A Message from the FIRSTAR Select REIT-Plus Fund
Dear Shareholder:
The FIRSTAR 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 over the 1998/1999 Fiscal Year ending March was
volatile as investors withdrew from this sector and shifted to large market
capitalization U.S. equities. This outflow of funds led to a significant price
pullback in these stocks during the fiscal year. REIT's now stand at
historically low valuations while displaying strong earnings growth and
historically high dividend yields. In addition, the REIT Public Offerings are
now substantially less than the levels seen in 1997 while most sectors of the
real estate market are witnessing an attractive level of growth in line with the
U.S. economy as measured by Gross Domestic Product growth.
During the 1998/1999 Fiscal Year the FIRSTAR Select REIT-Plus Fund slightly
underperformed the Morgan Stanley REIT Index due to the payment of fund
management expenses for the Fund versus the passively managed Index. The Firstar
Select REIT-Plus Fund declined 20.59% during the fiscal year as compared to a
drop of 20.33% for the Morgan Stanley REIT Index. The Morgan Stanley REIT
Index is a total-return index comprised of the most actively traded real estate
investment trusts. It is designed to be a measure of real estate equity
performance. The index was developed as of December 31, 1994 and is currently
comprised of 129 real estate investment trusts.
The FIRSTAR Select REIT-Plus Fund is managed using both quantitative and
fundamental analysis to aid us in meeting investors' long-term goals of both
price appreciation and income. These tools allow us to focus on those sectors
that will most benefit our investors in achieving these objectives. Above
average earnings growth rates, low levels of debt to capital and attractive
income yields coupled with low levels of new supply in this sector offer
attractive reasons for investors to consider REIT's in achieving their
investment objectives.
Karen L. Bowie, CFA
Vice President, Fund Manager
<PAGE>
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Firstar Select REIT-Plus Fund (Class C Shares)
vs.
Morgan Stanley REIT Index
- --------------------------------------------------------------------------------
Average Annual Total Firstar Select
Return for the Period REIT-Plus Fund
Ended March 31, 1999 Class C Shares
-------------------- --------------
Since Inception (6/24/97) -6.75%
4/1/98-3/31/99 -20.59%
Past performance is not predictive of furture performance.
<PAGE>
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Firstar Select REIT-Plus Fund ( Blass B Shares)
vs.
Morgan Stanley REIT Index
- --------------------------------------------------------------------------------
Average Annual Total Firstar Select
Return for the Period REIT-Plus Fund
Ended March 31, 1999 Class B Shares
-------------------- --------------
4/1/98-3/31/99 -20.65%
Past Performance is not predictive of future performance.
<PAGE>
Year 2000 Issue: (Unaudited)
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Adviser, Administrator or other service providers to the Fund do not
properly process and calculate date-related information and data from January 1,
2000. This is commonly known as the "Year 2000 Issue". The Adviser and
Administrator have taken steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to computer systems that are used and
to obtained reasonable assurances that comparable steps are being taken by the
Fund's major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund. In
addition, the Adviser cannot make any assurances that the Year 2000 issue will
not affect the companies in which the Fund invests or worldwide markets and
economies.
<PAGE>
INVESTMENTS-FIRSTAR SELECT REIT-PLUS FUND
- -----------------------------------------
Statement of Net Assets March 31, 1999
Number Market
of Shares Value
--------- -----
COMMON STOCKS - 98.20%
Real Estate Investment Trusts - 98.20%
Apartment Investment and
Management Co. REIT 25,000 $ 906,250
Archstone Communities, Trust REIT 45,000 905,625
Arden Realty Group, Inc. REIT 13,251 294,835
Avalon Properties, Inc. REIT 36,512 1,154,692
BRE Properties, Inc. REIT 25,200 570,150
Bedford Property Investors, Inc. REIT 15,000 219,375
Brandywine Realty Trust REIT 25,000 406,250
CBL & Associates Properties, REIT 20,500 476,625
Cadillac Fairview Corp. REIT * 50,000 834,375
CarrAmerica Realty Corp. REIT 17,900 394,919
Catellus Development REIT * 45,000 601,875
Chelsea GCA Realty Inc. REIT 26,200 730,325
Crescent Real Estate Equities Trust REIT 20,000 430,000
Developers Diversified
Realty Corp. REIT 48,000 687,000
EastGroup Properties, Inc. REIT 48,000 774,000
Equity Office Properties Trust REIT 36,600 931,012
Equity Residential Properties Trust REIT 26,830 1,106,737
Felcor Suite Hotels, Inc. REIT 30,000 695,625
Hospitality Properties Trust REIT 21,000 568,312
Irvine Apartment
Communities, Inc. REIT 26,700 877,762
JDN Realty Corp. REIT 33,868 673,126
Kilroy Realty Corp. REIT 23,000 471,500
Kimco Realty Corp. REIT 33,070 1,219,456
Koger Equity, Inc. REIT 20,000 268,750
Lasalle Hotel Properties REIT 80,000 1,060,000
Lexington Corp. Properties, Inc. REIT 30,400 338,200
Liberty Property Trust REIT 24,450 507,337
MGI properties REIT 18,500 506,438
Mack-Cali Reality Corp. REIT 24,500 719,688
Meristar Hospitality REIT 29,662 539,478
New Plan Realty Trust REIT 38,500 738,719
Pacific Gulf Properties, Inc. REIT 42,000 756,000
Prentiss Properties Trust REIT 24,000 447,000
The accompanying notes are an integral part of these financial statements.
