Annual Report
March 31, 2000
AFBA
Five Star
Fund SM
100% pure no-load
mutual funds
MESSAGE
To Our Shareholders
The AFBA Five Star USA Global Fund has been awarded Mutual Funds Magazine's
highest performance rating: the Five Star-All Star rating. This prestigious
rating was based on the risk and performance of the USA Global Fund over
the fund's lifetime and over the past twelve months.
Mutual Funds Magazine's rating is based on risk-adjusted return among 2637
and 3121 equity funds for overall and one-year performance, respectively.
The ratings reflect historical risk-adjusted performance through 3/31/2000
and are subject to change. Overall ratings are calculated from the fund's
total return, relative to the volatility of its price fluctuations, over a
minimum of two years and a maximum of ten years.
Investment Results - Total Return
One Year Since Life of Fund
Ended Inception Cumulative*
AFBA Five Star Fund 3/31/00 6/3/97 to 3/31/00 3/31/00
Balanced 17.39% 9.12% 27.98%
Equity 28.22% 15.46% 50.16%
High Yield 4.28% 1.54% 4.41%
USA Global 53.11% 20.85% 70.83%
*Cumulative return is not annualized.
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 balance of this report will be the Portfolio Management Review, in
which the Funds' investment counsel, Kornitzer Capital Management, Inc.
will discuss fund performance, stock market and economic trends, as well as
other matters of interest to our investors.
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 want to thank all our fellow shareholders for their continued support of
Kornitzer Capital Management Inc. and the AFBA Five Star Mutual Funds. We
are pleased to report the past twelve months have been a very positive
period for the AFBA Five Star Funds. Our blend (growth and value) approach
to equity management has served us well, particularly in early 2000 as the
stock markets have experienced extreme volatility. In addition, we believe
we are seeing tangible benefits from our decision made several years ago to
invest based on long-term themes and trends. These include trends such as
changing demographics, the expansion of global brands and the continuing
high rate of investment in technology and telecommunications to improve
productivity.
We believe taking a close look at the AFBA Five Star Equity Fund over the
past year is a good way to better understand and appreciate our blend
equity style. Our equity fund had a fine year, yet it was hardly a case of
a rising tide lifting all boats equally in the stock market. In fact, it
was quite the opposite. According to Lipper Analytical Services the average
Multi-Cap Equity Growth Fund rose a remarkable 57.39% over the past twelve
months while the average Multi-Cap Equity Value Fund rose just 5.42%. The
picture inside the AFBA Five Star Equity Fund performance was very similar.
Of the some 40 stocks owned in the Fund, 10 to 15 drove the bulk of the
performance for the year. Virtually all the winners were growth companies
and the majority were technology companies.
You might ask why not own all growth stocks? The answer goes back to the
basic philosophies we adopted at the time we started the AFBA Five Star
Funds. We strive for consistency of performance over time with a reasonable
to low degree of volatility. The performance of the various indices since
March 31, 2000 provide an example of what can happen when you only swing
for the fences. In just over one month (thru May 2nd), the Lipper Multi-Cap
Growth Equity Index has declined some 11% while the Lipper Multi-Cap Value
Index has held steady. The AFBA Five Star Equity Fund fell less than 2%. We
believe our diversity is serving shareholders well.
In the technology area we have been very careful to own companies with
sustainable long-term business models. We have been particularly careful in
avoiding companies that are not self-financing. This has excluded the
majority of all internet stocks. While we missed many opportunities in 1999
because of this stance we now feel vindicated as the market has become much
more discerning in early 2000. We feel the performance differential between
technology stocks with and without viable long-term business models will
widen further as the year progresses. The financing window will likely
close more tightly to those internet companies that are far from generating
profits or positive cashflow. As a result, we could see numerous internet
bankruptcies later this year.
We believe the outlook for the overall stock market going forward will be
tied to U.S. productivity. We believe the outlook remains bright.
Corporations are clearly faced with a tight labor market and the reality of
rising labor costs. Their challenge has been to absorb these higher labor
costs without passing them through as higher prices to their customers, but
still deliver improved profits. This has been and remains a tough
challenge, but thus far corporations have succeeded. We believe they have
succeeded by motivating employees to work harder through profit- sharing
plans and through continued heavy investment in technology. This
combination has led to the largest gains in U.S. productivity in history.
We believe Alan Greenspan and the Federal Reserve understand this
phenomenon and that is why their interest rate moves have been measured in
the face of a booming economy.
The rather lackluster absolute performance by bond funds will likely
continue until the economy cools or inflation is so tame that a greater
consensus builds in our higher productivity theme. We have no idea when
either will take place. We do know that corporate bonds, and high yield
bonds in particular, offer compelling yields and value at present levels.
The patient investor in our High Yield Fund is being paid a handsome
current yield to wait for other investors to return to this market. When
they do return we are confident total returns will improve significantly.
We might note that on a relative basis the AFBA Five Star High Yield Fund
has outperformed it's peer group during this difficult period.
