THE STELLAR FUND
(A PORTFOLIO OF THE STAR FUNDS)
TRUST SHARES
PROSPECTUS
The Trust Shares offered by this prospectus represent interests in The Stellar
Fund (the "Fund"), which is a diversified investment portfolio in the Star
Funds (the "Trust"), an open-end management investment company (a mutual fund).
The investment objective of the Fund is to maximize total return, a combination
of dividend income and capital appreciation. The Fund pursues this investment
objective by investing in the following security categories: domestic equity
securities, domestic fixed income securities, international securities (equity
and fixed income), real estate securities, precious metal securities, and money
market securities.
THE TRUST SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
STAR BANK, N.A., OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY STAR
BANK, N.A., OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE TRUST SHARES INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AND MAY INVOLVE SALES CHARGES AND OTHER FEES.
This prospectus contains the information you should read and know before you
invest in Trust Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Trust Shares
dated April 5, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information or
make inquiries about the Fund by writing to the Fund or calling 1-800-677-FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated April 5, 1994 (Revised October 12, 1994)
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- -------------------------------------
GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Options Transactions 4
Writing Covered Options 4
The Fund May Only Write Covered
Options 4
Purchasing Options 4
Options Trading Markets 4
Restricted and Illiquid Securities 4
Risk Considerations 5
Foreign Securities 5
Foreign Companies 5
U.S. Government Policies 5
Real Estate Securities 5
Precious Metal Securities and
Precious Metals 6
Fixed Income Securities 6
Investment Limitations 6
STAR FUNDS INFORMATION 6
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Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Trust Shares 7
Administrative Arrangements 7
Administration of the Fund 7
Administrative Services 7
Custodian 8
Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services 8
Legal Counsel 8
Independent Public Accountants 8
Brokerage Transactions 8
Expenses of the Fund
and Trust Shares 8
NET ASSET VALUE 8
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INVESTING IN TRUST SHARES 9
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Minimum Investment Required 9
What Shares Cost 9
Share Purchases 9
Through Star Bank 9
Exchanging Securities for Fund
Shares 9
Certificates and Confirmations 10
Dividends and Capital Gains 10
EXCHANGE PRIVILEGE 10
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Star Funds 10
Exchanging Trust Shares 10
Exchange-by-Telephone 10
REDEEMING TRUST SHARES 11
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By Telephone 11
By Mail 11
Signatures 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
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Voting Rights 12
Massachusetts Partnership Law 12
EFFECT OF BANKING LAWS 12
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TAX INFORMATION 13
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Federal Income Tax 13
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 13
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Financial Highlights--
Investment Shares 14
FINANCIAL STATEMENTS 15
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REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS 27
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ADDRESSES Inside Back Cover
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THE STELLAR FUND
SUMMARY OF FUND EXPENSES
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<TABLE>
<CAPTION>
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................. None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................ None
Redemption Fees (as a percentage of amount redeemed, if applicable)... None
Exchange Fee.......................................................... None
<CAPTION>
ANNUAL TRUST SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee........................................................ 0.95%
12b-1 Fees............................................................ None
Other Expenses........................................................ 0.50%
Total Trust Shares Operating Expenses............................. 1.45%
</TABLE>
*The Annual Trust Shares Operating Expenses are estimated based on estimated
average expenses expected during the fiscal year ending November 30, 1994.
During the course of this period, expenses may be more or less than the
estimated average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "STAR FUNDS INFORMATION" AND "INVESTING IN
TRUST SHARES."
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- ------- ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment as-
suming (1) 5% annual return and (2) redemption at the end of
each time period. As noted in the table above, the Fund charges
no redemption fees for Trust Shares............................. $15 $46
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Trust Shares of the Fund. The Fund also offers another class of shares called
Investment Shares. Trust Shares and Investment Shares are subject to certain of
the same expenses; however, Investment Shares are subject to a 12b-1 fee of up
to 0.25% and a sales charge. See "Other Classes of Shares."
GENERAL INFORMATION
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Star Funds was established as a Massachusetts business trust under a
Declaration of Trust dated January 23, 1989. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. With respect to the Fund, as
of the date of this prospectus, the Board of Trustees ("Trustees") has
established two classes of shares known as Trust Shares and Investment Shares.
This prospectus relates only to Trust Shares ("Shares") of the Fund.
Shares of the Fund are designed primarily for trust customers of StarBanc
Corporation and its subsidiaries as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of preferred and
common stocks, bonds, notes, and short-term obligations. A minimum initial
investment of $1,000 is required.
Shares are sold and redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize total return, a combination
of dividend income and capital appreciation. The Fund pursues this investment
objective by investing in the following securities categories: domestic equity
securities, domestic fixed income securities, international securities (equity
and fixed income), real estate securities, precious metal securities, and money
market securities. As a non-fundamental policy, the Fund will attempt to
minimize overall portfolio risk by limiting investments in any one securities
category (as defined in this prospectus) to not more than 25% of net assets.
The Fund's adviser also believes that by spreading the investment portfolio
across multiple securities categories, the Fund can reduce the impact of
drastic market movements affecting any one securities type. The Fund's adviser
further attempts to reduce risk within each securities category through careful
investment analysis including, but not limited to, the following: the
employment of disciplined value measures (such as price/earnings ratios) when
selecting equity securities; use of ratings assigned by nationally recognized
statistical rating organizations (where applicable); credit research; review of
issuer's historical performance; examination of issuer's dividend growth
record; and consideration of market trends. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing approximately 20% of its
assets, in roughly equal weightings, in each of the following securities
categories: domestic equity securities, domestic fixed income securities,
international securities, and real estate securities. The remaining 20% of its
assets will be invested in money market instruments and/or precious metal
securities. Positions in these categories of securities may vary from as high
as 25% of its assets to as low as 15% of its assets depending on market
factors. Unless indicated otherwise, the investment policies of the Fund may be
changed by the Trustees without the approval of shareholders. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest
primarily in domestic equity securities, domestic fixed income securities,
international securities, real estate securities, precious metal securities,
and money market securities. Each category allocation will be made based on the
definitions described below.
. Domestic Equity Securities. The equity portion of the Fund will consist
of U.S. common and preferred stocks. The stocks chosen will, in the
opinion of the Fund's investment adviser, be undervalued relative to
stocks contained in the Standard & Poor's 500 Composite Stock Price
Index. Real estate and precious metal securities of domestic issuers will
not be considered domestic equity securities for purposes of the asset
allocation policy described above.
. Domestic Fixed Income Securities. The fixed income portion of the Fund
will include domestic corporate debt obligations, obligations of the
United States, and notes, bonds, and discount notes
of U.S. government agencies or instrumentalities. Bonds are selected
based on the outlook for interest rates and their yield in relation to
other bonds of similar quality and maturity. The Fund will only invest in
bonds, including convertible bonds, which are rated Baa or higher by
Moody's Investors Service, Inc. ("Moody's") or BBB or higher by Standard
& Poor's Corporation ("Standard & Poor's"), or which, if unrated, are
deemed to be of comparable quality by the investment adviser. In the
event that a bond which had an eligible rating when purchased is
downgraded below BBB or Baa, the Fund's adviser will promptly reassess
whether continued holding of the security is consistent with the Fund's
objective.
