A Message from the Star Select REIT-Plus Fund
Dear Shareholder:
The Star Select REIT-Plus Fund seeks to provide consistent total return by
focusing on appreciation and income. The Fund seeks to achieve these results
through a consistent investment commitment to Real Estate Investment Trusts.
Performance for the REIT sector stabilized during the third quarter as investor
concerns shifted to earnings expectations for the large capitalization segment
of the market. By quarter end REITs had begun to stage a significant rally as
investor concerns over the impact of an economic slow down on REITs appeared to
be over done. The rally in bonds brought yields to historic lows and set off a
search for yield. REITs as a group were offering a three hundred basis point
yield advantage; interest in the group is now coming in from the traditional
defensive investor group.
Investor fears should be allayed now that question regarding changes in taxation
have been resolved. Rather than issue additional stock at these depressed
levels, most managements are electing to refinance debt to generate additional
free cash flow and stock swaps to execute acquisitions. These changes will have
a positive impact on performance. We have shifted away from the lodging sector
on fears of overbuilding and are now focusing on office properties on the two
coasts and retail oriented properties as consumer spending continues to push
higher.
Peter Sorrentino, CFA
Vice President, Fund Manager
<PAGE>
INVESTMENTS-STAR SELECT REIT-PLUS FUND
- --------------------------------------
Statement of Net Assets September 30, 1998 (Unaudited)
Number Market
of Shares Value
--------- -----
COMMON STOCKS - 96.29%
- ----------------------
Real Estate Investment Trusts - 94.34%
- --------------------------------------
Apartment Investment and
Management Co. REIT 25,000 $ 943,750
Archstone Communities, Trust REIT 32,000 652,000
Arden Realty Group, Inc. REIT 13,251 295,670
Avalon Properties, Inc. REIT 46,512 1,584,338
Bedford Property Investors, Inc. REIT 15,000 270,000
Brandywine Realty Trust REIT 25,000 478,125
BRE Properties, Inc. REIT 25,200 633,150
Cadillac Fairview Corp. REIT 11,000 195,250
CarrAmerica Realty Corp. REIT 17,900 408,353
CenterPoint Properties Corp. REIT 22,975 832,844
Crescent Real Estate Equities Trust REIT 20,000 505,000
Developers Diversified
Realty Corp. REIT 48,000 876,000
EastGroup Properties, Inc. REIT 23,000 434,125
Equity Office Properties Trust REIT 36,600 896,700
Equity Residential Properties Trust REIT 21,000 885,948
Felcor Suite Hotels, Inc. REIT 30,000 729,390
Glenborough Realty Trust, Inc. REIT 30,000 637,500
Healthcare Realty Trust REIT 19,510 497,505
Hospitality Properties Trust REIT 21,000 624,750
HRPT Properties Trust REIT 10,000 161,250
Irvine Apartment
Communities, Inc. REIT 26,700 717,562
JDN Realty Corp. REIT 33,868 778,964
Kilroy Realty Corp. REIT 23,000 529,000
Kimco Realty Corp. REIT 41,070 1,560,660
Koger Equity, Inc. REIT 20,000 375,000
Lexington Corp. Properties, Inc. REIT 30,400 381,915
Liberty Property Trust REIT 24,450 582,228
LTC Properties, Inc. REIT 45,050 785,582
Mack-Cali Realty Corp. REIT 24,500 735,000
Manufactured Home
Communities, Inc. REIT 38,000 966,644
Meridian Industrial Trust, Inc. REIT 15,000 331,875
Meristar Hospitality REIT 29,662 506,123
Merry Land & Investment Co., Inc. REIT 11,000 246,125
New Plan Realty Trust REIT 38,500 897,550
Omega Healthcare Investors, Inc. REIT 17,253 563,966
Omega Worldwide REIT 3,000 15,375
Pacific Gulf Properties, Inc. REIT 20,000 402,500
Number Market
of Shares Value
--------- -----
Patriot American Hospitality, Inc. REIT 42,998 $548,224
Prentiss Properties Trust REIT 24,000 573,000
Prime Retail, Inc. REIT 50,000 490,650
Realty Income Corp. REIT 23,000 572,125
Reckson Associates Realty Corp. REIT 35,000 822,500
RFS Hotel Investors, Inc. REIT 41,100 493,200
Simon DeBartolo Group, Inc. REIT 44,040 1,310,190
Sizeler Property Investors, Inc. REIT 56,300 506,700
Spieker Properties, Inc. REIT 22,000 808,500
Starwood Lodging Trust REIT 21,500 655,750
Storage Trust Realty REIT 31,000 728,500
Storage USA, Inc. REIT 15,240 527,685
U.S. Restaurant Properties REIT 48,000 1,221,024
Vornado Realty Trust REIT 20,000 662,500
Weingarten Realty Investments REIT 12,100 496,100
<PAGE>
Real Estate Construction - 1.95%
- --------------------------------
Centex Corp. 20,000 690,000
-----------
Total Common Stocks
(Cost $34,914,878) 34,024,365
----------
Repurchase Agreements - 1.84%
- -----------------------------
Donaldson ($670,000, SLMA Short Term, Floating rate, 86387TFM5, 11/19/98)
Purchase Date 9/30/98, Maturity Date 10/1/98 Amount Payable at Maturity $649,100
Total Repurchase Agreements
(Cost $649,000) 649,000
-----------