We are very pleased to announce the hiring of David Eshnauer as a portfolio
manager and analyst who will begin co-managing the AFBA Five Star High
Yield Fund. Dave joins Kornitzer Capital Management from Security
Management Company where he was portfolio manager of their high yield fund.
Dave has 18 years of experience as a bond and stock manager and research
analyst.
As we move forward in 2000 we plan to intensify our research efforts and
focus on picking attractive stocks and bonds. We believe the easy ride in
certain segments is over and superior stock picking will stand out in 2000.
As shareholders, you can rest assured that our commitment to research and
a solid, deep research team is stronger than ever.
The following is a snapshot and comment on how each of the AFBA Five Star
Funds performed over the past twelve months.
AFBA Five Star Balanced Fund
AFBA Five Star Balanced Fund generated a total return (price change and
reinvested distributions) of 17.39% for the twelve months ended March 31,
2000. The average balanced fund, as measured by Lipper Analytical
Services, registered a return of 10.45% for the period. The Fund shifted
more assets to equities during the period. While this shift resulted in
lower income distributions as the year progressed, the Fund's total return
to shareholders improved significantly.
CHART - One Year Performance
AFBA Five Star Equity Fund
AFBA Five Star Equity Fund generated a total return (price change and
reinvested distributions) of 28.22% for the twelve months ended March 31,
2000. This return surpassed the unmanaged Standard & Poor's 500 return of
17.93%. The Fund's peer group, as measured by the Lipper Multi-Cap Core
Equity Fund Index, produced a return of 26.56% for the period.
The Fund's performance for the period was a product of the firm's blend
equity style as well as a very disciplined adherence to our identified long-
term investment themes.
CHART - One Year Performance
AFBA Five Star USA Global
AFBA Five Star USA Global Fund generated a total return (price change and
reinvested distributions) of 53.11% for the twelve months ended March 31,
2000. These results surpassed the 17.93% return of the unmanaged S&P 500
Index and the 36.33% return for the Lipper Global Fund Index.
We continue to believe this unique Fund could be one of the biggest long-
term beneficiaries of the superior long-term growth potential of
developing countries around the globe. We say this with confidence because
this Fund concentrates on the type of U.S. companies that already have
major sales, profits and a strong presence in countries throughout Asia,
South America, Latin America and many other developing regions. We have
never been more optimistic about the long-term prospects for U.S. multi-
national companies.
CHART - One Year Performance
AFBA Five Star High Yield Fund
AFBA Five Star High Yield Fund generated a total return (price change and
reinvested distributions) of 4.28% for the twelve months ended March 31,
2000. The average high yield fund, as measured by Lipper Analytical
Services, provided a return of 0.00% for the period.
We look forward to tracking all the AFBA Funds with you in future letters.
As fellow shareholders we are fully committed to your financial success 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
CHART - AFBA Five Star Equity Fund versus S&P 500
CHART - AFBA Five Star High Yield Fund versus
Merrill Lynch High Yield Bond Fund Index
CHART - AFBA Five Star USA Global Fund versus S&P 500
AFBA FIVE STAR
Balanced Fund
SCHEDULE OF INVESTMENTS
March 31, 2000
SHARES COMPANY MARKET VALUE
Common Stocks - 61.73%
CONSUMER CYCLICAL - 7.54%
3,000 Argosy Gaming Co.* $ 42,750
4,000 Carnival Corp. 99,250
6,000 Elcor Corp. 207,000
4,000 Ethan Allen Interiors, Inc. 100,000
2,900 Interface, Inc. Cl. A 12,325
5,000 Mirage Resorts, Inc. 96,875
7,000 ServiceMaster (The) Co. 78,750
636,950
Consumer Staples - 6.57%
2,000 Bestfoods, Inc. 93,625
2,500 McDonald's Corp. 93,906
3,000 PepsiCo, Inc. 103,688
1,000 Procter & Gamble Co. 56,250