. International Securities. The international portion of the Fund will
include equity securities of non-U.S. companies and corporate and
government fixed income securities denominated in currencies other than
U.S. dollars. The international equity securities in which the Fund
invests include international stocks traded domestically or abroad
through various stock exchanges, American Depositary Receipts, or
International Depositary Receipts ("ADRs" and "IDRs," respectively). The
international fixed income securities will include ADRs, IDRs, and
government securities of other nations. No ratings for international
fixed income securities are available from Moody's or Standard & Poor's;
however, the Fund will invest in international fixed income securities
which are deemed by the investment adviser to be of a quality comparable
to domestic bonds rated at least Baa or BBB by Moody's or Standard &
Poor's, respectively. The Fund may also invest in shares of open-end and
closed-end management investment companies which invest primarily in
international equity securities described above.
. Real Estate Securities. The real estate portion of the Fund will include
equity securities, including convertible debt securities, of real estate
related companies, and real estate investment trusts. All real estate
securities will be publicly traded, primarily on an exchange. Real estate
securities are not considered domestic equity securities for purposes of
the Fund's asset allocation limitation.
. Precious Metal Securities. The precious metal securities in which the
Fund invests include domestic and international equity securities of
companies that explore for, extract, process, or deal in precious metals,
such as gold, silver, palladium, and platinum. The Fund may also invest
up to 5% of its net assets in domestic and international asset-based
securities, including debt securities, preferred stock, or convertible
securities for which the principal amount, redemption terms, or
conversion terms are related to the market price of some precious metals,
such as gold bullion. The Fund may purchase only asset-based securities
that are rated Baa or better by Moody's or BBB or better by Standard &
Poor's, or, if unrated, are of equal quality in the determination of the
investment adviser. Precious metal securities of foreign issuers will not
be aggregated with other international securities for purposes of
calculating the Fund's investment in international securities under the
allocation policy described above.
. Money Market Securities. The Fund may invest in U.S. and foreign short-
term money market instruments, including:
--commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or
Prime-2 by Moody's, or F-1 or F-2 by Fitch Investors Service, Inc., and
Europaper (dollar-denominated commercial paper issued outside the
United States) rated A-1, A-2, Prime-1, or Prime-2. In the case where
commercial paper or Europaper has received different ratings from
different rating services, such commercial paper or Europaper is an
acceptable temporary investment so long as at least one rating is in
the two highest rating categories of the nationally recognized
statistical rating organizations described above;
--instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC"), or
the Savings Association Insurance Fund ("SAIF"), which is also
administered by the FDIC. These instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");
--obligations of the U.S. government or its agencies or instrumentalities;
--repurchase agreements; and
--other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
temporary obligations in which the Fund may invest.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. In when-issued and
delayed delivery transactions, the Fund relies on the seller to complete
the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. By writing a call option, the Fund becomes obligated during the term
of the option to deliver the securities underlying the option upon payment of
the exercise price. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
THE FUND MAY ONLY WRITE "COVERED" OPTIONS. This means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits
and maintains with its custodian in a segregated account liquid assets having
a value equal to or greater than the exercise price of the option. The
aggregate value of the obligations underlying the puts will not exceed 50% of
the Fund's net assets.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call
or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option, the
Fund might become obligated to purchase the underlying security for more than
its current market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase call and put options for the purpose
of offsetting previously written call and put options of the same series. If
the Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised.
The Fund currently does not intend to invest more than 5% of its net assets in
options transactions.
Options on some securities are relatively new and it is impossible to predict
the amount of trading interest that will exist in such options. There can be
no assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability
to use such options to achieve its investment objectives.
OPTIONS TRADING MARKETS. Options which the Fund will trade must be listed on
national securities exchanges. Exchanges on which such options currently are
traded are the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities law. However, the Fund will limit investments
in illiquid securities, including restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, over-the-counter options,
and repurchase agreements providing for settlement in more than seven days
after notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as the
Fund, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Fund believes that Section 4(2)
commercial paper and possibly certain other restricted securities which meet
the criteria for liquidity established by the Trustees are quite liquid. The
Fund intends, therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by the Fund's investment adviser, as liquid
and not subject to the investment limitations applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Fund intends to not subject such paper to the limitation applicable to
restricted securities.
RISK CONSIDERATIONS
FOREIGN SECURITIES. Investing in foreign securities carries substantial risks
in addition to those associated with domestic investments. Foreign securities
may be denominated in foreign currencies. Therefore, the value in U.S. dollars
of the Fund's assets and income may be affected by changes in exchange rates
and regulations. Although considered separate securities categories for
purposes of the Fund's investment policies, the Fund's investment in money
market securities issued by foreign banks and international securities could
result in up to 50% of the Fund's net assets being invested in securities of
foreign issuers. In addition, the Fund's investment in precious metal
securities of foreign issuers (when aggregated with the above) could result in
greater than 50% of the Fund's net assets being invested in securities of
foreign issuers.
Although the Fund values its assets daily in U.S. dollars, it will not convert
its holding of foreign currencies to U.S. dollars daily.
When the Fund converts it holdings to another currency, it may incur currency
conversion costs. Foreign exchange dealers realize a profit on the difference
between the prices at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign companies;
. the lack of uniform financial accounting standards applicable to foreign
companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. generally lower foreign stock market volume;
. the likelihood that foreign securities may be less liquid or more
volatile;
. generally higher foreign brokerage commissions;
. possible difficulty in enforcing contractual obligations or obtaining
court judgments abroad because of differences in the legal systems;
. unreliable mail service between countries; and
. political or financial changes which adversely affect investments in
some countries.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Although the Fund is unaware of any current restrictions which would
materially adversely affect its ability to meet its investment objective and
policies, investors are advised that these U.S. government policies could be
reinstituted.
REAL ESTATE SECURITIES. Although the Fund's investments in real estate will be
limited to publicly traded securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein, the Fund may be subject to risks associated with direct ownership of
real estate. These include declines in the value of real estate, risks related
to general and local economic conditions and increases in interest rates.
Other risks associated with real estate investments include the fact that
equity and mortgage real estate investment trusts are dependent upon
management skill, are not diversified, and are, therefore, subject to the risk
of financing single projects or a limited number of projects. They are also
subject to heavy cash flow dependency, defaults by borrowers, and self-
liquidation.
Additionally, equity real estate investment trusts may be affected by any
changes in the value of the underlying property owned by the trusts, and
mortgage real estate investment trusts may be affected by the quality of any
credit extended.
PRECIOUS METAL SECURITIES AND PRECIOUS METALS. The prices of precious metal
securities and precious metals have historically been subject to high
volatility. The earnings and financial condition of precious metal companies
may be adversely affected by volatile precious metal prices.
FIXED INCOME SECURITIES. The prices of fixed income securities fluctuate
inversely in relation to the direction of interest rates. The prices of longer
term bonds fluctuate more widely in response to market interest rate changes.
Bonds rated BBB by Standard & Poor's or Baa by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds.