Number Market
of Shares Value
--------- -----
Prime Retail, Inc. REIT 50,000 $ 437,500
Prologis Trust REIT 16,500 338,250
Public Storage Inc. REIT 26,660 666,500
RFS Hotel Investors, Inc. REIT 41,100 475,219
Realty Income Corp. REIT 23,000 483,000
Reckson Associates Realty Corp. REIT 50,000 1,028,125
Simon DeBartolo Group, Inc. REIT 34,040 933,973
Sizeler Property Investors, Inc. REIT 56,300 464,475
Spieker Properties, Inc. REIT 22,000 775,500
Starwood Lodging Trust REIT 21,500 614,094
Storage USA, Inc. REIT 15,240 432,435
Trizec Hahn Corp. REIT 52,000 955,500
Vornado Realty Trust REIT 20,000 690,000
-------
Total Common Stocks
(Cost $33,526,961) 30,106,007
----------
Preferred Stock - .81%
- ----------------------
Realty Income Corp. REIT 10,000 248,750
(Cost $250,000)
Repurchase Agreements - .45%
- ----------------------------
Donaldson (DLJ) ($138,000, 6.35% IBRD World Bank 459056HY6, 08/24/00) Purchase
Date 03/31/99, Maturity Date 04/01/99 Amount Payable at Maturity $138,019
Total Repurchase Agreements
(Cost $138,000) 138,000
--------
Total Investments
(Cost $33,914,961) 30,492,757
Other Assets and Liabilities, Net - .54% 164,596
- ---------------------------------------- -------
Net Assets - 100% $30,657,353
===========
*Non-income producing securities
<PAGE>
FIRSTAR SELECT REIT-PLUS FUND
- -----------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- ------------------------------------
March 31, 1999
ASSETS
Investments, at value (cost $33,914,961) ................ $ 30,492,757
Cash ................................................... 6,603
Dividend receivable ..................................... 227,868
Interest receivable...................................... 62
Receivable for shares of beneficial interest sold........ 28,578
Deferred organization costs (Note 2) ................... 23,604
Prepaid expenses......................................... 9,647
-----------
Total assets ............................................ 30,789,119
LIABILITIES
Payable for shares of beneficial interest redeemed....... 96,722
Accrued expenses ........................................ 35,044
---------
Total liabilities........................................ 131,766
---------
NET ASSETS ................................................... $ 30,657,353
=============
Net assets consist of:
Paid-in capital ......................................... 35,391,026
Accumulated net realized gain on investments ............ (1,311,469)
Net unrealized depreciation in
value of investments .................................. (3,422,204)
------------
Net assets ................................................... $ 30,657,353
=============
NET ASSET VALUE PER SHARE
Class B Shares:
Net asset value and offering price per share (based on net assets of
$90,562 and 11,340 shares of beneficial interest outstanding). $7.99
Minimum redemption price per share (net asset value x 95%).... $7.59
Class C Shares:
Net asset value, offering and redemption price per share (based on
net assets of $30,566,791 and 3,840,334 shares of beneficial interest
outstanding)........................................... $7.96
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRSTAR SELECT REIT-PLUS FUND
- -----------------------------
STATEMENTS OF OPERATIONS
- ------------------------
For the year ended March 31, 1999
INVESTMENT INCOME
Income:
Interest ................................................ $ 55,518
Dividends ............................................... 2,123,460
---------
Total income ...................................... 2,178,978
---------
EXPENSES:
Administrative service fees (Note 3)
Class B............................................... 3,998
Class C............................................. 37,219
Auditing fees ........................................... 22,321
Custodian fees (Note 3) ................................. 12,741
Fund accounting fees
Class B............................................... 4,004
Class C............................................... 30,437
Insurance ............................................... 3,954
Servicing fees .......................................... 18,757
Legal fees .............................................. 25,368
Investment adviser fees (Note 3) ........................ 281,358
Trustee's fees .......................................... 14,703