8,000 Strayer Education, Inc. 208,000
555,469
ENERGY - 2.52%
17,000 Frontier Oil Corp.* 127,500
3,000 McDermott International, Inc. 27,562
1,000 Royal Dutch Petroleum Co. 57,563
212,625
Financial - 13.44%
2,000 American Express Co. 297,875
2,000 Bank of America Corp. 104,875
3,000 Fleet Boston Financial Corp. 109,500
3,400 Kansas City Southern Industries, Inc. 292,188
2,500 PNC Bank Corp. 112,656
1,500 Union Planters Corp. 46,219
7,000 Unumprovident Corp. 119,000
2,000 Washington Mutual, Inc. 53,000
1,135,313
HEALTH CARE - 6.90%
3,000 Abbott Laboratories 105,563
1,500 American Home Products Corp. 80,437
1,000 Johnson & Johnson 70,063
2,500 Merck & Company, Inc. 155,312
2,500 Quintiles Transnational Corp. 42,656
3,500 Schering-Plough Corp. 128,625
582,656
Technology - 18.08%
3,000 Analog Devices, Inc.* 241,687
4,000 Atmel Corp.* 206,500
2,000 Cisco Systems, Inc.* 154,625
4,000 Compaq Computer Corp. 106,500
1,250 Hewlett-Packard Co. 165,703
2,000 Intel Corp. 263,875
1,000 Lucent Technologies, Inc. 60,750
1,000 Microsoft Corp. 106,250
3,500 Scientific-Atlantic, Inc. 222,031
1,527,921
TRANSPORTATION & SERVICES - 3.36%
3,000 FEDEX Corp.* 117,000
8,000 Southwest Airlines Co. 166,500
283,500
UTILITIES - 3.32%
2,000 Enron Corp. 149,750
1,250 GTE Corp. 88,750
1,000 SBC Communication, Inc. 42,000
280,500
Total Common Stocks 5,214,934
(Cost $4,325,468)
Convertible Preferred Stocks - 4.97%
1,600 Bethlehem Steel Corp. 44,000
2,000 Freeport-McMoran Copper & Gold, Inc. 29,625
8,500 ICO Holdings, Inc. 131,750
2,000 Kmart Financing I 86,125
2,500 TXI Capital Trust I 80,312
4,000 Tesoro Petroleum Corp. 48,500
Total Convertible Preferred Stocks 420,312
(Cost $523,259)
FACE
AMOUNT DESCRIPTION MARKET VALUE
Corporate Bonds - 18.26%
$175,000 Argosy Gaming Co., 10.75% due 6-1-09 178,063
100,000 Callon Petroleum Co., 10.125% due 9-15-02 96,500
200,000 Eagle Geophysical, Inc., 10.75% due 7-15-08* 25,000
15,000 Exide Corp., 10.00% due 4-15-05 14,475
40,000 Fairchild Semiconductor Corp., 10.125% due 3-15-07 39,000
175,000 Frontier Oil Corp., 9.125% due 2-15-06 151,375
5,000 Frontier Oil Corp., 11.75% due 11-15-09 4,725
30,000 Giant Industries, Inc., 9.75% due 11-15-03 29,100
80,000 HS Resources, Inc., 9.875% due 12-1-03 79,200
60,000 ICO Holdings, Inc., 10.375% due 6-1-07 56,100
120,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2-1-03 111,600
30,000 Kaiser Aluminum & Chemical Corp., 9.875% due 2-15-02 28,200
65,000 King Pharmacy, 10.75% due 2-15-09 64,675
25,000 Nortek, Inc., 9.875% due 3-1-04 23,563
25,000 Neuvo Energy Co., 9.50% due 6-1-08 24,187
180,000 Pilgrim's Pride Corp., 10.875% due 8-1-03 181,350
75,000 Plains Resources, Inc., 10.25% due 3-15-06 72,375
150,000 Republic Group, Inc., 9.50% due 7-15-08 134,250
50,000 Southern Mineral Corp., 6.875% due 10-01-07 17,500
75,000 Specialty Retailers, Inc., 9.00% due 7-15-07 15,188
165,000 United Refining Co., 10.75% due 6-15-07 99,825
120,000 Wiser Oil Co., 9.50% due 5-15-07 96,600
Total Corporate Bonds 1,542,851
(Cost $1,878,173)
CONVERTIBLE Corporate Bonds - 11.03%
30,000 Allwaste, Inc., 7.25% due 6-1-14* 2,400
65,000 Callon Petroleum Co., 10.25% due 9-15-04 62,725
100,000 Exide Corp., 2.90% due 12-15-05 58,000
200,000 HMT Technology Corp., 5.75% due 1-15-04 88,000
125,000 Hexcel Corp., 7.00% due 8-1-03 86,250
155,000 Intevac, Inc., 6.50% due 3-1-04 79,825
9,000 Kerr McGee Corp., 7.50% due 5-15-14 8,528
200,000 Key Energy Group, Inc., 5.00% due 9-15-04 150,000
150,000 Lomak Petroleum, Inc., 6.00% due 2-1-07 78,937
10,000 Moran Energy, Inc., 8.75% due 1-15-08 9,450
10,000 OHM Corp., 8.00% due 10-1-06 8,775
150,000 Sunrise Assisted Living, Inc.,
5.50% due 6-15-02 118,125
205,000 Swift Energy Co., 6.25% due 11-15-06 180,656
Total Convertible Corporate Bonds 931,671
(Cost $1,179,772)
Total Investments - 95.99% 8,109,768
(Cost $7,906,672)
Other assets less liabilities - 4.01% 338,851
Total Net Assets - 100.00% $ 8,448,619
For federal income tax purposes, the identified cost of investments owned
at March 31, 2000, was $7,924,798.