INVESTMENT LIMITATIONS
The Fund will not:
. borrow money, or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of its total assets to secure such
borrowings;
. invest more than 5% of its total assets in the securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
securities);
. invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations;
. acquire more than 10% of the voting securities of any one issuer; or
. invest more than 10% of its assets in securities of other investment
companies. (It should be noted that investment companies incur certain
expenses, such as management fees, and, therefore, any investment in
these securities would be subject to duplicate expenses.)
The above investment limitations cannot be changed without shareholder
approval.
STAR FUNDS INFORMATION
- -------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank,
N.A., the Fund's investment adviser (the "Adviser" or "Star Bank"), subject to
direction by the Trustees. 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.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.95 of 1% of the Fund's average daily net assets. The fee paid
by the Fund, while higher than the advisory fee paid by other mutual funds
in general, is comparable to fees paid by other mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for certain
operating expenses.
ADVISER'S BACKGROUND. Star Bank, a national bank, was founded in 1863 and
is the largest bank and trust organization of StarBanc Corporation. As of
December 31, 1993, Star Bank had an asset base of $7.6 billion.
Star Bank's expertise in trust administration, investments, and estate
planning ranks it among the most predominant trust institutions in Ohio,
with assets of $12.5 billion as of December 31, 1993.
Star Bank has managed commingled funds since 1957. As of December 31,
1993, it manages 12 common trust funds and collective investment funds
having a market value in excess of$394 million. Additionally, Star Bank
has advised the portfolios of the Trust since 1989.
As part of their regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the
Fund to hold or acquire the securities of issuers which are also lending
clients of Star Bank. The lending relationship will not be a factor in the
selection of securities.
Peter P. Baden has been employed by Star Bank as an Equity Analyst since
March, 1992, and has been responsible for managing the real estate
securities component of the Fund since that date. From 1987 through March,
1992, Mr. Baden was a Vice President of Pacholder Associates, an
investment adviser located in Cincinnati, Ohio.
B. Randolph Bateman is Senior Vice President and Chief Investment Officer
of Star Bank's Trust Financial Services Group and Manager of its Capital
Asset Management Division. Mr. Bateman has managed the international
securities component of the Fund since May, 1993. Mr. Bateman joined Star
Bank in 1988.
Fred A. Brink has been a Fund Manager for the Capital Management Division
of Star Bank since July, 1991, and has managed the cash equivalent
securities component of the Fund since that date. Prior to July, 1991, Mr.
Brink was in college.
Donald L. Keller has served as a Vice President and the Director of
Research of the Capital Management Division of Star Bank since October,
1993, and has managed the domestic equity securities component of the Fund
since that date. From February, 1989, through October, 1993,Mr. Keller
served as Director of Portfolio Management of Star Bank.
Kirk F. Mentzer is a Fixed Income Manager for the Capital Management
Division of Star Bank. He has managed the domestic fixed income component
of the Fund since its inception inOctober, 1991. Mr. Mentzer joined Star
Bank in May, 1989, as a micro systems analyst and has served as an
investment analyst since June, 1990. From 1989 through June, 1990, Mr.
Mentzer was employed by Star Bank as a systems analyst. From May, 1988,
through 1989, Mr. Mentzer was employed by Great American Insurance as a
management trainee.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. is the distributor for Shares of the Fund. It is a
Pennsylvania corporation organized on November 14, 1969, and is the distributor
for a number of investment companies. Federated Securities Corp. is a
subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include distributing prospectuses and other
information, providing accounting assistance, and communicating or facilitating
purchases and redemptions of Shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares of the Fund owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. The current annual rate of such fees is up to
0.30 of 1% for the Fund. Any fees paid for these services by the distributor
will be reimbursed by the Adviser.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services necessary to operate the Fund and
the separate classes, such as legal and accounting services. Federated
Administrative Services provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS
FEE OF THE TRUST
-------------- -----------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.
CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities
and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is transfer agent and dividend disbursing agent for the
Fund. It also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin,
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally utilize
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the Fund
and other funds distributed by Federated Securities Corp. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUND AND TRUST SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and
continuing its existence; registering the Trust with federal and state
securities authorities; Trustees' fees; auditor's fees; the cost of meetings
of Trustees; legal fees of the Trust; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which holders of Shares each pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as
may arise from time to time.
In addition, the Trustees reserve the right to allocate certain other expenses
to holders of Shares as they deem appropriate ("Class Expenses"). In any case,
Class Expenses would be limited to: distribution fees; transfer agent fees as
identified by the transfer agent as attributable to holders of Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely
to Shares; and Trustees' fees incurred as a result of issues relating solely
to Shares.
NET ASSET VALUE
- -------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Trust Shares in the market
value of all securities and other assets of the Fund, subtracting the interest
of Trust Shares in the liabilities of the Fund and those attributable to Trust
Shares, and dividing the remainder by the number of Trust Shares outstanding.
The net asset value for Trust Shares will differ from that of Investment
Shares due to the variance in net income realized by each class. Such variance
will reflect only accrued net income to which the shareholders of a particular
class are entitled.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000. Subsequent
investments may be in any amounts. For customers of Star Bank, an institutional
investor's minimum investment will be calculated by combining all mutual fund
accounts it maintains with Star Bank and invests with the Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed on Shares.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business.
A customer of Star Bank may purchase Shares through Star Bank. Texas residents
must purchase Shares through Federated Securities Corp. at 1-800-356-2805. In
connection with the sale of Shares, the distributor may from time to time offer
certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request.
THROUGH STAR BANK. To place an order to purchase Shares, a customer of Star
Bank may telephone Star Bank at 1-800-677-FUND or place the order in person.
Purchase orders given by telephone may be electronically recorded.
Payment may be made to Star Bank either by check or federal funds. When payment
is made with federal funds, the order is considered received when federal funds
are received by Star Bank. Purchase orders must be telephoned to Star Bank by
4:00 p.m. (Eastern time) and payment by federal funds must be received by Star
Bank before 3:00 p.m. (Eastern time) on the following day. Orders are
considered received after payment by check is converted into federal funds.
This is normally the next business day after Star Bank receives the check.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed or on federal holidays restricting wire transfers.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Shares. The Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The Fund acquires the exchanged
securities for investment and not for resale. The market value of any
securities exchanged in an initial investment, plus any cash, must be at least
$25,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Detailed confirmations of each purchase or redemption are sent to each
shareholder and dividend confirmations are sent to each shareholder to report
dividends paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Capital gains realized by the Fund,
if any, will be distributed at least once every 12 months. Dividends and
capital gains will be automatically reinvested in additional Shares on payment
dates at the ex-dividend date net asset value, unless cash payments are
requested by writing to the Fund or Star Bank.
EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------
STAR FUNDS
All shareholders of the Fund are shareholders of the Star Funds. Star Funds
currently consists of the Fund, Star Prime Obligations Fund, Star Treasury
Fund, Star Relative Value Fund, Star Tax-Free Money Market Fund, and Star U.S.
Government Income Fund. Until further notice, through a telephone exchange
program, shareholders invested in the money market funds can exchange only
among the other money market funds of the Trust, and shareholders invested in
the non-money market funds can exchange only among the other non-money market
funds of the Trust. Each portfolio in the Star Funds is advised by Star Bank
and distributed by Federated Securities Corp.
