increasingly used as the
distribution method of choice, the number of cable channels will
continue to grow. In addition, because of the virtually unlimited
volume of content available via the Internet, coupled with the rise of
the Internet as a viable distribution platform for multimedia and video
on-demand, competition for viewers will rise dramatically. Because
consumers will be able to view so many sources of content (movies,
sports programming, news, etc.), the cost of distribution will continue
to drop. Pricing power will therefore shift away from
distributors of content (like Internet portals and cable operators)
toward media content providers. Companies possessing valuable content
should have the advantage, and in this area we own Disney.
The above description of the AFBA Five Star Equity Fund is not
exhaustive, but does cover the majority of the Fund's holdings. We do
hold stocks at various times for reasons other than those covered above
- - often due to very attractive valuations or other special
considerations, such as a positive management change. However, the core
holdings of the Fund continue to be developed by searching for positive
long-term influences on specific sectors of the economy, identifying
those companies that stand to benefit most from these trends, and
finally determining a fair price to pay for the stocks. We hope this
discussion of the AFBA Five Star Equity Fund has been useful in giving
you insight to the management of the Fund. We look forward to discussing
other Funds with you in the future.
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
CHART - AFBA Five Star Balanced Fund versus S&P 500 and Merrill Lynch Bond
Fund Index Weighted Average
Average annual compounded total returns for one year and the life of the Fund
(inception June 3, 1997) as of March 31, 1999, were -6.53% and 4.85%,
respectively. 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.
CHART - AFBA Five Star Equity Fund versus S&P 500
Average annual compounded total returns for one year and the life of the Fund
(inception June 3, 1997) as of March 31, 1999, were -1.43% and 9.04%,
respectively. 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.
CHART - AFBA Five Star High Yield Fund versus
Merrill Lynch High Yield Bond Fund Index
Average annual compounded total returns for one year and the life of the
Fund (inception June 3, 1997) as of March 31, 1999, were -8.45% and
0.07%, respectively. 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.
CHART - AFBA Five Star USA Global Fund versus S&P 500
Average annual compounded total returns for one year and the life of the Fund
(inception June 3, 1997) as of March 31, 1999, were -0.52% and 6.18%,
respectively. 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.
AFBA FIVE STAR
BALANCED FUND
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 41.27%
BASIC MATERIALS - 3.22%
7,000 Republic Group, Inc. $ 105,437
4,000 Steel Dynamics, Inc.* 66,250
171,687
CAPITAL GOODS - 1.06%
1,500 Lockheed Martin Corp. 56,531
CONSUMER CYCLICAL - 13.18%
1,000 Barnes & Noble, Inc. 32,125
3,000 Brunswick Corp. 57,187
1,500 Carnival Corp. 72,844
2,000 Dillard's, Inc. Cl. A 50,750
4,000 Elcor Corp. 140,750
2,000 Ethan Allen Interiors, Inc. 83,125
5,000 Interface, Inc. Cl. A 48,125
3,000 Kmart Corp.* 50,438
2,000 Mirage Resorts, Inc. 42,500
3,500 ServiceMaster Co. 71,094
2,000 Sylvan Learning Systems, Inc. 54,750
703,688
CONSUMER STAPLES - 2.20%
2,000 Disney (Walt) Holding Co. 62,250
500 PepsiCo, Inc. 19,594
2,500 Service Corporation International 35,625
117,469
ENERGY - 3.42%
13,500 Frontier Oil Corp.* 67,500
3,000 Global Marine, Inc.* 35,250
1,000 McDermott International, Inc. 25,312
3,000 Nabors Industries* 54,563
182,625
FINANCIAL - 4.67%
1,000 Allstate Corp. 37,062
1,000 American Express Co. 117,500
1,000 Fleet Financial Group, Inc. 37,625
1,000 Kansas City Southern Industries, Inc. 57,000
249,187
HEALTH CARE - 2.92%
1,000 Merck & Company, Inc. 80,188
2,000 Quintiles Transnational Corp. 75,500
155,688
TECHNOLOGY - 6.53%
1,500 Alcatel Alsthom ADR 34,219
3,000 Diebold, Inc. 72,000
500 International Business Machines Corp. 88,625
500 Microsoft Corp. 44,812
4,000 Scientific-Atlantic, Inc. 109,000
348,656
TRANSPORTATION & SERVICES - 2.87%
1,000 FDX Corp.* 92,813
2,000 Southwest Airlines Co. 60,500
153,313
UTILITIES - 1.20%
1,000 Enron Corp. 64,250
TOTAL COMMON STOCKS 2,203,094
(COST $2,076,406)
CONVERTIBLE PREFERRED STOCKS - 8.99%
1,600 Bethlehem Steel Corp., $3.50, 144A 60,200
1,000 Cyprus Amax Minerals Co., $4,
Series A 40,375
8,200 ICO Holdings, Inc., dep. shrs. repstg.