24f-2 fees expense
Class B........................................... 2
Class C........................................... 6,347
Amortization of organization expenses.................... 6,058
Postage ................................................. 1,222
Registration and filing fees
Class B........................................... 2,756
Class C........................................... 24,372
Printing ................................................ 33,465
Transfer agent fees (Note 3)
Class B............................................... 4,007
Class C............................................... 27,406
Other expenses........................................... 4,549
-------
Total net expenses................................. 565,044
-------
Less Expense Reimbursement from adviser..................... 13,409
-------
NET INVESTMENT INCOME ....................................... 1,627,343
----------
REALIZED AND UNREALIZED GAIN/LOSS
ON INVESTMENTS
Net realized loss on investments ........................ ( 978,775)
Change in net unrealized
appreciation of investments ........................ (9,338,684)
Net loss on investments ................................. (10,317,459)
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ (8,690,116)
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIRSTAR SELECT REIT-PLUS FUND
- -----------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------
<TABLE>
<S> <C> <C>
Year Period
Ended Ended
March 31, March 31,
1999 1998(a)
DECREASE IN NET ASSETS
Operations:
Net investment income ................................... $ 1,627,343 $ 1,169,959
Net realized (gain) loss on investments ................. (978,775) 903,721
Change in net unrealized appreciation of investments..... (9,338,684) 5,916,480
------------ ------------
Increase (Decrease) in net assets resulting from operations (8,690,116) 7,990,160
---------- ---------
Dividends and distributions to shareholders from:
Net investment Income
Class B............................................ (4,932) ---
Class C............................................. (1,622,429) (1,174,496)
Realized Capital Gain
Class B.................................................... (995) ---
Class C.................................................... (338,154) (897,268)
-------- --------
Total Distributions.................................... (1,966,510) (2,071,764)
---------- -----------
TOTAL INCREASE (DECREASE) ................................... (10,656,626) 5,918,396
------------ -----------
Capital share transactions:
Proceeds from shares sold
Class B............................................ 135,414 ---
Class C............................................ 8,402,387 40,066,968
Value of shares issued to shareholders in
reinvestment of dividends and distributions
Class B............................................ 5,927 ---
Class C............................................ 406,984 206,179
Cost of shares redeemed
Class B............................................ (18,491) ---
Class C............................................ (11,598,765) (2,211,020)
------------ -----------
Net decrease in net assets resulting from
capital share transactions .......................... (2,666,544) 38,062,127
------------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS ...................... (13,323,170) 43,980,523
------------ -------------
NET ASSETS:
Beginning of period ..................................... $ 43,980,523 ---
End of period .......................................... 30,657,353 $ 43,980,523
============= =============
Shares of capital stock of the Fund sold and redeemed:
Shares sold
Class B............................................... 12,909 ---
Class C............................................... 936,347 4,340,838
Shares issued to shareholders in reinvestment dividends
and distributions:
Class B............................................ 677 ---
Class C............................................ 46,905 19,649
Shares redeemed
Class B............................................. (2,246) ---
Class C............................................. (1,296,991) (206,414)
---------- ---------
NET INCREASE (DECREASE) IN NUMBER OF SHARES OUTSTANDING (302,399) 4,154,073
========== ==========
The accompanying notes are an integral part of these financial statements.