Net unrealized appreciation for federal income tax purposes was $184,970,
which is comprised of unrealized appreciation of $1,313,816 and unrealized
depreciation of $1,128,846.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA Five Star
Equity Fund
SCHEDULE OF INVESTMENTS
March 31, 2000
SHARES COMPANY MARKET VALUE
Common Stocks - 96.94%
Capital goods - 2.63%
6,900 Tyco International Ltd. $ 344,138
Consumer Cyclical - 14.71%
14,600 Barnes & Noble, Inc. 335,800
10,900 Carnival Corp. 270,456
7,700 Coachmen Industries, Inc. 106,356
7,300 Elcor Corp. 251,850
13,000 Ethan Allen Interiors, Inc. 325,000
6,700 Fairfield Communities, Inc.* 53,181
23,000 Mirage Resorts, Inc. 445,625
12,000 ServiceMaster (The) Co. 135,000
1,923,268
Consumer Staples - 12.65%
2,500 Apollo Group, Inc. 70,469
2,500 DeVry, Inc. 76,250
8,800 Disney (Walt) Holding Co. 364,100
4,500 ITT Educational Services, Inc. 72,000
7,000 McDonald's Corp. 262,937
10,400 PepsiCo, Inc. 359,450
13,400 Sara Lee Corp. 241,200
9,100 Viad Corp. 208,163
1,654,569
Energy - 2.25%
5,100 Royal Dutch Petroleum Co. 293,569
Financial - 14.76%
8,400 Allstate Corp. 200,025
3,300 American Express Co. 491,494
7,300 Bank of America Corp. 382,794
8,400 Fleet Boston Financial Corp. 306,600
3,200 Kansas City Southern Industries, Inc. 275,000
5,000 PNC Bank Corp. 225,312
1,600 Union Planters Corp. 49,300
1,930,525
Health Care - 9.46%
9,100 Abbott Laboratories 320,206
3,700 Johnson & Johnson 259,231
6,500 Merck & Company, Inc. 403,813
6,900 Schering-Plough Corp. 253,575
1,236,825
SHARES OR
FACE AMOUNT COMPANY AND DESCRIPTION MARKET VALUE
Technology - 29.05%
4,900 Analog Devices, Inc.* 394,756
11,300 Atmel Corp.* 583,363
11,500 Cisco Systems, Inc.* 889,094
11,600 Diebold, Inc. 319,000
2,900 Hewlett-Packard Co. 384,431
2,300 Lucent Technologies, Inc. 139,725
4,400 Microsoft Corp. 467,500
8,000 Scientific-Atlanta, Inc. 507,500
3,100 Wind River Systems, Inc. 112,375
3,797,744
TRANSPORTATION & SERVICES - 5.62%
8,800 FEDEX Corp.* 343,200
18,800 Southwest Airlines Co. 391,275
734,475
UTILITIES - 5.81%
7,300 Enron Corp. 546,587
3,000 GTE Corp. 213,000
759,587
Total Common Stocks 12,674,700
(Cost $9,759,389)
Repurchase Agreement - 3.21%
$420,000 UMB Bank, n.a., 5.60% due 4-3-00
(Collateralized by Federal National Mortgage
Association Discount Notes,
due 4-28-00 with a value of $428,982) 420,000
(Cost $420,000)
Total Investments - 100.15% 13,094,700
(Cost $10,179,389)
Other assets less liabilities - (0.15%) (19,610)
Total Net Assets - 100.00% $13,075,090
For federal income tax purposes, the identified cost of investments owned
at March 31, 2000, was $10,191,919.
Net unrealized appreciation for federal income tax purposes was $2,902,781,
which is comprised of unrealized
appreciation of $3,685,704 and unrealized depreciation of $782,923.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA Five Star
High Yield Fund
SCHEDULE OF INVESTMENTS
March 31, 2000
SHARES OR
FACE AMOUNT COMPANY AND DESCRIPTION MARKET VALUE
Convertible Preferred Stocks - 14.61%
3,500 Bethlehem Steel Corp. $ 96,250
2,800 Freeport-McMoran Copper & Gold, Inc. 41,475
7,200 ICO Holdings, Inc. 111,600
4,250 Kmart Financing I 183,016
3,000 Lomak Petroleum, Inc. 56,250
5,000 Tesoro Petroleum Corp. 60,625
3,300 TXI Capital Trust I 106,012
2,000 Union Pacific Capital Trust 78,750
Total Convertible Preferred Stocks 733,978
(Cost $867,112)
Corporate Bonds - 48.43%
$200,000 Argosy Gaming Co., 10.75% due 6-1-09 203,500
50,000 Belco Oil & Gas, 10.50% due 4-1-06 50,750
75,000 Bio-Rad Laboratories, 11.625% due 2-15-07 75,562
35,000 Callon Petroleum Co., 10.00% due 12-15-01 33,775
100,000 Callon Petroleum Co., 10.125% due 9-15-02 96,500
60,000 Cliffs Drilling, 10.25% due 5-15-03 59,400
175,000 Eagle Geophysical, Inc., 10.75% due 7-15-08* 21,875
150,000 Fairchild Semiconductor Corp., 10.125% due 3-15-07 146,250
200,000 Frontier Oil Corp., 9.125% due 2-15-06 173,000
205,000 Giant Industries, Inc., 9.75% due 11-15-03 198,850
180,000 HS Resources, Inc., 9.875% due 12-1-03 178,200
100,000 ICO Holdings, Inc., 10.375% due 6-1-07 93,500
44,000 Kmart Corp., 9.78% due 1-5-20 47,266
75,000 Kaiser Aluminum & Chemical Corp., 12.75% due 2-1-03 69,750
15,000 Kaiser Aluminum & Chemical Corp., 9.875% due 2-15-02 14,100
50,000 King Pharmacy, 10.75% due 2-15-09 49,750
55,000 Nortek, Inc., 9.875% due 3-1-04 51,837