1/4 pfd. cv. 121,975
2,000 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. 0.05 pfd. cv. stepup 31,750
1,000 Kmart Financing I,
7.75% tr. cv. pfd. secs. 60,500
100 Loral Space & Communications Ltd.,
6%, 144A, Series C 4,475
700 Loral Space & Communications Ltd.,
6%, 144A, Series C* 31,325
4,000 Tesoro Petroleum Corp.,
prem. income equity secs.-pies. dep. shrs. 47,750
2,500 Texas Industries, capital trust 81,250
TOTAL CONVERTIBLE PREFERRED STOCKS 479,600
(COST $552,632)
FACE
AMOUNT DESCRIPTION MARKET VALUE
CORPORATE BONDS - 16.36%
$ 40,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 38,600
200,000 Eagle Geophysical, Inc.,
10.75% sr. note 144A, due 7-15-08 125,000
175,000 Frontier Oil Corp.,
9.125% sr. note, due 2-15-06 171,500
5,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 4,925
5,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 5,037
40,000 ICO Holdings, Inc.,
10.375% sr. note, due 6-1-07 27,400
100,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 97,000
5,000 Nortek, Inc.,
9.875% sr. sub. note, due 3-1-04 5,225
5,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 5,175
75,000 Plains Resources, Inc.,
10.25% sr. sub. note, due 3-15-06 74,625
150,000 Republic Group, Inc.,
9.50% sr. sub. note, due 7-15-08 151,875
75,000 Specialty Retailers, Inc.,
9.00% sr. sub. note, due 7-15-07 58,875
105,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 74,025
50,000 Wiser Oil Co.,
9.50% sr. sub. note, due 5-15-07 33,750
TOTAL CORPORATE BONDS 873,012
(COST $973,900)
CONVERTIBLE CORPORATE BONDS - 17.03%
15,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 9,994
30,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 2,400
146,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 148,007
150,000 HMT Technology Corp.,
5.75% sub. note, due 1-15-04 74,813
125,000 Hexcel Corp.,
10.75%, due 8-1-03 105,625
40,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 28,600
95,000 Intevac, Inc.,
6.50%, due 3-1-04 48,450
35,000 Intevac, Inc.,
6.50% sub. note 144A, due 3-1-04 17,850
175,000 Key Energy Group, Inc.,
5.00% sub. note 144A, due 9-15-04 92,750
150,000 Lomak Petroleum, Inc.,
6.00% sub. deb., due 2-1-07 75,750
100,000 Micron Technology, Inc.,
7.00% sub. note, due 7-1-04 106,250
10,000 Moran Energy, Inc.,
8.75% sub. deb., due 1-15-08 9,237
100,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 82,875
10,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 9,050
10,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 9,988
100,000 Sabratek Corp.,
6.00%, due 4-15-05 64,625
50,000 Southern Mineral Corp.,
6.875%, due 10-1-07 9,750
5,000 Swift Energy Co.,
6.25% sub. note, due 11-15-06 3,725
10,000 Weston (Roy F.), Inc.,
7.00% sub. deb., due 4-15-02 9,300
TOTAL CONVERTIBLE CORPORATE BONDS 909,039
(COST $1,192,799)
REPURCHASE AGREEMENT - 7.87%
420,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by Treasury Notes,
7.125%, due 2-29-00 with a value of $443,822)
(COST $420,000) 420,000
TOTAL INVESTMENTS - 91.52% 4,884,745
(COST $5,215,737)
Other assets less liabilities - 8.48% 452,445
TOTAL NET ASSETS - 100.00%
(equivalent to $10.22 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
522,311 shares outstanding) $ 5,337,190
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $5,243,089.