EXCHANGING TRUST SHARES
Shareholders of the Fund may exchange Shares for shares of the other Funds in
the Star Funds. In addition, Shares may also be exchanged for certain other
funds distributed by Federated Securities Corp. that are not advised by Star
Bank, N.A. ("Federated Funds"). For further information on the availability of
Federated Funds for exchanges, call Star Bank at 1-800-677-FUND. Shareholders
who exercise this exchange privilege must exchange Shares having a total net
asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales charge (if any) already paid and any sales charge of the fund
into which Shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends on such shares retain the character of the
exchanged shares for purposes of exercising further exchange privileges; thus,
an exchange of such shares for shares of a fund with a sales charge would be
at net asset value.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, Shares submitted
for exchange will be redeemed at the next-determined net asset value.
Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized. The exchange privilege may be terminated at any time.
Shareholders will be notified of the termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by
calling Star Bank at 1-800-677-FUND.
EXCHANGE-BY-TELEPHONE
Instructions for exchanges between funds which are part of the Star Funds may
be given by telephone to Star Bank at 1-800-677-FUND or to the distributor.
Shares may be exchanged by telephone only between fund accounts having
identical shareholder registrations. Exchange instructions given by telephone
may be electronically recorded.
Telephone exchange instructions must be received before 3:00 p.m. (Eastern
time) in order for Shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers, banks, or
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker, bank, or financial
institution by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING TRUST SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Star
Bank receives the redemption request. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests cannot be executed
on days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Requests for redemption can be made in person, by
telephone through Star Bank, or by mail.
BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem Shares by
telephoning Star Bank at 1-800-677-FUND. Redemption requests given by telephone
may be electronically recorded. For calls received by Star Bank before 4:00
p.m. (Eastern time), proceeds will normally be wired the following day to the
shareholder's account at Star Bank or a check will be sent to the address of
record. In no event will proceeds be wired or a check mailed more than seven
days after a proper request for redemption has been received. If, at any time,
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Star Bank.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may also redeem Fund shares by sending a written request
to Star Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135,
Cincinnati, Ohio 45202. The written request must include the shareholder's
name, the Fund name, the class of shares name, the account number, and the
share or dollar amount requested. Shareholders may call the Fund for assistance
in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with the Fund, or a redemption payable other than to the
shareholder of record must have signatures on written redemption requests
guaranteed by:
. a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the FDIC;
. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
. a savings bank or savings and loan association whose deposits are
insured by SAIF, which is administered by the FDIC; or
. any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that, in matters
affecting only a particular fund or class, only shares of that fund or class
are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust or the Fund's operation and for
the election of Trustees under certain circumstances. As of January 6, 1994,
Firstcinco, Cincinnati, Ohio, owned 36.59% of the voting securities of the
Fund, and therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented to a vote of
shareholders.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders of the Trust at a
special meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required, by the Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company Act
of 1956 or any affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling, or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent, or custodian to
such an investment company or from purchasing shares of such a company as agent
for and upon the order of their customer. The Fund's investment adviser, Star
Bank, is subject to such banking laws and regulations.
Star Bank believes that it may perform the investment advisory services for the
Fund contemplated by its advisory agreements with the Trust without violating
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent Star Bank from continuing to perform
all or a part of the above services for its customers and/or the Fund. In such
event, changes in the operation of the Fund may occur, including the possible
alteration
or termination of any automatic or other Fund share investment and redemption
services then being provided by Star Bank, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
Star Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. The Fund will provide detailed tax information for
reporting purposes.
Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated by dividing the net investment income per
Share (as defined by the Securities and Exchange Commission) earned by Shares
over a thirty-day period by the maximum offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
Total return and yield will be calculated separately for Trust Shares and
Investment Shares. Because Investment Shares are subject to a Rule 12b-1 fee,
the total return and yield for Trust Shares, for the same period, will exceed
that of Investment Shares.
From time to time the Fund may advertise the performance of Trust Shares using
certain financial publications and/or compare the performance of Trust Shares
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares are sold primarily to individual and private banking
customers of StarBanc Corporation and its subsidiaries. Investment Shares are
sold at net asset value with a maximum sales charge of 4.50%. Investments in
Investment Shares are subject to a minimum initial investment of $1,000 ($25
for Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family).
Investment Shares are distributed pursuant to a Rule 12b-1 Plan adopted by the
Trust whereby the distributor is paid a fee of up to 0.25 of 1% of the average
daily net asset value of Investment Shares.
The amount of dividends payable to Trust Shares will exceed that of Investment
Shares by the difference between Class Expenses and distribution expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
THE STELLAR FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
REFERENCE IS MADE TO THE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON PAGE 27.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1993 1992 1991*
- ------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.52 $ 9.80 $10.00
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------
Net investment income 0.24 0.2955 0.05
- -------------------------------------------
Net realized and unrealized gain (loss) on 0.99 0.7387 (0.25)
investments ------- -------- -------
- -------------------------------------------
Total from investment operations 1.23 1.0342 (0.20)
- -------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------
Dividends to shareholders from net invest-
ment income (0.28) (0.3120) --
- -------------------------------------------
Distributions to shareholders from net
realized gain on investment transactions (0.10) (0.0022) --
- -------------------------------------------
Distributions in excess of net investment
income (0.03)(a) -- --
- ------------------------------------------- ------- -------- -------
Total distributions (0.41) (0.3142) --
- ------------------------------------------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD $11.34 $10.52 $ 9.80
- ------------------------------------------- ------- -------- -------
TOTAL RETURN** 11.99% 10.68% (2.00%)
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 1.45% 1.53% 1.44%(b)
- -------------------------------------------
Net investment income 1.87% 3.03% 5.32%(b)
- -------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.33% 0.29%(b)
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $73,197 $35,544 $13,942
- -------------------------------------------
Portfolio turnover rate 87% 98% 18%
- -------------------------------------------
</TABLE>
* Reflects operations for the period from October 18, 1991 (date of initial
public investment) to November 30, 1991.
** Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Distributions in excess of net investment income for the year ended
November 30, 1993 were a result of certain book and tax differences. These
distributions did not represent a return of capital for federal income tax
purposes for the year ended November 30, 1993.
(b) Computed on an annualized basis.