50,000 Nuevo Energy Co., 9.50% due 6-1-08 48,375
220,000 Pilgrim's Pride Corp., 10.875% due 8-1-03 221,650
150,000 Plains Resources, Inc., 10.25% due 3-15-06 144,750
100,000 Purina Mills, Inc., 9.00% due 3-15-10* 25,500
150,000 Republic Group, Inc., 9.50% due 7-15-08 134,250
125,000 Specialty Retailers, Inc., 9.00% due 7-15-07 25,313
50,000 Stone Container, 10.75% due 10-1-02 50,688
130,000 United Refining Co., 10.75% due 6-15-07 78,650
175,000 Wiser Oil Co., 9.50% due 5-15-07 140,875
Total Corporate Bonds 2,433,916
(Cost $2,842,266)
FACE
AMOUNT DESCRIPTION MARKET VALUE
Convertible Corporate Bonds - 28.12%
32,000 Allwaste, Inc., 7.25% due 6-1-14* 2,560
300,000 Exide Corp., 2.90% due 12-15-05 174,000
200,000 HMT Technology Corp., 5.75% due 1-15-04 88,000
125,000 Hexcel Corp., 7.00% due 8-1-03 86,250
85,000 Intevac, Inc., 6.50% due 3-1-04 43,775
140,000 Intevac, Inc., 6.50% due 3-1-04 72,100
25,000 Kmart Corp., 9.35% due 1-2-20 22,949
67,000 Kerr McGee Corp., 7.50% due 5-15-14 63,482
200,000 Key Energy Group, Inc., 5.00% due 9-15-04 150,000
150,000 Lomak Petroleum, Inc., 6.00% due 2-1-07 78,938
210,000 Moran Energy, Inc., 8.75% due 1-15-08 198,450
33,000 OHM Corp., 8.00% due 10-1-06 28,957
50,000 Southern Mineral Corp., 6.875% due 10-1-07 17,500
175,000 Sunrise Assisted Living, Inc., 5.50% due 6-15-02 137,813
282,000 Swift Energy Co., 6.25% due 11-15-06 248,513
Total Convertible Corporate Bonds 1,413,287
(Cost $1,712,454)
Repurchase Agreement - 6.97%
350,000 UMB Bank, n.a., 5.60% due 4-3-00
(Collateralized by Federal National Mortgage
Association Discount Notes,
due 4-28-00 with a value of $357,319) 350,000
(Cost $350,000)
Total Investments - 98.13% 4,931,181
(Cost $5,771,832)
Other assets less liabilities - 1.87% 94,055
Total Net Assets - 100.00% $ 5,025,236
For federal income tax purposes, the identified cost of investments owned
at March 31, 2000, was $5,772,499.
Net unrealized depreciation for federal income tax purposes was $841,318,
which is comprised of unrealized
appreciation of $17,476 and unrealized depreciation of $858,794.
*Non-income producing security
See accompanying Notes to Financial Statements.
AFBA Five Star
Global Fund
SCHEDULE OF INVESTMENTS
March 31, 2000
SHARES COMPANY MARKET VALUE
Common Stocks - 89.03%
BASIC Materials - 2.41%
4,200 Praxair, Inc. $ 174,825
7,000 Sigma-Aldrich Corp. 188,125
362,950
Capital Goods - 3.96%
4,900 Boeing Co. 185,894
4,200 Rockwell International Corp. 175,612
6,600 Teleflex, Inc. 234,300
595,806
CONSUMER CYCLICAL - 5.38%
28,300 Interface, Inc. Cl. A 120,275
5,200 Korn/Ferry International* 154,700
19,000 Lear Corp.* 534,375
809,350
Consumer Staples - 14.12%
7,000 Bestfoods, Inc. 327,688
4,700 Coca-Cola Co. 220,606
6,000 Gillette Co. 226,125
10,600 McDonald's Corp. 398,162
3,500 Proctor & Gamble Co. 196,875
23,200 Sara Lee Corp. 417,600
4,400 Wrigley, (Wm.) Jr. Co. 337,975
2,125,031
FINANCIAL - 5.77%
8,500 AFLAC, Inc. 387,281
4,400 American International Group, Inc. 481,800
869,081
Health Care - 13.43%
9,000 American Home Products Corp. 482,625
8,100 Bristol-Myers Squibb Co. 467,775
6,000 Johnson & Johnson 420,375
13,400 Quintiles Transnational Corp. 228,638
11,500 Schering-Plough Corp. 422,625
2,022,038
Technology - 43.96%
5,100 Analog Devices, Inc.* 410,869
13,216 Applied Materials, Inc.* 1,245,589
10,000 Applied Science & Technology, Inc.* 302,500
12,200 Cisco Systems, Inc.* 943,213
7,200 Dallas Semiconductor 252,900
3,900 Hewlett-Packard Co. 516,994
46,700 HMT Technology Corp.* 154,694
4,600 Intel Corp. 606,913
17,800 Intevac, Inc.* 82,325
4,000 Micron Technology, Inc. 504,000
3,600 Microsoft Corp. 382,500
1,700 Motorola, Inc. 242,037
12,500 National Semiconductor Corp.* 757,812
5,400 Thermoquest Corp.* 90,450
16,600 Western Digital Corp. 123,462
6,616,258
Total Common Stocks 13,400,514
(Cost $10,382,554)
FACE
AMOUNT DESCRIPTION MARKET VALUE
Repurchase Agreement - 8.14%
$1,225,000 UMB Bank, n.a., 5.60% due 4-3-00
(Collateralized by Federal National
Mortgage Association Discount Notes,
due 4-28-00 with a value of $1,250,119) 1,225,000
(Cost $1,225,000)
Total Investments - 97.17% 14,625,514
(Cost $11,607,554)
Other assets less liabilities - 2.83% 425,802
Total Net Assets - 100.00% $15,051,316
For federal income tax purposes, the identified cost of investments owned
at March 31, 2000, was $11,607,994.