Net unrealized depreciation for federal income tax purposes was $358,344,
which is comprised of unrealized
appreciation of $312,484 and unrealized depreciation of $670,828.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA FIVE STAR
EQUITY FUND
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 88.35%
BASIC MATERIALS - 1.29%
6,300 Republic Group, Inc. $ 94,894
CAPITAL GOODS - 0.62%
1,200 Lockheed Martin Corp. 45,225
CONSUMER CYCLICAL - 11.63%
3,700 Barnes & Noble, Inc. 118,862
4,300 Brunswick Corp. 81,969
4,000 Coachmen Industries, Inc. 82,000
7,200 CompUSA, Inc. 50,400
4,400 Elcor Corp. 154,825
4,000 Ethan Allen Interiors, Inc. 166,250
3,800 Kmart Corp.* 63,888
1,800 Liz Claiborne, Inc. 58,725
3,500 Mirage Resorts, Inc. 74,375
851,294
CONSUMER STAPLES - 13.08%
1,000 Coca-Cola Co. 61,375
5,300 Disney (Walt) Holding Co. 164,962
4,600 McDonald's Corp. 208,438
4,600 PepsiCo, Inc. 180,262
6,200 Sara Lee Corp. 153,450
6,800 Viad Corp. 189,125
957,612
ENERGY - 4.19%
1,600 British Petroleum PLC Sh F ADR 161,500
2,800 Royal Dutch Petroleum Co. 145,600
307,100
FINANCIAL - 15.96%
5,700 Allstate Corp. 211,256
1,900 American Express Co. 223,250
2,800 American Financial Group, Inc. 98,525
2,300 CIT Group, Inc. Cl. A 70,294
4,100 Fleet Financial Group, Inc. 154,263
1,100 Golden West Financial Corp. 105,050
2,900 PNC Bank Corp. 161,131
3,300 Union Planters Corp. 144,994
1,168,763
HEALTH CARE - 11.77%
4,500 Abbott Laboratories 210,656
2,600 Johnson & Johnson 243,588
2,600 Merck & Company, Inc. 208,487
3,600 Schering-Plough Corp. 199,125
861,856
TECHNOLOGY - 18.52%
3,800 Analog Devices* 113,050
5,000 Atmel Corp.* 75,938
3,425 Cisco Systems, Inc. 375,251
5,800 Diebold, Inc. 139,200
4,000 HMT Technology Corp. 14,000
1,600 Hewlett-Packard Co. 108,500
3,800 Loral Space & Communications, Ltd.* 54,862
3,400 Microsoft Corp. 304,725
3,000 Scientific-Atlanta, Inc. 81,750
3,000 Seagate Technology, Inc. 88,688
1,355,964
TRANSPORTATION & SERVICES - 5.73%
2,500 FDX Corp.* 232,031
6,200 Southwest Airlines Co. 187,550
419,581
UTILITIES - 5.56%
3,700 Enron Corp. 237,725
2,800 GTE Corp. 169,400
407,125
TOTAL COMMON STOCKS 6,469,414
(COST $5,715,521)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 11.34%
$ 830,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
7.125%, due 2-29-00 with a value of $877,025)
(COST $830,000) 830,000
TOTAL INVESTMENTS - 99.69% 7,299,414
(COST $6,545,521)
Other assets less liabilities - 0.31% 22,767
TOTAL NET ASSETS - 100.00%
(equivalent to $11.54 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
634,392 shares outstanding) $ 7,322,181
The identified cost of investments owned at March 31, 1999, was the same for
financial statement and federal income tax purposes. Net unrealized
appreciation for federal income tax purposes was $753,893, which is comprised
of unrealized appreciation of $1,109,268 and unrealized depreciation of
$355,375.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA FIVE STAR
HIGH YIELD FUND
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
CONVERTIBLE PREFERRED STOCKS - 13.36%
1,000 Bethlehem Steel Corp.,
$3.50, 144A $ 37,625
1,000 Cyprus Amax Minerals Co.,
$4, Series A 40,375
1,800 Freeport-McMoran Copper & Gold, Inc.,
dep. shrs. repstg. gold pfd. 28,575
7,200 ICO Holdings, Inc.,
dep. shrs. repstg. 1/4 pfd. cv. 107,100
1,000 Kmart Financing I,
7.750% tr. cv. pfd. secs. 60,500