(c) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
THE STELLAR FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- --------------------------------- -----------
<S> <C> <C>
U.S. EQUITIES--17.9%
-------------------------------------------
BASIC INDUSTRY--3.6%
---------------------------------
BUILDING--0.8%
---------------------------------
30,700 Elcor Corp. (a) $ 575,625
--------------------------------- -----------
CHEMICALS & FERTILIZERS--0.6%
---------------------------------
8,500 duPont (E.I) de Nemours 404,813
--------------------------------- -----------
METALS--0.6%
---------------------------------
26,600 Worthington Industries Inc. 458,850
--------------------------------- -----------
MINING--1.2%
---------------------------------
14,000 Newmont Mining Corp. 890,750
--------------------------------- -----------
TIMBER--0.4%
---------------------------------
6,400 Weyerhauser Co. 280,000
--------------------------------- -----------
TOTAL BASIC INDUSTRY 2,610,038
--------------------------------- -----------
CAPITAL GOODS--3.9%
---------------------------------
APPLIANCES--0.7%
---------------------------------
9,000 Whirlpool Corp. 534,375
--------------------------------- -----------
ELECTRONICS--1.9%
---------------------------------
12,300 Honeywell, Inc. 401,287
---------------------------------
9,000 Intel Corp. 553,500
---------------------------------
7,500 Raytheon Co. 459,375
--------------------------------- -----------
Total 1,414,162
--------------------------------- -----------
OFFICE & BUSINESS EQUIPMENT--1.3%
---------------------------------
7,100 Hewlett Packard Co. 523,625
---------------------------------
18,000 Novell Inc. (a) 423,000
--------------------------------- -----------
Total 946,625
--------------------------------- -----------
TOTAL CAPITAL GOODS 2,895,162
--------------------------------- -----------
CONSUMER CYCLICAL--3.0%
---------------------------------
AUTOMOTIVE & RELATED--1.9%
---------------------------------
10,400 Cummins Engine Inc. 491,400
---------------------------------
10,000 Goodyear Tire & Rubber 445,000
---------------------------------
9,000 Johnson Controls Inc. 479,250
--------------------------------- -----------
Total 1,415,650
--------------------------------- -----------
RETAILING & APPAREL--1.1%
---------------------------------
5,000 Best Buy Co. Inc. (a) 248,750
---------------------------------
10,600 Penney (J.C.), Inc. 565,775
--------------------------------- -----------
Total 814,525
--------------------------------- -----------
TOTAL CONSUMER CYCLICAL 2,230,175
--------------------------------- -----------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- -------------------------------------------------- -----------
<S> <C> <C>
U.S. EQUITIES--CONTINUED
------------------------------------------------------------
CONSUMER STAPLES--0.7%
--------------------------------------------------
HOUSEHOLD--0.7%
--------------------------------------------------
9,900 Clorox Co. $ 514,800
-------------------------------------------------- -----------
TOTAL CONSUMER STAPLES 514,800
-------------------------------------------------- -----------
ENERGY--1.6%
--------------------------------------------------
OIL--1.6%
--------------------------------------------------
4,500 Atlantic Richfield Co. 466,875
--------------------------------------------------
17,400 Horsham Corp. 237,075
--------------------------------------------------
5,700 Mobil Corp. 434,625
--------------------------------------------------
-----------
TOTAL ENERGY 1,138,575
-------------------------------------------------- -----------
FINANCE--1.7%
--------------------------------------------------
BANKS--1.2%
--------------------------------------------------
15,000 First Tenn National Corp. 558,750
--------------------------------------------------
5,000 Morgan (J.P.) & Co., Inc. 354,375
-------------------------------------------------- -----------
Total 913,125
-------------------------------------------------- -----------
INSURANCE--0.5%
--------------------------------------------------
7,400 Aon Corp. 366,300
-------------------------------------------------- -----------
TOTAL FINANCE 1,279,425
-------------------------------------------------- -----------
HEALTH CARE--1.1%
--------------------------------------------------
HOSPITAL SUPPLY--0.4%
--------------------------------------------------
12,500 Allergan, Inc. 278,125
-------------------------------------------------- -----------
DRUGS--0.7%
--------------------------------------------------
8,100 Schering Plough Corp. 541,688
-------------------------------------------------- -----------
TOTAL HEALTH CARE 819,813
-------------------------------------------------- -----------
UTILITIES--2.3%
--------------------------------------------------
ELECTRIC--0.8%
--------------------------------------------------
13,000 Southern Co. 562,250
-------------------------------------------------- -----------
MISCELLANEOUS--0.6%
--------------------------------------------------
13,500 Pentair Inc. 475,875
-------------------------------------------------- -----------
TELECOMMUNICATIONS--0.9%
--------------------------------------------------
11,600 American Telephone & Telegraph Co. 633,650
-------------------------------------------------- -----------
TOTAL UTILITIES 1,671,775
-------------------------------------------------- -----------
TOTAL U.S. EQUITIES (IDENTIFIED COST $13,376,298) 13,159,763
-------------------------------------------------- -----------
INTERNATIONAL SECURITIES--20.3%
------------------------------------------------------------
BASIC INDUSTRY--0.5%
--------------------------------------------------
17,000 Alcan Aluminum Ltd. 352,750
-------------------------------------------------- -----------
TOTAL BASIC INDUSTRY 352,750
-------------------------------------------------- -----------
CONSUMER CYCLICAL--2.1%
--------------------------------------------------
ENTERTAINMENT & LEISURE--0.4%
--------------------------------------------------
8,400 PolyGram N.V. 324,450
-------------------------------------------------- -----------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -------------------------------- ----------
<S> <C> <C>
INTERNATIONAL SECURITIES--CONTINUED
---------------------------------------
PUBLISHING--1.3%
--------------------------------
11,000 News Corp. Ltd. $ 565,125
--------------------------------
4,700 Reuters Holdings PLC 356,025
-------------------------------- ----------
Total 921,150
-------------------------------- ----------
RETAILING & APPAREL--0.4%
--------------------------------
10,000 Luxottica Group SPA 255,000
-------------------------------- ----------
TOTAL CONSUMER CYCLICAL 1,500,600
-------------------------------- ----------
CONSUMER STAPLES--1.8%
--------------------------------
FOOD & BEVERAGE--1.4%
--------------------------------
25,000 Sara Lee Corp. 650,000
--------------------------------
12,500 Seagram, Ltd. 345,313
-------------------------------- ----------
Total 995,313
-------------------------------- ----------
HOUSEHOLD PRODUCTS--0.4%
--------------------------------
2,800 Unilever N.V. 313,950
-------------------------------- ----------
TOTAL CONSUMER STAPLES 1,309,263
-------------------------------- ----------
ENERGY--3.4%
--------------------------------
ENERGY SERVICE & EQUIPMENT--0.3%
--------------------------------
3,600 Schlumberger, Ltd. 207,000
-------------------------------- ----------
INTERNATIONAL OIL--1.4%
--------------------------------
5,000 Chevron Corp. 434,375
--------------------------------
11,700 Repsol SA 334,912
--------------------------------
2,800 Royal Dutch Petroleum 282,800
-------------------------------- ----------
Total 1,052,087
-------------------------------- ----------
NATURAL GAS--1.7%
--------------------------------
7,300 Burlington Northern Inc. 418,838
--------------------------------
17,000 Enron Corp. 529,125
--------------------------------
22,000 TransCanada Pipelines Ltd. 327,250
-------------------------------- ----------
Total 1,275,213
-------------------------------- ----------
TOTAL ENERGY 2,534,300
-------------------------------- ----------
HEALTHCARE--1.5%
--------------------------------
DRUGS--1.5%
--------------------------------
18,500 Rhone-Poulenc Rorer, Inc. 703,000
--------------------------------
15,600 SmithKline Beecham PLC 413,400
-------------------------------- ----------
TOTAL HEALTH CARE 1,116,400
-------------------------------- ----------
UTILITIES--2.0%
--------------------------------
TELECOMMUNICATIONS--2.0%
--------------------------------
20,000 *Cable & Wireless Ltd. 437,500
--------------------------------
10,000 Hong Kong Telecommunications 556,250
--------------------------------
9,000 *Telefonos de Mexico 501,750
-------------------------------- ----------
TOTAL UTILITIES 1,495,500
-------------------------------- ----------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------------------------------------------ -----------
<S> <C> <C>
INTERNATIONAL SECURITIES--CONTINUED
-------------------------------------------------------
MISCELLANEOUS--9.0%
------------------------------------------------