Net unrealized appreciation for federal income tax purposes was $3,017,520,
which is comprised of unrealized
appreciation of $3,937,828 and unrealized depreciation of $920,308.
*Non-income producing security
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS
AND LIABILITIES
March 31, 2000
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
ASSETS:
Investments at cost $ 7,906,672 $ 10,179,389 $ 5,771,832 $ 11,607,554
Investments at value $ 8,109,768 $ 13,094,700 $ 4,931,181 $ 14,625,514
Cash 399,068 343,691 13,577 362,926
Receivables:
Investments sold 60,860 152,064 - 446,902
Dividends 4,008 9,412 1,444 5,599
Interest 62,971 64 97,791 188
Total assets 8,636,675 13,599,931 5,043,993 15,441,129
LIABILITIES AND NET ASSETS:
Payables:
Management fees 6,698 10,277 4,234 11,863
Investments purchased 181,358 514,564 14,523 377,950
Total liabilities 188,056 524,841 18,757 389,813
NET ASSETS $ 8,448,619 $ 13,075,090 $ 5,025,236 $ 15,051,316
NET ASSETS CONSIST OF:
Capital (capital stock and
paid-in capital) $ 7,922,428 $ 10,163,206 $ 5,705,386 $ 10,623,363
Accumulated undistributed
net investment income 16,315 - 35,687 1,040
Accumulated undistributed
net realized gain (loss)
from investment transactions 306,780 (3,427) 124,814 1,408,953
Net unrealized appreciation
(depreciation) of investments 203,096 2,915,311 (840,651) 3,017,960
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES $ 8,448,619 $ 13,075,090 $ 5,025,236 $ 15,051,316
Capital shares, $1.00 par value:
Authorized 10,000,000 10,000,000 10,000,000 10,000,000
Outstanding 735,426 885,963 576,352 890,638
NET ASSET VALUE PER SHARE $ 11.49 $ 14.76 $ 8.72 $ 16.90
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS
OF OPERATIONS
Year Ended March 31, 2000
<TABLE>
<CAPTION>
BALANCED EQUITY HIGH YIELD USA GLOBAL
FUND FUND FUND FUND
</CAPTION>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 72,737 $ 96,442 $ 60,002 $ 66,593
Interest 247,858 20,017 417,891 34,802
320,595 116,459 477,893 101,395
EXPENSES:
Management fees 62,926 95,190 46,250 91,231
Registration fees 12,101 12,005 12,008 11,755
Total expenses before
reimbursement 75,027 107,195 58,258 102,986
Less: expense reimbursement (7,024) (4,536) (8,404) (4,553)
Net expenses 68,003 102,659 49,854 98,433
Net investment income 252,592 13,800 428,039 2,962
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain from investment
transactions 334,307 459,123 127,117 1,639,549
Net unrealized appreciation
(depreciation) during the year
on investments 534,088 2,161,418 (386,909) 2,558,228
Net gain (loss) on
investments 868,395) 2,620,541 (259,792) 4,197,777
Net increase in net assets
resulting from operations $1,120,987 $2,634,341 $ 168,247 $4,200,739
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Years Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
BALANCED FUND EQUITY FUND
2000 1999 2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 252,592 $ 190,516 $ 13,800 $ 34,572
Net realized gain (loss) from
investment transactions 334,307 (7,993) 459,123 (460,819)
Net unrealized appreciation
(depreciation) during the year
on investments 534,088 (409,071) 2,161,418 497,523
Net increase (decrease) in net
assets resulting from
operations 1,120,987 (226,548) 2,634,341 71,276
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (257,872) (171,597) (21,830) (32,370)
Net realized gain from investment
transactions (19,074) (9,146) - -
Total distributions to
shareholders (276,946) (180,743) (21,830) (32,370)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 3,336,887 4,673,972 3,886,088 5,048,164
Reinvested distributions 273,992 175,665 21,723 32,141
3,610,879 4,849,637 3,907,811 5,080,305
Shares repurchased (1,343,491) (810,261) (767,413) (1,388,846)
Net increase from capital
share transactions 2,267,388 4,039,376 3,140,398 3,691,459
Net increase in net assets 3,111,429 3,632,085 5,752,909 3,730,365
Net Assets:
Beginning of year 5,337,190 1,705,105 7,322,181 3,591,816
End of year $ 8,448,619 $ 5,337,190 $13,075,090 $ 7,322,181
Undistributed net investment
income at end of year $ 16,315 $ 21,595 $ - $ 7,226
*Fund share transactions:
Shares sold 316,314 427,995 309,972 449,255
Reinvested distributions 25,976 17,250 1,776 2,890
342,290 445,245 311,748 452,145
Shares repurchased (129,175) (72,592) (60,177) (122,896)
Net increase in fund shares 213,115 372,653 251,571 329,249
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES
IN NET ASSETS
For The Years Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
HIGH YIELD FUND USA GLOBAL FUND
2000 1999 2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 428,039 $ 217,793 $ 2,962 $ 29,145
Net realized gain (loss) from