(a) For the period June 24, 1997 (commencement of operations) to March 31, 1998
</TABLE>
<PAGE>
FIRSTAR SELECT REIT-PLUS FUND
- -----------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C>
Class B Class C
Year Year Year
Ended Ended Ended
March 31, March 31, March 31,
1999 1999 1998(a)
---- ----- ----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning ................................... $ 10.59 $10.59 $10.00 Income from investment
Operations:
Net investment income ................................... 0.40 0.40 0.35 Net
realized and unrealized
gain (loss) on investments.......................... (2.54) (2.55) 0.86
-------- ------ -------
Total from investment income ................................. (2.14) (2.15) 1.21
Less distributions:
Dividends from net
investment income .................................. (0.38) (0.40) (0.35)
Distributions from net realized
Gains on investments............................. (0.08) (0.08) (0.27)
------ ------ ------
Total from distributions ..................................... (0.46) (0.48) (0.62)
------- ------ ------
Net asset value at end of period ............................. $ 7.99 $ 7.96 $ 10.59
===== ===== ======
TOTAL RETURN.................................................. (20.65%) (20.59%) 14.96%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands).................... 90,562 30,566 43,981
Ratio of total expenses to
average net assets ................................. 13.38% 1.47% 1.52%(b)
Ratio of total expenses to
average net assets (after reimbursement) ........... 1.45% ------ --------
Ratio of net investment
income to average net assets........................ (7.53)%) 4.35% 4.29%(b)
Ratio of net investment
income to average net assets (after reimbursement) . 4.39% ------ --------
Portfolio turnover ...................................... 45.48% 45.48% 29.50%(b)
(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
Firstar 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. On
March 1, 1999 Star Select REIT-Plus Fund was changed to Firstar Select REIT-Plus
Fund. 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 privileges, 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 basis. 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 shareholder (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
March 31, 1999, the unamortized balance was $23,604.
The Adviser has committed to reimburse other expenses of class B shares throught
July 31, 1999 to the extent necessary to maintain total operating expense as
indicated in the prospectus. Total reimbursement for the period ended March 31,
1999 is $13,409.
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 Fund's 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 the 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 Firstar Bank (formerly Star Bank), N.A. (the "Adviser" or
"Firstar 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.
The Fund also retains Firstar Bank to act as shareholder servicing agent on its
behalf. The Fund is authorized to pay Firstar Bank up to 0.25% of its average
daily net assets to provide shareholder support services and to maintain
shareholder accounts. Firstar 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. Firstar 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.
For the twelve months ended March 31, 1999, there were no commissions (sales
charges paid by investors) paid on the Class B shares.
Note 3 - Agreements and Other Transactions with Affiliates (continued)
Certain Trustees and officers of the Trust are "interested persons" (as defined
in the Act) of the Trust. Each "non-interested" Trustee is entitled to receive a
quarterly Board of Trustees meeting fee of $1,000 plus expenses for services
relating to the Trust.
Note 4- Securities Transactions
For the period ended March 31, 1999, purchases and sales of investment
securities, excluding short-term investments were as follows:
Purchases Sales
The Star Select REIT-Plus Fund $ 14,900,790 $16,629,866
<PAGE>
Note 5- Unrealized Appreciation (Depreciation)
At March 31, 1999, the composition of unrealized appreciation (depreciation) of
investment securities was as follows:
Appreciation Depreciation Net
The Star Select REIT-Plus Fund $ 1,330,378 ($ 4,752,582) ($3,422,204)
Note 6- Reclassification Of Capital Accounts
The Funds have adopted Statement of position 93-2, "Determination, Disclosure,
and Financial Statement presentation of Income, Capital Gain and return of
Capital Distributions by Investment Companies". As a result of this Statement,
the Firstar Select REIT-Plus Fund changed the classification of distributions to
shareholders to better disclose the difference between financial statement
amounts and distributions determined in accordance with income tax regulations.
Accordingly, paid-in-capital and undistributed capital gains have been adjusted
as of March 31, 1999 in the following amounts. These restatements did not affect
net investment income, net realized gain (loss) or net assets of The Firstar
Select REIT-Plus Fund for the year ended March 31, 1999.
Paid-In Capital Undistributed Net Realized Gain
($4,556) $4,556
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
Firstar Select REIT-Plus Fund :
We have audited the accompanying statement of assets and liabilities of Firstar
Select REIT-Plus Fund, including the schedule of portfolio investments, as of
March 31, 1999, and the related statement of operations for the year then ended,
the statement of changes in net assets and financial highlights for the year
then ended and for the period from June 24, 1997 (commencement of operations) to
March 31, 1998 in the period then ended. 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 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. Our procedures included confirmation of investments and cash held by
the custodian as of March 31, 1999, by correspondence with the custodian. 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
Firstar Select REIT-Plus Fund as of March 31, 1999, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and for the period from June 24,
1997 (commencement of operations) to March 31, 1998 in the period then ended, in
conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
April 27, 1999