DIVERSIFIED--6.0%
------------------------------------------------
16,250 Asia Pacific Fund, Inc. $ 296,563
------------------------------------------------
21,000 Canadian Pacific, Ltd. 341,250
------------------------------------------------
8,000 Chile Fund, Inc. 283,000
------------------------------------------------
5,333 Emerging Mexico Fund, Inc. 118,659
------------------------------------------------
15,000 First Philippine Fund, Inc. 251,250
------------------------------------------------
33,000 France Growth Fund, Inc. 363,000
------------------------------------------------
10,000 Future Germany Fund, Inc. 143,750
------------------------------------------------
12,000 Greater China Fund, Inc. (a) 237,000
------------------------------------------------
26,000 Japan Equity Fund, Inc. (a) 315,250
------------------------------------------------
15,000 Latin America Equity Fund, Inc. 313,125
------------------------------------------------
13,424 Mexico Fund, Inc. 411,110
------------------------------------------------
15,000 New Germany Fund, Inc. 180,000
------------------------------------------------
26,600 Philips Electronics (a) 518,700
------------------------------------------------
24,000 Swiss Helvetia Fund, Inc. 450,000
------------------------------------------------
10,000 Thai Capital Fund, Inc. 160,000
------------------------------------------------ -----------
Total Diversified 4,382,657
------------------------------------------------ -----------
OTHER--3.0%
------------------------------------------------
3,800 British Airways 239,875
------------------------------------------------
4,300 British Petroleum 254,775
------------------------------------------------
5,000 Fuji Photo Film Co., Ltd. 210,000
------------------------------------------------
3,500 Hitachi Ltd. 245,437
------------------------------------------------
10,400 National Australia Bank Ltd. 412,100
------------------------------------------------
9,000 Pioneer Electric Corp. 191,250
------------------------------------------------
10,000 Thomson CSF 263,750
------------------------------------------------
5,000 Vodaphone Group PLC 405,000
------------------------------------------------ -----------
Total Other 2,222,187
------------------------------------------------ -----------
TOTAL MISCELLANEOUS 6,604,844
------------------------------------------------ -----------
TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST 14,913,657
$13,187,447)
------------------------------------------------ -----------
REAL ESTATE--18.7%
-------------------------------------------------------
INVESTMENT TRUST--16.9%
------------------------------------------------
20,100 American Health Properties, Inc. 515,063
------------------------------------------------
21,500 Avalon Property, Inc. 419,250
------------------------------------------------
14,000 BRE Properties Inc. 491,750
------------------------------------------------
15,900 Burnham Pacific Properties, Inc. 282,225
------------------------------------------------
18,500 Camden Property, Inc. 444,000
------------------------------------------------
14,000 Chateau Property, Inc. 269,500
------------------------------------------------
18,000 Developers Diversified 486,000
------------------------------------------------
29,000 Federal Realty Investment Trust 764,875
------------------------------------------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ---------------------------------------------------- -----------
<S> <C> <C>
REAL ESTATE SECURITIES--CONTINUED
---------------------------------------------------------------
22,000 Health Care Property Investment, Inc. $ 610,500
----------------------------------------------------
23,500 Kimco Realty Corp. 749,062
----------------------------------------------------
47,000 LTC Properties 599,250
----------------------------------------------------
10,000 Manufactured Home Communities Inc. 398,750
----------------------------------------------------
20,000 Meditrust 652,500
----------------------------------------------------
23,000 Merry Land & Investment Co. 428,375
----------------------------------------------------
16,000 Nationwide Health Properties Inc. 604,000
----------------------------------------------------
9,100 Omega Healthcare investors 222,950
----------------------------------------------------
19,000 Pennsylvania Real Estate Inc. 465,500
----------------------------------------------------
29,800 Santa Anita Realty Enterprises 536,400
----------------------------------------------------
53,500 Sizeler Property Investments Inc. 688,812
----------------------------------------------------
60,000 Southwestern Properties 765,000
----------------------------------------------------
48,300 Taubman Centers, Inc. 609,788
----------------------------------------------------
47,200 United Dominion Realty Trust Inc. 649,000
----------------------------------------------------
11,000 Webb Del Corp. 143,000
----------------------------------------------------
16,000 Weingarten Realty Investment 610,000
---------------------------------------------------- -----------
Total 12,405,550
---------------------------------------------------- -----------
HOMEBUILDERS--1.8%
----------------------------------------------------
33,350 Kaufman & Broad Home Corp. 671,169
----------------------------------------------------
17,500 Pulte Corp. 647,500
---------------------------------------------------- -----------
Total 1,318,669
---------------------------------------------------- -----------
TOTAL REAL ESTATE (IDENTIFIED COST $11,837,787) 13,724,219
---------------------------------------------------- -----------
FIXED INCOME OBLIGATIONS--20.0%
---------------------------------------------------------------
U.S. GOVERNMENT--11.5%
----------------------------------------------------
$5,900,000 U.S. Treasury Notes, 3.88%-8.63%, 8/15/94-08/15/2001 6,254,664
----------------------------------------------------
1,850,000 U.S. Treasury Bonds, 7.88%-8.13%, 08/15/2019-
02/15/2021 2,190,067
---------------------------------------------------- -----------
Total U.S. Government 8,444,731
---------------------------------------------------- -----------
U.S. AGENCY--3.9%
----------------------------------------------------
250,000 Federal Home Loan Mortgage Corp. 254,535
----------------------------------------------------
1,300,000 Federal National Mortgage Association 1,323,335
----------------------------------------------------
255,000 FNMA Pool 256,912
----------------------------------------------------
1,000,000 Student Loan Marketing Association 998,140
---------------------------------------------------- -----------
Total U.S. Agency 2,832,922
---------------------------------------------------- -----------
AUTOMOTIVE & RELATED--0.8%
----------------------------------------------------
500,000 Cincinnati Gas & Electric Co. 569,430
---------------------------------------------------- -----------
TOBACCO--0.6%
----------------------------------------------------
400,000 Phillip Morris Cos., Inc. 453,008
---------------------------------------------------- -----------
INDUSTRIAL--0.4%
----------------------------------------------------
250,000 Motorola, Inc. 297,755
---------------------------------------------------- -----------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- ------------------------------------------------- -----------
<S> <C> <C>
FIXED INCOME OBLIGATIONS--CONTINUED
------------------------------------------------------------
OIL--0.7%
-------------------------------------------------
500,000 Union Pacific Corp. $ 486,610
------------------------------------------------- -----------
ELECTRIC--0.7%
-------------------------------------------------
500,000 Georgia Power Co. 505,325
------------------------------------------------- -----------
FINANCE--1.0%
-------------------------------------------------
250,000 General Electric Capital Corp. 276,325
-------------------------------------------------
250,000 International Lease Finance Co. 258,758
-------------------------------------------------
150,000 Morgan JP & Co. Inc. 162,381
------------------------------------------------- -----------
Total 697,464
------------------------------------------------- -----------
RETAIL--0.6%
-------------------------------------------------
250,000 Kmart Corp. 275,212
-------------------------------------------------
130,000 Wal Mart Stores Inc. 146,212
------------------------------------------------- -----------
Total 421,424
------------------------------------------------- -----------
TOTAL FIXED INCOME OBLIGATIONS (IDENTIFIED COST
$14,625,355) 14,708,669
------------------------------------------------- -----------
**CASH EQUIVALENT & REPURCHASE AGREEMENT--23.3%
------------------------------------------------------------
17,088,000 Donaldson, Lufkin & Jenrette Securities Corp.,
3.22%, dated 11/30/93, due 12/01/93 (at amortized
cost) 17,088,000
------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $70,114,887) $73,594,308+
------------------------------------------------- -----------
</TABLE>
(a) Non-income producing.