investment transactions 127,117 (2,303) 1,639,549 (191,248)
Net unrealized appreciation
(depreciation) during the year
on investments (386,909) (471,993) 2,558,228 277,431
Net increase (decrease) in
net assets resulting from
operations 168,247 (256,503) 4,200,739 115,328
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (408,599) (201,852) (15,043) (21,277)
Net realized gain from investment
transactions - (11,115) - -
Total distributions to
shareholders (408,599) (212,967) (15,043) (21,277)
CAPITAL SHARE TRANSACTIONS:*
Shares sold 1,448,835 3,074,965 5,280,939 3,076,895
Reinvested distributions 403,565 205,296 14,959 21,084
Shares repurchased 1,852,400 3,280,261 5,295,898 3,097,979
Net increase from capital
share transactions (578,709) (214,474) (264,457) (303,021)
Net increase in net assets 1,273,691 3,065,787 5,031,441 2,794,958
Net Assets:
Beginning of year 3,991,897 1,395,580 5,834,179 2,945,170
End of year $ 5,025,235 $ 3,991,897 $15,051,316 $ 5,834,179
Undistributed net investment
income at end of year $ 35,687 $ 16,247 $ 1,040 $ 13,121
*Fund share transactions:
Shares sold 45,484 21,917 1,199 1,964
Reinvested distributions 202,168 327,879 384,115 291,952
Shares repurchased (63,573) (21,499) (20,839) (28,294)
Net increase in fund shares 138,595 306,380 363,276 263,658
See accompanying Notes to Financial Statements.
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. Each series, in
effect, represents a separate fund. The Fund is required to account for the
assets of each series separately and to allocate general liabilities of the
Fund to each series based on the net asset value of each series. The
following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Investment 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 in good faith 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
Fund designates $804 as long-term capital gain dividends.
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. There were no outstanding covered call options or
transactions in call options written as of March 31, 2000.
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. Investment Transactions and Investment Income - Security transactions
are accounted for on the date the securities are purchased or sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis and includes accretion of market discounts.
Premiums on debt securities are not amortized. Realized gains and losses
from investment transactions and unrealized appreciation and depreciation
of investments are reported on the identified cost basis.
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 accounting
principles generally accepted in the United States. 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 accounting principles generally accepted in the United States 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, 2000, (excluding
maturities of short-term commercial notes and repurchase agreements) were
as follows:
Balanced Fund
Purchases $5,507,126
Proceeds from sales 2,768,614
Equity Fund
Purchases $6,539,536
Proceeds from sales 2,954,791
High Yield Fund
Purchases $2,980,666
Proceeds from sales 1,538,312
USA Global Fund
Purchases $7,116,424
Proceeds from sales 3,327,703
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 18%, 100%, 13% and 21%,
respectively.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
BALANCED FUND
FOR THE PERIOD
FROM June 3, 1997
Years Ended MARCH 31, (inception)
2000 1999 to March 31, 1998
Net asset value, beginning of period $ 10.22 $ 11.39 $ 10.01
Income from investment operations:
Net investment income 0.41 0.42 0.25
Net gains on securities (both
realized and unrealized) 1.32 (1.17) 1.40
Total from investment operations 1.73 (0.75) 1.65
Less distributions:
Dividends from net investment income (0.43) (0.40) (0.23)
Distributions from capital gains (0.03) (0.02) (0.04)
Total distributions (0.46) (0.42) (0.27)
Net asset value, end of period $ 11.49 $ 10.22 $ 11.39
Total return* 17.39% (6.53%) 16.64%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 8 $ 5 $ 2
Ratio of expenses to average net assets** 1.08% 1.08% 1.08%
Ratio of net investment income to average
net assets** 4.01% 4.76% 4.06%
Ratio of expenses to average net assets
before voluntary expense reimbursement** 1.19% 1.33% 1.10%
Ratio of net investment income to average
net assets before voluntary expense
reimbursement** 3.90% 4.51% 4.04%
Portfolio turnover rate 44% 53% 57%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
EQUITY FUND
FOR THE PERIOD
FROM June 3, 1997
Years Ended MARCH 31, (inception)
2000 1999 to March 31, 1998
Net asset value, beginning of period $ 11.54 $ 11.77 $ 10.01
Income from investment operations:
Net investment income 0.02 0.05 0.06