100 Loral Space & Communications Ltd.,
6%, 144A, Series C 4,475
1,200 Loral Space & Communications Ltd.,
6%, 144A, Series C* 53,700
3,000 Tesoro Petroleum Corp.,
prem. income equity secs. dep. shrs. 35,812
2,000 Texas Industries Capital Trust,
capital trust secs. 65,000
2,000 Union Pacific Capital Trust,
term income deferrable equity secs. 100,250
TOTAL CONVERTIBLE PREFERRED STOCKS 533,412
(COST $585,172)
FACE
AMOUNT DESCRIPTION MARKET VALUE
CORPORATE BONDS - 39.65%
35,000 Callon Petroleum Co.,
10.00% sr. sub. note, due 12-15-01 33,731
100,000 Callon Petroleum Co.,
10.125% sr. sub. note, due 9-15-02 98,000
111,000 CompUSA, Inc.,
9.50% gtd. sr. sub. note, due 6-15-00 107,115
175,000 Eagle Geophysical, Inc.,
10.75% sr. note 144A, due 7-15-08 109,375
100,000 Fairchild Semiconductor Corp.,
10.125% sr. sub. note, due 3-15-07 101,500
200,000 Frontier Oil Corp.,
9.125% sr. note, due 2-15-06 196,000
5,000 Giant Industries, Inc.,
9.75% gtd. sr. sub. note, due 11-15-03 4,925
30,000 HS Resources, Inc.,
9.875% sr. sub. note, due 12-1-03 30,225
50,000 ICO Holdings, Inc.,
10.375% sr. note, due 6-1-07 34,250
25,000 Kmart Corp., pass thru trust,
9.35% pass thru ctfs., Series 95-K-4, due 1-2-20 24,650
44,000 Kmart Corp., pass thru trust,
9.78% mtg. pass thru cfts., Series 95-K-2, due 1-5-20 44,977
125,000 Kaiser Aluminum & Chemical Corp.,
12.75% sr. sub. note, due 2-1-03 121,250
5,000 Nortek, Inc.,
9.875% sr. sub. note, due 3-1-04 5,225
30,000 Pilgrim's Pride Corp.,
10.875% sr. sub. note, due 8-1-03 31,050
150,000 Plains Resources, Inc.,
10.25% sr. sub. note, Series B, due 3-15-06 149,250
100,000 Purina Mills, Inc.,
9.00% sr. sub. note, due 3-15-10 82,000
150,000 Republic Group, Inc.,
9.50% sr. sub. note, due 7-15-08 151,875
125,000 Specialty Retailers, Inc.,
9.00% sr. sub. note, Series B, due 7-15-07 98,125
130,000 United Refining Co.,
10.75% sr. note, Series B, due 6-15-07 91,650
100,000 Wiser Oil Co.,
9.50% sr. sub. note 144A, due 5-15-07 67,500
TOTAL CORPORATE BONDS 1,582,673
(COST $1,721,462)
CONVERTIBLE CORPORATE BONDS - 30.46%
15,000 Air & Water Technologies Corp.,
8.00% sub. deb., due 5-15-15 9,994
32,000 Allwaste, Inc.,
7.25% sub. deb., due 6-1-14 2,560
195,000 Argosy Gaming Co.,
12.00% sub. note, due 6-1-01 197,681
125,000 HMT Technology Corp.,
5.75% sub. note 144A, due 1-15-04 62,344
125,000 Hexcel Corp.,
10.75%, due 8-1-03 105,625
45,000 Integrated Device Technology, Inc.,
5.50% sub. note, due 6-1-02 32,175
90,000 Intevac, Inc.,
6.50%, due 3-1-04 45,900
10,000 Intevac, Inc.,
6.50% sub. note 144A, due 3-1-04 5,100
175,000 Key Energy Group, Inc.,
5.00% sub. note 144A, due 9-15-04 92,750
150,000 Lomak Petroleum, Inc.,
6.00% sub. deb., due 2-1-07 75,750
90,000 Micron Technology, Inc.,
7.00% sub. note, due 7-1-04 95,625
110,000 Moran Energy, Inc.,
8.75% sub. deb., due 1-15-08 101,613
100,000 National Semiconductor Corp.,
6.50% sub. note 144A, due 10-1-02 82,875
35,000 OHM Corp.,
8.00% sub. deb., due 10-1-06 31,675
70,000 Oryx Energy Co.,
7.50% sub. deb., due 5-15-14 69,912
100,000 Sabratek Corp.,
6.00%, due 4-15-05 64,625
50,000 Southern Mineral Corp.,
6.875% deb., due 10-1-07 9,750
82,000 Swift Energy Co.,
6.25% sub. note, due 11-15-06 61,090
60,000 VLSI Technology, Inc.,
8.25% sub. note, due 10-1-05 59,700
10,000 Weston (Roy F.), Inc.,
7.00% sub. deb., due 4-15-02 9,300
TOTAL CONVERTIBLE CORPORATE BONDS 1,216,044