* American Depository Receipts.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ The cost for federal tax purposes amounts to $70,137,736. The net unrealized
appreciation of investments on a federal tax basis amounts to $3,456,572
which is comprised of $4,504,327 appreciation and $1,047,755 depreciation at
November 30, 1993.
Note: The categories of investments are shown as a percentage of total net
assets ($73,196,884) at November 30, 1993.
(See Notes which are an integral part of the financial statements)
THE STELLAR FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
ASSETS:
- ----------------------------------------------
Investments in securities $56,506,308
- ----------------------------------------------
Investments in repurchase agreements (Note 2B) 17,088,000
- ---------------------------------------------- -----------
Total investments, at amortized cost and value
(identified cost, $70,114,887 and tax cost,
$70,137,736) (Note 2A) $73,594,308
- -----------------------------------------------------------
Cash 732
- -----------------------------------------------------------
Receivable for Fund shares sold 1,859,636
- -----------------------------------------------------------
Receivable for investment sold 879,551
- -----------------------------------------------------------
Dividends and interest receivable 323,385
- -----------------------------------------------------------
Receivable from administrator 7,985
- -----------------------------------------------------------
Deferred expenses (Note 2F) 2,653
- ----------------------------------------------------------- -----------
Total assets 76,668,250
- -----------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------
Payable for investments purchased 3,381,003
- ----------------------------------------------
Options written, at value (premium received,
$50,978) (Note 2H) 36,189
- ----------------------------------------------
Payable for Fund shares repurchased 4,530
- ----------------------------------------------
Accrued expenses 49,644
- -----------------------------------------------------------
Total liabilities 3,471,366
- ----------------------------------------------------------- -----------
NET ASSETS for 6,457,063 shares of beneficial interest
outstanding $73,196,884
- ----------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------
Paid-in capital $69,202,605
- -----------------------------------------------------------
Unrealized appreciation of investments and options (in-
cludes $14,789 on options) 3,494,210
- -----------------------------------------------------------
Accumulated net realized gain on investments 714,412
- -----------------------------------------------------------
Accumulated distributions in excess of net investment in-
come (214,343)
- ----------------------------------------------------------- -----------
Total $73,196,884
- ----------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Price Per Share:
($73,196,884 / 6,457,063 shares of beneficial interest
outstanding) $11.34
- ----------------------------------------------------------- -----------
Computation of Offering Price:
Offering Price Per Share (100/95.5) of $11.34* $11.87
- ----------------------------------------------------------- -----------
</TABLE>
* On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" in the prospectus.
(See Notes which are an integral part of the financial statements)
THE STELLAR FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------
Interest income (Note 2C) $1,009,091
- -------------------------------------------------------------
Dividend income (Note 2C) 615,646
- ------------------------------------------------------------- ----------
Total investment income 1,624,737
- -------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------
Investment advisory fee (Note 5) $465,417
- ----------------------------------------------------
Trustees' fees 1,729
- ----------------------------------------------------
Administrative personnel and services (Note 5) 62,298
- ----------------------------------------------------
Custodian fees (Note 5) 12,248
- ----------------------------------------------------
Recordkeeping, transfer and dividend disbursing
agent fees (Note 5) 66,937
- ----------------------------------------------------
Fund share registration costs 22,881
- ----------------------------------------------------
Legal fees 7,164
- ----------------------------------------------------
Printing and postage 42,581
- ----------------------------------------------------
Distribution fees (Note 5) 122,478
- ----------------------------------------------------
Insurance premiums 5,413
- ----------------------------------------------------
Auditing fees 18,505
- ----------------------------------------------------
Miscellaneous 3,840
- ---------------------------------------------------- --------
Total expenses 831,491
- ----------------------------------------------------
Deduct--
- ----------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 1,248
- ------------------------------------------
Waiver of distribution fees (Note 5) 122,478 123,726
- ------------------------------------------ -------- --------
Net expenses 707,765
- ------------------------------------------------------------- ----------
Net investment income 916,972
- ------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------
Net realized gain on investment transactions (identified
cost basis)-- 722,961
- -------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) of in-
vestments and options 2,975,694
- ------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 3,698,655
- ------------------------------------------------------------- ----------
Change in net assets resulting from operations $4,615,627
- ------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the financial statements)
THE STELLAR FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------
OPERATIONS--
- ----------------------------------------------------
Net investment income $ 916,972 $ 749,915
- ----------------------------------------------------
Net realized gain on investment transactions
($737,312 and $366,379 net gain, respectively, as
computed for federal income tax purposes)
(Note 2D) 722,961 357,882
- ----------------------------------------------------
Change in unrealized appreciation of investments &
options 2,975,694 884,031
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 4,615,627 1,991,828
- ---------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------
Dividends to shareholders from net investment income (1,062,322) (689,243)
- ----------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions (366,287) (3,361)
- ----------------------------------------------------
Distributions in excess of net investment income (214,343) --
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions
to shareholders (1,642,952) (692,604)
- ---------------------------------------------------- ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------
Proceeds from sale of shares 45,217,754 23,246,223
- ----------------------------------------------------
Net asset value of shares issued to shareholders
electing to receive
payment of distribution in Fund shares 1,594,012 691,507
- ----------------------------------------------------
Cost of shares redeemed (12,132,012) (3,634,928)
- ---------------------------------------------------- ----------- -----------
Change in net assets from Fund share transactions 34,679,754 20,302,802
- ---------------------------------------------------- ----------- -----------
Change in net assets 37,652,429 21,602,026
- ----------------------------------------------------
NET ASSETS:
- ----------------------------------------------------
Beginning of period 35,544,455 13,942,429
- ---------------------------------------------------- ----------- -----------
End of period (including undistributed net invest-
ment income of $0 and $145,350, respectively) $73,196,884 $35,544,455
- ---------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the financial statements)
THE STELLAR FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Star Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Trust
consists of six portfolios. The financial statements included herein present
only those of The Stellar Fund (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
Effective on or about April 5, 1994 (the effective date for the Trust Shares of
The Stellar Fund), The Stellar Fund will provide two classes of shares ("Trust
Shares" and "Investment Shares"). Trust Shares will be identical in all
respects to Investment Shares except that Investment Shares will be sold
pursuant to a distribution plan ("Plan") adopted in accordance with Investment
Company Act Rule 12b-1. Under the Plan, the Fund may pay Federated Securities
Corp. (the "distributor") a fee at an annual rate up to .25 of 1% of the
average net asset value of Investment Shares to finance any activity which is
principally intended to result in the sale of Investment Shares. In addition,
Investment Shares are sold subject to a sales charge of up to 4.50%.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed securities are valued at the last sale price
reported on national security exchanges. Unlisted securities, or securities
in which there are no sales, and private placement securities are valued on
the basis of prices provided by independent pricing services. Short-term
obligations are valued at the mean between the bid and asked prices as
furnished by an independent pricing service; however, such issues with
maturities of sixty days or less are valued at amortized cost, which
approximates market value.