Total Investments
(Cost $35,563,878) 34,673,365
Other Assets and Liabilities, Net - 1.87% 642,142
- ----------------------------------------- -----------
Net Assets - 100% $35,315,507
===========
<PAGE>
STAR SELECT REIT-PLUS FUND
- --------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
September 30, 1998 (Unaudited)
ASSETS
Investments, at value (cost $35,563,878) ................ $ 34,673,365
Cash ................................................... 27,584
Dividend receivable ..................................... 221,761
Interest receivable...................................... 100
Receivable for shares of beneficial interest sold ....... 4,911
Receivable for investments sold.......................... 407,072
Deferred organization costs (Note 2)..................... 25,949
Prepaid expenses......................................... 12,309
------------
Total assets ............................................ 35,373,051
LIABILITIES
Payable for shares of beneficial interest redeemed....... 22,561
Accrued expenses ........................................ 34,983
----------
Total liabilities ....................................... 57,544
----------
NET ASSETS ................................................... $ 35,315,507
=============
Net assets consist of:
Paid-in capital ......................................... 36,187,002
Undistributed net investment income ..................... 84,928
Accumulated net realized gain on investments ............ (65,910)
Net unrealized depreciation in
value of investments ................................ (890,513)
----------
Net assets ................................................... $ 35,315,507
=============
NET ASSET VALUE PER SHARE
Class B Shares:
Net asset value and offering price per share (based on net assets of
$116,036 and 12,915 shares of beneficial interest outstanding)... $8.98
Minimum redemption price per share ( net asset value x 95%)...... $8.53
Class C Shares:
Net asset value, offering and redemption price per share (based on net assets of
$35,199,471 and 3,936,361 shares of beneficial interest outstanding)... $8.94
The accompanying notes are an integral part of these financial statements.
<PAGE>
STAR SELECT REIT-PLUS FUND
- --------------------------
STATEMENTS OF OPERATIONS
- ------------------------
For the six months ended September 30, 1998 (Unaudited)
INVESTMENT INCOME
Income:
Interest ................................................ $ 28,729
Dividends ............................................... 1,160,806
-----------
Total net income ................................... 1,189,535
-----------
EXPENSES:
Administrative service fees (Note 3)
Class B .............................................. 1,004
Class C .......................................... 20,535
Auditing fees ....................................... 6,017
Custodian fees (Note 3) ................................. 5,784
Fund accounting fees
Class B .............................................. 1,004
Class C .......................................... 16,054
Insurance ........................................... 1,890
Servicing fees .......................................... 10,034
Legal fees .............................................. 9,026
Investment adviser fees (Note 3) ........................ 150,505
Trustee's fees .......................................... 3,277
24f-2 fees expense
Class B .......................................... 2
Class C .......................................... 2,505
Amortization of organization expenses ................. 3,713
Postage ................................................. 752
Registration and filing fees
Class B .......................................... 1,543
Class C .......................................... 26,488
Printing ............................................. 18,300
Transfer agent fees (Note 3)
Class B .............................................. 1,004
Class C .......................................... 13,579
Other expenses ....................................... 2,514
---------
Total net expenses ................................. 295,530
---------
Less Expense Reimbursement from adviser..................... 4,422
---------
NET INVESTMENT INCOME ....................................... 898,427
---------
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS
Net realized loss on investments ........................ (48,805)
Change in net unrealized
appreciation of investments ........................ (6,779,292)
Net loss on investments ................................. (6,828,097)
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS .............................. $ (5,929,670)
==============
The accompaying notes are an integral part of these financial statements.