(COST $1,479,237)
REPURCHASE AGREEMENT - 8.27%
$ 330,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
7.125%, due 2-29-00 with a value of $349,324)
(COST $330,000) 330,000
TOTAL INVESTMENTS - 91.74% 3,662,129
(COST $4,115,871)
Other assets less liabilities - 8.26% 329,768
TOTAL NET ASSETS - 100.00%
(equivalent to $9.12 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
437,757 shares outstanding) $ 3,991,897
The identified cost of investments owned at March 31, 1999, was the same for
financial statement and federal income tax purposes. Net unrealized
depreciation for federal income tax purposes was $453,742, which is comprised
of unrealized appreciation of $47,152 and unrealized depreciation of $500,894.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA Five Star
USA GLOBAL Fund
STATEMENT OF NET ASSETS
March 31, 1999
SHARES COMPANY MARKET VALUE
COMMON STOCKS - 92.80%
BASIC MATERIALS - 3.97%
2,700 Praxair, Inc. 97,369
4,600 Sigma Aldrich Corp. 134,550
231,919
CAPITAL GOODS - 7.59%
3,100 Allied Signal, Inc. 152,481
1,000 Applied Materials, Inc.* 61,688
2,200 Boeing Co. 75,075
4,500 Teleflex, Inc. 153,281
442,525
CONSUMER CYCLICAL - 4.79%
13,700 Interface, Inc. Cl. A 131,863
1,500 Korn/Ferry International 19,688
3,000 Lear Corp. 128,062
279,613
CONSUMER STAPLES - 19.56%
2,400 Bestfoods, Inc. 112,800
2,700 Coca-Cola Co. 165,712
5,600 McDonald's Corp. 253,750
1,700 Proctor & Gamble Co. 166,494
8,000 Sara Lee Corp. 198,000
2,700 Wrigley, (Wm.) Jr. Co. 244,181
1,140,937
ENERGY - 7.78%
2,000 Global Marine, Inc.* 23,500
1,700 Mobil Corp. 149,600
2,500 Schlumberger Ltd. 150,469
2,300 Texaco, Inc. 130,525
454,094
FINANCIAL - 1.87%
2,000 AFLAC, Inc. 108,875
HEALTH CARE - 15.32%
2,800 American Home Products Corp. 182,700
2,600 Bristol Myers-Squibb Co. 167,213
2,700 Johnson & Johnson 252,956
1,400 Quintiles Transnational Corp. 52,850
4,300 Schering-Plough Corp. 237,844
893,563
TECHNOLOGY - 31.92%
4,100 AMP, Inc. 220,119
4,400 Analog Devices, Inc.* 130,900
2,250 Applied Micro Circuits Corp.* 96,188
2,700 Cisco Systems, Inc. 295,819
300 Etec Systems, Inc.* 8,831
2,100 Hewlett-Packard Co. 142,406
11,500 HMT Technology Corp. 40,250
3,900 Integrated Device Technology, Inc. 21,084
1,200 Intel Corp. 142,950
11,000 Intevac, Inc. 63,250
1,800 Microsoft Corp. 161,325
2,000 Motorola, Inc. 146,500
11,500 National Semiconductor Corp. 107,094
2,600 Rockwell International Corp. 110,337
2,600 Seagate Technology, Inc. 76,862
2,500 Thermoquest Corp.* 30,313
8,600 Western Digital Corp. 68,262
1,862,490
TOTAL COMMON STOCKS 5,414,016
(COST $4,954,284)
FACE
AMOUNT DESCRIPTION MARKET VALUE
REPURCHASE AGREEMENT - 6.85%
$ 400,000 UMB Bank, n.a., 4.38%, due 4-1-99
(Collateralized by U.S. Treasury Notes,
7.125%, due 2-29-00 with a value of $422,586)
(COST $400,000) 400,000
TOTAL INVESTMENTS - 99.65% 5,814,016
(COST $5,354,284)
Other assets less liabilities - 0.35% 20,163
TOTAL NET ASSETS - 100.00%
(equivalent to $11.06 per share;
10,000,000 shares of $1.00 par value
capital shares authorized;
527,362 shares outstanding) $ 5,834,179
For federal income tax purposes, the identified cost of investments owned at
March 31, 1999, was $5,354,724.
Net unrealized appreciation for federal income tax purposes was $459,292,
which is comprised of unrealized appreciation of $881,611 and unrealized
depreciation of $422,319.