Although the Fund has invested 20.3% of its securities internationally, the
Fund's management believes that there is no significant concentration of
investments in any one country.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed by
the Fund's adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. INCOME--Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis. Interest income includes interest, and
discount earned (net of premium) on short-term obligations, and interest
earned on all other debt securities including original issue discount as
required by the Internal Revenue Code. Dividends to shareholders and capital
gain distributions, if any, are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code, as amended, applicable to investment companies and to
distribute to shareholders each year all of its net taxable income,
including any net realized gains on investments. Accordingly, no provision
for federal tax is necessary.
THE STELLAR FUND
- -------------------------------------------------------------------------------
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. To the extent the Fund engages in
such transactions, it will do so for the purpose of acquiring portfolio
securities consistent with its investment objective and policies and not
for the purpose of investment leverage. The Fund will record a when-issued
security and the related liability on the trade date. Until the securities
are received and paid for, the Fund will maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. EXPENSES--Expenses incurred by the Trust which do not specifically relate
to an individual Fund are allocated among all Funds based on a Fund's
relative daily average net assets or as deemed appropriate by the
administrator.
H. OPTION CONTRACTS--The Fund may write or purchase option contracts.
Purchased options are accounted for as investment securities. A written
option obligates the Fund to deliver (a call), or to receive (a put), the
contract amount upon exercise by the holder of the option. The value of the
option contract is recorded as a liability and unrealized gain or loss is
measured by the difference between the current value and the premium
received.
The following covered call options were written and outstanding as of
November 30, 1993:
<TABLE>
<S> <C> <C> <C> <C>
STRIKE EXPIRATION
SHARE VALUE PRICE DATE
Best Buy Co. Inc. 5000 $14,064 60 3-19-94
Telefonos de Mexico 9000 9,000 60 1-22-94
J.P. Morgan & Co. 5000 13,125 70 1-22-94
</TABLE>
J. OTHER--Investment transactions are accounted for on the date of the
transaction.
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends are paid from the net investment income of
the Fund. Net investment income consists of all dividends or interest received
by the Fund less its expenses. Capital gains realized by the Fund, if any, are
distributed at least once every twelve months. The amounts shown in the
financial statements for net investment income for the year ended November 30,
1993 differ from those determined for tax purposes because of certain book and
tax differences. This resulted in distributions to shareholders in excess of
net investment income. These distributions did not represent a return of
capital for federal income tax purposes for the year ended November 30, 1993.
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
---------------------
1993 1992
- ------------------------------------------------------ ---------- ---------
<S> <C> <C>
Shares outstanding, beginning of period 3,377,871 1,423,154
- ------------------------------------------------------
Shares sold 4,030,527 2,236,543
- ------------------------------------------------------
Shares issued to shareholders electing to receive pay-
ments of distribution in Fund shares 147,387 67,376
- ------------------------------------------------------
Shares redeemed (1,098,722) (349,202)
- ------------------------------------------------------ ---------- ---------
Shares outstanding, end of period 6,457,063 3,377,871
- ------------------------------------------------------ ---------- ---------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Star Bank, N.A., the Fund's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .95 of 1% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive a portion
of its fee or reimburse certain operating expenses of the Fund. For the year
ended November 30, 1993, the Adviser earned an investment advisory fee of
$465,417, of which $1,248 was voluntarily waived.
Federated Administrative Services ("FAS") provides the Fund with certain
administrative personnel and services at an annual rate of .15 of 1% on the
first $250 million of average aggregate daily net assets of the Trust; .125 of
1% on the next $250 million; .10 of 1% on the next $250 million; and .075 of 1%
on average aggregate daily net assets in excess of $750 million. FAS may
voluntarily waive a portion of its fee. For the year ended November 30, 1993,
FAS earned $62,298, none of which was voluntarily waived.
Expenses of organizing the Fund ($23,641) were borne initially by FAS. The Fund
has agreed to pay FAS, at an annual rate of .005 of 1% of average daily net
assets, until the organization expenses are reimbursed, or five years from July
31, 1991, the date the Trust's portfolio became effective, whichever occurs
earlier. Pursuant to this agreement, the Fund reimbursed $2,306 in organization
expenses for the year ended November 30, 1993.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended. The Fund will compensate
Federated Securities Corp. ("FSC"), the principal distributor, from the assets
of the Fund, for fees it paid which relate to the distribution and
administration of the Fund's shares. The Plan provides that the Fund will incur
distribution expenses up to .25 of 1% of the average daily net assets of the
Fund annually to pay commissions, maintenance fees and to compensate the
distributor. FSC may voluntarily waive all or a portion of its fee. For the
year ended November 30, 1993, FSC earned $122,478 in distribution fees, all of
which were voluntarily waived.
Star Bank, N.A., is the Fund's custodian. Federated Services Company, is the
Fund's transfer and dividend disbursing agent. It also provides certain
accounting and recordkeeping services with respect to the Fund's portfolio of
investments.
Certain Officers and Trustees of the Trust are also Officers and Directors of
the above corporations.
(6) INVESTMENT TRANSACTIONS
Purchases, and sales excluding securities subject to repurchase agreements, of
investments for the year ended November 30, 1993, were as follows:
<TABLE>
<S> <C>
- ----------
PURCHASES: $60,342,773
- ---------- -----------
SALES $33,125,046
- ---------- -----------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of STAR FUNDS (The Stellar Fund):
We have audited the accompanying statement of assets and liabilities of The
Stellar Fund (an investment portfolio of STAR Funds, a Massachusetts business
trust), including the schedule of portfolio investments, as of November 30,
1993, the related statement of operations for the year then ended, and the
statement of changes in net assets and financial highlights (see page 14 of the
prospectus) for the periods presented. 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 securities owned as of
November 30, 1993 by correspondence with the custodian and brokers. 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 The
Stellar Fund, an investment portfolio of STAR Funds, as of November 30, 1993
and the results of its operations for the year then ended, and the changes in
its net assets, and financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania January 14, 1994
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Stellar Fund
Trust Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- ---------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- ---------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------
</TABLE>
THE STELLAR FUND
PROSPECTUS
A Diversified Portfolio
of the Star Funds,
an Open-End Management
Investment Company
April 5, 1994
(Revised October 12, 1994)
TRUST SHARES
---------------------------
STAR BANK, N.A.
Investment Adviser
---------------------------
FEDERATED SECURITIES CORP.
Distributor
2062510A-I (10/94) 4727TR