<PAGE>
STAR SELECT REIT-PLUS FUND
- --------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
For the six months ended September 30, 1998 (Unaudited)
DECREASE IN NET ASSETS
Operations:
Net investment income ................................... $ 898,427
Net realized loss on investments ........................ (48,805)
Change in net unrealized appreciation of investments..... (6,779,292)
Decrease in net assets resulting from operations ........ (5,929,670)
Dividends and distributions to shareholders from:
Net investment Income
Class B........................................... (2,461)
Class C........................................... (840,301)
Realized Capital Gain
Class C.......................................... (17,459)
----------
Total Distributions .......................... (860,221)
---------
TOTAL DECREASE ............................................... (6,789,891)
--------------
Capital share transactions:
Proceeds from shares sold
Class B........................................... 135,414
Class C........................................... 3,120,101
Value of shares issued to shareholders in
reinvestment of dividends and distributions
Class B............................................ 2,461
Class C............................................ 127,796
Cost of shares redeemed
Class B ........................................... (2,460)
Class C ........................................... (5,258,437)
Net decrease in net assets resulting from
capital share transactions .......................... (1,875,125)
TOTAL DECREASE IN NET ASSETS .................................. (8,665,016)
NET ASSETS:
Beginning of period ..................................... $ 43,980,523
End of period (including undistributed net
realized gains on investments) ..................... 35,315,507
==========
Shares of capital stock of the Fund sold and redeemed:
Shares sold
Class B .............................................. 12,909
Class C .......................................... 304,681
Shares issued to shareholders in reinvestment
dividends and distributions
Class B .......................................... 261
Class C .......................................... 13,531
Shares redeemed
Class B .......................................... (255)
Class C .......................................... (535,924)
NET DECREASE IN NUMBER
OF SHARES OUTSTANDING ................................... (204,797)
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
STAR SELECT REIT-PLUS FUND
- --------------------------
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<S> <C> <C> <C>
Class B Class C
------- -------
Six Months Six Months Year
Ended Ended Ended
September 30 September 30 March 31
1998 1998 1998(a)
---- ---- -------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning ................................... $ 10.59 $10.59 $10.00
Income from investment
Operations:
Net investment income ................................... 0.21 0.22 0.35
Net realized and unrealized
gain (loss) on investments.......................... (1.63) (1.65) 0.86
------- ------ -------
Total from investment income ................................. (1.42) (1.43) 1.21
Less distributions:
Dividends from net
investment income .................................. (0.19) (0.21) (0.35)
Distributions from net realized
Gains on investments............................. (0.00) (0.01) (0.27)
------ ------ ------
Total from distributions ..................................... (0.19) (0.22) (0.62)
------- ------ ------
Net asset value at end of period ............................. $ 8.98 $ 8.94 $ 10.59
===== ===== ======
TOTAL RETURN (b).............................................. (25.36%) (25.39%) 14.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... 116 35,199 43,981
Ratio of total expenses to
average net assets (b).............................. 8.96% 1.46% 1.52%
Ratio of total expenses to
average net assets (after reimbursement)(b)......... 1.34% ------ ------
Ratio of net investment
income to average net assets (b).................... (3.11%) 4.51% 4.29%
Ratio of net investment
income to average net assets (after reimbursement)(b) 4.51% ------ ------
Portfolio turnover ...................................... 19.20% 19.20% 29.50%
(a) For the period June 24, 1997 (commencement of operations) to March 31,1998.
(b) Annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - General
Star Select REIT-Plus Fund (the "Fund") was organized as a series of Star Select
Funds, an Ohio business trust (the "Trust") on February 28, 1997. The investment
objective of the Fund is to provide shareholders with above average income and
long term growth of capital. The Fund offers Class B and Class C shares. Class B
shares may be subject to a contingent deferred sales charge. Class C shares are
no-load where there is no sales charges or commissions. All classes of shares
have indentical rights to earnings, assets and voting priviledges, except that
each class has its own expenses directly attributable to that class.
Note 2 - Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements.