Net gains on securities (both
realized and unrealized) 3.23 (0.22) 1.81
Total from investment operations 3.25 (0.17) 1.87
Less distributions:
Dividends from net investment income (0.03) (0.06) (0.05)
Distributions from capital gains - - (0.06)
Total distributions (0.03) (0.06) (0.11)
Net asset value, end of period $ 14.76 $ 11.54 $ 11.77
Total return* 28.22% (1.43%) 18.81%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 13 $ 7 $ 4
Ratio of expenses to average net assets** 1.08% 1.08% 1.04%
Ratio of net investment income to average
net assets** 0.15% 0.61% 0.94%
Ratio of expenses to average net assets
before voluntary expense reimbursement** 1.13% 1.23% -
Ratio of net investment income to average
net assets before voluntary expense
reimbursement** 0.10% 0.46% -
Portfolio turnover rate 31% 64% 76%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
HIGH YIELD FUND
FOR THE PERIOD
FROM June 3, 1997
Years Ended MARCH 31, (inception)
2000 1999 to March 31, 1998
Net asset value, beginning of period $ 9.12 $ 10.62 $ 10.01
Income from investment operations:
Net investment income 0.80 0.60 0.34
Net gains on securities (both
realized and unrealized) (0.42) (1.49) 0.59
Total from investment operations 0.38 (0.89) 0.93
Less distributions:
Dividends from net investment income (0.78) (0.58) (0.32)
Distributions from capital gains - (0.03) -
Total distributions (0.78) (0.61) (0.32)
Net asset value, end of period $ 8.72 $ 9.12 $ 10.62
Total return* 4.28% (8.45%) 9.37%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 5 $ 4 $ 1
Ratio of expenses to average net assets** 1.08% 1.08% 1.08%
Ratio of net investment income to average
net assets** 9.27% 7.47% 5.51%
Ratio of expenses to average net assets
before voluntary expense reimbursement** 1.26% 1.46% 1.11%
Ratio of net investment income to average
net assets before voluntary expense
reimbursement** 9.09% 7.09% 5.48%
Portfolio turnover rate 34% 11% 31%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Condensed data for a share of capital
stock outstanding throughout the period.
USA GLOBAL FUND
FOR THE PERIOD
FROM June 3, 1997
Years Ended MARCH 31, (inception)
2000 1999 to March 31, 1998
Net asset value, beginning of period $ 9.12 $ 10.62 $ 10.01
Net asset value, beginning of period $ 11.06 $ 11.17 $ 10.01
Income from investment operations:
Net investment income 0.01 0.05 0.07
Net gains on securities (both
realized and unrealized) 5.86 (0.11) 1.14
Total from investment operations 5.87 (0.06) 1.21
Less distributions:
Dividends from net investment income (0.03) (0.05) (0.05)
Distributions from capital gains - - -
Total distributions (0.03) (0.05) (0.05)
Net asset value, end of period $ 16.90 $ 11.06 $ 11.17
Total return* 53.11% (0.52%) 12.16%
Ratios/Supplemental Data
Net assets, end of period (in millions) $ 15 $ 6 $ 3
Ratio of expenses to average net assets** 1.08% 1.08% 1.04%
Ratio of net investment income to average
net assets** 0.03% 0.67% 1.07%
Ratio of expenses to average net assets
before voluntary expense reimbursement** 1.13% 1.30% -
Ratio of net investment income to average
net assets before voluntary
expense reimbursement** (0.02%) 0.45% -
Portfolio turnover rate 36% 19% 42%
*Total return not annualized for periods less than one full year
**Annualized for periods less than one full year
See accompanying Notes to Financial Statements.
REPORT OF 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 schedules of investments, of AFBA Five Star Fund, Inc. (the
Fund) (comprised of the Balanced, Equity, High Yield and Global series) as
of March 31, 2000, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two
years in the period then ended and financial highlights for the periods
indicated therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2000, by correspondence with the custodian and
brokers. As to certain securities relating to uncompleted transactions, we
performed other auditing 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 respective series constituting the Fund at March 31, 2000,
and the results of their operations for the year then ended, changes in
their net assets for each of the two years in the period then ended and
financial highlights for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United
States.
/S/ERNST & YOUNG LLP
Kansas City, Missouri
April 28, 2000
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 by calling the Fund at
1-800-243-9865.
Distributors: Jones & Babson, Inc., Kansas City, Missouri
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
Fund SM
AFBA Investment Management Company
909 N. Washington Street
Alexandria, Virginia 22314
1-800-243-9865
www.afba.com
Shareholder Inquiries 1-888-578-2733
</TABLE>