*Non-income producing security
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
March 31, 1999
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (identified
cost $5,215,737, $6,545,521,
$4,115,871, and $5,354,284, respectively) $ 4,884,745 $ 7,299,414 $ 3,662,129 $ 5,814,016
Cash 227,182 1,750 258,768 18,642
Dividends receivable 7,814 9,180 5,279 3,970
Interest receivable 43,643 - 67,352 -
Receivable for investments sold 176,032 15,021 - -
Receivable for fund shares sold - 825 - -
Total assets 5,339,416 7,326,190 3,993,528 5,836,628
LIABILITIES AND NET ASSETS:
Fees payable 2,226 3,131 1,631 2,449
Payable for fund share redemptions - 878 - -
Total liabilities 2,226 4,009 1,631 2,449
NET ASSETS $ 5,337,190 $ 7,322,181 $ 3,991,897 $ 5,834,179
NET ASSETS CONSIST OF:
Capital (capital stock and paid-in capital) $ 5,655,040 $ 7,022,808 $ 4,431,695 $ 5,591,922
Accumulated undistributed net investment income 21,595 7,226 16,247 13,121
Accumulated undistributed net realized loss
on sale of investments (8,453) (461,746) (2,303) (230,596)
Net unrealized appreciation (depreciation)
in value of investments (330,992) 753,893 (453,742) 459,732
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 5,337,190 $ 7,322,181 $ 3,991,897 $ 5,834,179
Capital shares, $1.00 par value:
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 522,311 634,392 437,757 527,362
NET ASSET VALUE PER SHARE $ 10.22 $ 11.54 $ 9.12 $ 11.06
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS
OF OPERATIONS
Year Ended March 31, 1999
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Dividends (net of foreign taxes withheld) $ 54,772 $ 57,745 $ 33,938 $ 37,290
Interest 178,987 38,372 215,356 38,976
233,759 96,117 249,294 76,266
Expenses (Note 2):
Management fees 40,019 56,947 29,036 43,588
Registration fees and expenses 13,443 13,339 13,484 13,339
Total expenses before reimbursement 53,462 70,286 42,520 56,927
Less: expense reimbursement (10,219) (8,741) (11,019) (9,806)
Net expenses 43,243 61,545 31,501 47,121
Net investment income 190,516 34,572 217,793 29,145
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) from
investment transactions
(excluding repurchase agreements):
Proceeds from sales of investments 1,878,149 3,213,038 250,377 702,183
Cost of investments sold 1,886,142 3,679,391 252,680 893,431
Net realized loss from sales
of investments (7,993) (466,353) (2,303) (191,248)
Gain from option contracts written - 5,534 - -
Net realized loss from
investment transactions (7,993) (460,819) (2,303) (191,248)
Unrealized appreciation (depreciation)
on investments:
Beginning of year 78,079 256,370 18,251 182,301
End of year (330,992) 753,893 (453,742) 459,732
Increase (decrease) in net unrealized
appreciation (depreciation) on investments (409,071) 497,523 (471,993) 277,431
Net gain (loss) on investments (417,064) 36,704 (474,296) 86,183
Increase (decrease) in net assets resulting
from operations $ (226,548) $ 71,276 $ (256,503) $ 115,328
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED FUND
FOR THE PERIOD
FROM JUNE 3, 1997
YEAR ENDED (INCEPTION)
MARCH 31, 1999 TO MARCH 31, 1998
</CAPTION>
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 190,516 $ 26,722
Net realized gain (loss) from
investment transactions (7,993) 12,060
Net unrealized appreciation (depreciation)
of investments during the period (409,071) 78,079
Net increase (decrease) in net assets
resulting from operations (226,548) 116,861
DISTRIBUTIONS TO SHAREHOLDERS FROM:**
Net investment income (171,597) (24,099)
Net realized gain from
investment transactions (9,146) (3,374)
In excess of realized gains - -
Total distributions to shareholders (180,743) (27,473)
INCREASE FROM CAPITAL SHARE TRANSACTIONS:*
Proceeds from shares sold 4,673,972 1,510,881
Net asset value of shares issued for
reinvestment of distributions 175,665 25,275
4,849,637 1,536,156
Cost of shares repurchased (810,261) (20,492)
Net increase from capital share
transactions 4,039,376 1,515,664
Total increase in net assets 3,632,085 1,605,052
NET ASSETS:
Beginning of period 1,705,105 100,053
End of period $ 5,337,190 $ 1,705,105
Undistributed net investment income
at end of period $ 21,595 $ 2,676
*Shares issued and repurchased:
Number of shares sold 427,995 139,198
Number of shares issued for
reinvestment of distributions 17,250 2,331
445,245 141,529
Number of shares repurchased (72,592) (1,871)
Net increase 372,653 139,658
*Distributions to shareholders:
Income dividends per share $ .40 $ .23
Capital gains distribution per share $ .02 $ .04
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
<CAPTION>
EQUITY FUND HIGH YIELD FUND USA GLOBAL FUND
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FROM JUNE 3, 1997 FROM JUNE 3, 1997 FROM JUNE 3, 1997