A) Security Valuations
The procedures and pricing service used to value securities are established and
approved by the Board of Trustees. Portfolio securities are valued using the
current market valuations: either the last reported sales price, or in the case
of securities for which there is no reported last sale, the mean of the closing
bid and asked prices. Bid price is used when no ask price is available.
B) Securities Transactions and Related Income
Securities transactions are recorded on a trade date. Realized gains and losses
from securities transactions are recorded on the identified cost basis. Interest
income is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date.
C) Dividends and Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income as
dividends to its shareholders on a quarterly basis, and intends to distribute
its net capital gains at least once a year. However, to the extent that net
realized gains of the Fund can be reduced by any capital loss carry-overs, such
gains will not be distributed.
D) Federal Income Taxes
It is the policy of the Fund to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders.
E) Expenses
Organizational costs represent costs incurred in connection with the
organization and the initial public offering of the Class C shares of the Fund.
Organizational costs are deferred and will be amortized on a straight-line basis
over five years. In the event that the original shareholders (or any subsequent
transferee) redeems any of its original capital (seed capital) prior to these
organizational costs being fully amortized, the redemption proceeds will be
reduced by a pro-rata portion of any then unamortized organizational costs. At
September 30, 1998, the unamortized balance was $25,949.
F) Distribution
The Trust has adopted a 12B-1 plan, which permits the Fund to pay up to 0.25% of
average net assets as a 12B-1 fee to the Funds Distributor. The Fund expenses
will not be affected by the 12B-1 plan because the Adviser does not intend to
activate the plan through July 31, 1999.
G) Allocation of Income, Expenses, and Gains and Losses
Income, expenses (other than those attributable to a specific class) and gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against the operations of that
class.
<PAGE>
H) Estimates
Preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
I) Repurchase Agreement
Under the terms of a typical repurchase agreement, a Fund writes a financial
contract with a counterparty and takes possession of a government debt
obligation as collateral. The Fund also agrees with the counterparty to allow
the counterparty to repurchase the financial contract at a specific date and
price, thereby determining the yield during the Fund's holding period. This
arrangement will result in a fixed-rate of return not subject to the market's
fluctuation during the holding period indicated in th contract. The value of the
collateral is at least equal to the total amount of the repurchase obligation,
including interest. In the event of a default by the counterparty, a Fund has
the right to use the collateral to offset any losses incurred.
Note 3 - Agreements and Other Transactions with Affiliates
The Fund retains Star Bank, N.A. (the "Adviser" or "Star Bank") to manage the
Fund's investments. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund. The
Fund is authorized to pay the Adviser a monthly fee equal to an annual average
rate of 0.75% of its average daily net assets. Effective July 1, 1998 B.
Randolph Bateman took over the day-to-day management of the Fund's portfolio
from Peter Sorrentino.
The Fund also retains Star Bank to act as shareholder servicing agent on its
behalf. The Fund is authorized to pay Star Bank up to 0.25% of its average daily
net assets to provide shareholder support services and to maintain shareholder
accounts. Star Bank currently receives 0.05% of the Fund's average daily net
assets for shareholder services and it is anticipated that the fee will remain
at 0.05% for the foreseeable future. Star Bank also acts as the Fund's
custodian, for which it receives a monthly fee equal to an annual average rate
of 0.025% of its average daily net assets.
The Fund retains Unified Fund Services, Inc. ("Unified") to act as the Fund's
administrator and transfer agent. As administrator, Unified manages the Fund's
business affairs and provides the Fund with administrative services, including
compliance and accounting services and all regulatory reporting, and necessary
office equipment, personnel and facilities to operate the Fund. For these
administrative and transfer agency services, Unified receives a monthly fee from
the Fund equal to an annual average rate of 0.25% of the Fund's average daily
net assets. The Fund retains Unified Management Corporation to act as the
principal distributor of the Fund's shares.
Note 3-(Continued)
For the six months ended September 30, 1998, there were no commissions (sales
charges paid by investors) paid on the Class B shares.
Note 4- Securities Transactions
For the six months ended September 30, 1998, purchases and sales of investment
securities, excluding short-term investments were as follows:
The Star Select REIT-Plus Fund
Note 5- Unrealized Appreciation(Depreciation)
At September 30, 1998, the composition of unrealized appreciation(depreciation)
of investment securities were as follows:
The Star Select REIT-Plus Fund
Note 6- Subsequent Events
On October 1, 1998 Peter Sorrentino resumed the day-to-day management of the
Fund's portfolio.