YEAR ENDED (INCEPTION) YEAR ENDED (INCEPTION) YEAR ENDED (INCEPTION)
MARCH 31, 1999 TO MARCH 31, 1999 MARCH 31, 1999 TO MARCH 31, 1998 MARCH 31, 1999 TO MARCH 31, 1998
<CAPTION>
<C> <C> <C> <C> <C> <C>
$ 34,572 $ 16,155 $ 217,793 $ 31,743 $ 29,145 $ 16,295
(460,819) 14,372 (2,303) 8,991 (191,248) (39,084)
497,523 256,370 (471,993) 18,251 277,431 182,301
71,276 286,897 (256,503) 58,985 115,328 159,512
(32,370) (11,184) (201,852) (29,227) (21,277) (11,095)
- (14,372) (11,115) (139) - -
- (927) - - - (264)
(32,370) (26,483) (212,967) (29,366) (21,277) (11,359)
5,048,164 3,321,890 3,074,965 1,244,279 3,076,895 2,825,803
32,141 26,084 205,296 26,676 21,084 11,160
5,080,305 3,347,974 3,280,261 1,270,955 3,097,979 2,836,963
(1,388,846) (116,625) (214,474) (5,047) (303,021) (139,999)
3,691,459 3,231,349 3,065,787 1,265,908 2,794,958 2,696,964
3,730,365 3,491,763 2,596,317 1,295,527 2,889,009 2,845,117
3,591,816 100,053 1,395,580 100,053 2,945,170 100,053
$ 7,322,181 $ 3,591,816 $ 3,991,897 $ 1,395,580 $ 5,834,179 $ 2,945,170
$ 7,226 $ 5,024 $ 16,247 $ 2,569 $ 13,121 $ 5,253
449,255 303,234 305,962 119,303 289,988 265,844
2,890 2,466 21,917 2,558 1,964 1,116
452,145 305,700 327,879 121,861 291,952 266,960
(122,896) (10,557) (21,499) (484) (28,294) (13,256)
329,249 295,143 306,380 121,377 263,658 253,704
$ .06 $ .05 $ .58 $ .32 $ .05 $ .05
$ - $ .06 $ .03 $ - $ - $ -
</TABLE>
NOTES TO FINANCIAL
STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The AFBA Five Star Fund, Inc. (the Fund), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with the following
series: AFBA Five Star Balanced Fund, AFBA Five Star Equity Fund, AFBA
Five Star High Yield Fund and AFBA Five Star USA Global Fund. The Fund
was organized on January 9, 1997 and commenced operations on June 3,
1997. 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.
Securities with maturities of 60 days or less when acquired or
subsequently within 60 days of maturity are valued at amortized cost,
which approximates market value.
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. The
Equity, High Yield and USA Global Funds have accumulated net realized
losses on sales of investments for federal income tax purposes of
$461,746, $2,303 and $160,297, respectively, which expire in 2007.
C. Options - In order to produce incremental earnings and protect
gains, the Fund may write covered call options on portfolio securities.
When a Fund writes an option, an amount equal to the premium received by
the Fund is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the
current market value of the option written. If an option which a Fund
has written either expires on its stipulated expiration date, or if a
Fund enters into a closing purchase transaction, the Fund realizes a
gain (or loss if the cost of a closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a call option which the Fund
has written is exercised, the Fund realizes a capital gain or loss from
the sale of the underlying security and the proceeds from such sale are
increased by the premium originally received. The primary risks
associated with the use of options are an imperfect correlation between
the change in market value of the securities held by the Fund and the
price of the option, the possibility of an illiquid market, and the
inability of the counterparty to meet the terms of the contract.
D. Expense Limitation - Jones & Babson, Inc., the underwriter and
distributor of the Fund, has voluntarily agreed to pay certain expenses
of the Fund so that the total annual operating expenses of a portfolio
will not exceed 1.08% of its average daily net assets. Jones & Babson,
Inc. may be reimbursed by the Fund for such expenses at a later date if
such reimbursement does not cause a portfolio's expenses to exceed the
expense limitation percentage noted above.
E. Security Transactions and Investment Income - Security transactions
are accounted for on the date the securities are purchased or sold.
Dividend income less foreign taxes withheld (if any) are recorded on the
ex-dividend date. Interest income is recognized on the accrual basis.
Realized gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are reported on the
identified cost basis. Market discounts on debt securities are
amortized; premiums are not amortized.
F. Distributions to Shareholders - Distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for deferral of post October and wash sale losses.
G. 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
reported in the financial statements and accompanying notes. Actual
results could differ from such estimates.
2. MANAGEMENT FEES:
Management fees were 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.
3. INVESTMENT TRANSACTIONS:
Investment transactions for the year ended March 31, 1999, (excluding
maturities of short-term commercial notes and repurchase agreements)
were as follows:
Balanced Fund
Purchases $ 5,415,269
Proceeds from sales 1,878,149
Equity Fund
Purchases $ 6,432,862
Proceeds from sales 3,213,038
High Yield Fund
Purchases $ 3,197,463
Proceeds from sales 250,377
USA Global Fund
Purchases $ 3,743,209
Proceeds from sales 702,183
4. COVERED CALL OPTIONS:
There were no outstanding covered call options as of
March 31, 1999. Transactions in call options written for the year ended
March 31, 1999, were as follows:
Number of Premium
Contracts Amount
Equity Fund
Balance at March 31, 1998 - $ -
Opened 36 5,534
Closing Buys (12) (3,090)
Expired (24) (2,444)
Balance at March 31, 1999 - $ -
For corporate shareholders, AFBA Five Star Balanced, Equity, High Yield
and USA Global Funds percent of ordinary income distributions qualifying
for the corporate dividends received deduction are 23%, 100%, 15% and 100%,
respectively.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
<TABLE>
<CAPTION>
BALANCED FUND
FOR THE PERIOD
FROM JUNE 3, 1997
YEAR ENDED (INCEPTION)
MARCH 31, 1999 TO MARCH 31, 1998
</CAPTION>
<S> <C> <C>
Net asset value, beginning of period $ 11.39 $ 10.01
Income from investment operations:
Net investment income 0.42 0.25
Net gains on securities (both realized and unrealized) (1.17) 1.40
Total from investment operations (0.75) 1.65
Less distributions:
Dividends from net investment income (0.40) (0.23)
Distributions from capital gains (0.02) (0.04)
Total distributions (0.42) (0.27)
Net asset value, end of period $ 10.22 $ 11.39
Total return (6.53%) 16.64%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 5 $ 2
Ratio of expenses to average net assets 1.08% 1.08%
Ratio of net investment income to average net assets 4.76% 4.06%
Ratio of expenses to average net assets before
voluntary expense reimbursement 1.33% 1.10%
Ratio of net investment income to average
net assets before voluntary expense reimbursement 4.51% 4.04%
Portfolio turnover rate 53% 57%
Performance ratios for the Funds' initial periods
of operations are annualized, except total return.
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
<CAPTION>
EQUITY FUND HIGH YIELD FUND USA GLOBAL FUND
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FROM JUNE 3, 1997 FROM JUNE 3, 1997 FROM JUNE 3, 1997
YEAR ENDED (INCEPTION) YEAR ENDED (INCEPTION) YEAR ENDED (INCEPTION)
MARCH 31, 1999 TO MARCH 31, 1998 MARCH 31, 1999 TO MARCH 31, 1998 MARCH 31, 1999 TO MARCH 31, 1998
</CAPTION>
<C> <C> <C> <C> <C> <C>
$ 11.77 $ 10.01 $ 10.62 $ 10.01 $ 11.17 $ 10.01
0.05 0.06 0.60 0.34 0.05 0.07
(0.22) 1.81 (1.49) 0.59 (0.11) 1.14
(0.17) 1.87 (0.89) 0.93 (0.06) 1.21
(0.06) (0.05) (0.58) (0.32) (0.05) (0.05)
- (0.06) (0.03) - - -
(0.06) (0.11) (0.61) (0.32) (0.05) (0.05)
$ 11.54 $ 11.77 $ 9.12 $ 10.62 $ 11.06 $ 11.17
(1.43%) 18.81% (8.45%) 9.37% (0.52%) 12.16%
$ 7 $ 4 $ 4 $ 1 $ 6 $ 3
1.08% 1.04% 1.08% 1.08% 1.08% 1.04%
0.61% 0.94% 7.47% 5.51% 0.67% 1.07%
1.23% - 1.46% 1.11% 1.30% -
0.46% - 7.09% 5.48% 0.45% -
64% 76% 11% 31% 19% 42%
</TABLE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
AFBA Five Star Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the statements of
net assets, of AFBA Five Star Fund, Inc. (the Fund) (comprised of the
Balanced, Equity, High Yield and Global portfolios) as of March 31,
1999, and the related
statements of operations, changes in net assets and financial highlights
for the periods indicated therein. These financial statements and
financial highlights for each of the periods indicated therein are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of investments owned as of March 31,
1999, by correspondence with the custodian. As to securities relating to
uncompleted transactions, we performed
other audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of each of the portfolios of the Fund at March 31,
1999, and the results of their
operations, changes in their net assets and financial highlights for
each of the periods indicated therein, in conformity with generally
accepted accounting principles.
Kansas City, Missouri
April 30, 1999
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
AFBA Five Star Balanced Fund
AFBA Five Star Equity Fund
AFBA Five Star High Yield Fund
AFBA Five Star USA Global Fund
AFBA
Five Star
FundSM
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314
1-800-243-9865
www.afba.com
Shareholder Inquiries 1-888-578-2733
JB17E-2 (5/99) 507199
