President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Stellar
Fund (the "Fund"), which covers the six-month period ended May 31, 1994. The
Report begins with an interview with the Fund's portfolio manager and follows
with a complete list of the Fund's investments, as well as its Financial
Statements. In addition, Financial Highlights have been included for Investment
Shares and Trust Shares.
To help you pursue a high level of total return over the long term, the Fund
continued to invest in approximately equal weightings in U.S. stocks, U.S.
bonds, international securities, real estate securities, and money market
securities.
We have always said that this unique level of diversification buffers your
investment against individual market fluctuations. Its performance over the
six-month reporting period shows the results of this strategy. While the net
asset values of most other domestic or foreign funds fell--often
significantly--due to rising U.S. interest rates, the net asset value of The
Stellar Fund rose from $11.34 per share at the beginning of the period to
$11.42 per share at the end of the period.
Dividends and capital gains distributions paid to shareholders during the
period totaled $0.16 per share for Investment Shares.* Net assets continued to
increase, and as of May 31, 1994, stood at $97.8 million.
We are pleased to bring you this news of the Fund's activity. We welcome your
comments as we continue to keep you informed about your account.
Sincerely,
Edward C. Gonzales
President
July 15, 1994
* During the six-month period, no dividends were declared for Trust Shares, as
they were not publicly offered until April 11, 1994.
Investment Review
- --------------------------------------------------------------------------------
An interview with Portfolio Manager
Q During the period, how did The Stellar Fund (the "Fund") perform compared
to benchmarks for each of the five markets in which it invests?
A For the six-month period ended May 31, 1994 the Fund's Investment Shares
had a total return of 2.04%* before any load charges. For the period from
April 11, 1994 (date of initial public offering) to May 31, 1994, the Fund's
Trust Shares had a total return of 0.71%* before any load charges.*** This
compared with the financial markets which showed the following returns: S&P
500, 0.23%; Lehman Government/Corporate Index, (3.70%); National Association of
Real Estate Investment Trusts Index, 7.34%; Europe, Australia, and Far East
Index ("EAFE Index"), 15.16%; and Cash, 1.76%.**
Q The recent rise in U.S. interest rates has increased the volatility of the
U.S. stock and bond markets. Can you comment on how the Fund's stock hold-
ings performed?
A Our U.S. stock holdings performed in line with the S&P 500 during the last
six-month period. We had expected that interest rates were going to rise
and had, therefore, positioned the portfolio to be underweighted in utilities.
This paid off nicely as electric utilities were one of the worst performing
groups. The rise in interest rates has caused volatility as investors have
rotated through groups and names trying to avoid earnings disappointments and
select future winners. The market has become very short-term focused. We remain
committed to our longer-term themes of slower consumer spending, increased
capital spending, and lower employment. Therefore, we are still underweighted
in consumer staples and overweighted in capital goods. We did not receive a
tremendous benefit from this in the short run because of this market
volatility, but expect performance to improve when investors again focus on the
longer-term picture.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** These indices are unmanaged.
*** For the six-month period ended May 31, 1994, the Fund's Investment Shares
had a total return of (2.51%) with load charges. The Fund's Trust Shares are
sold without a sales load.
- --------------------------------------------------------------------------------
Q As interest rates rise, bond prices fall. A year ago, with your expectation
for rising interest rates, you reduced the average maturity of the Fund's
U.S. bond holdings to protect shareholders against price loss. How well has
this strategy succeeded, and do you expect to continue this defensive strategy?
Q Our forecast for higher interest rates last year was obviously correct,
albeit early. This strategy has worked extremely well in 1994. During the
last three months and year-to-date, the U.S. fixed income component of the Fund
has outperformed its benchmark. Looking ahead, our strategy will remain slanted
towards a defensive posture to protect the Fund's net asset value. In addition
to the less favorable economic and inflation data facing the market, numerous
other market-based factors suggest the risk is towards higher yields. Utility
stocks, gold, commodity prices, oil, and the dollar all signal higher yields.
Q Let's turn to the international component of the Fund. How did its interna-
tional stocks and bond holdings perform?
A Over the past six months, the international markets, as defined by the EAFE
Index, dramatically outperformed the U.S. markets. From the end of
November, 1993 to the end of May, 1994, the EAFE Index produced a return of
15.16% versus 0.23% for the S&P 500. Consequently, the international portion of
the Fund was one of the strongest components during the first half of the
fiscal year.
Q Which regions of the world seem to show the most opportunity, and how have
you structured the Fund's holdings to respond?
A While the intent of the Fund is to provide a significant level of
diversification, the managers of the Fund add value through some degree of
emphasis upon industries and sectors. This is, likewise, true for the
international portion of the Fund. Instead of industries, however, the
international manager places emphasis upon countries. Currently, the Fund has
positions that are overweighted (relative to the EAFE Index) in Asia,
Australia, Canada, France, and the Netherlands. The Fund is underweighted in
Japan, Great Britain, and Germany. According to the Economist's panel of
economic prognosticators, Australia and Canada are the countries whose
potential growth in 1995 are the highest. Japan, while performing well
recently, is of a concern due to the political and banking instability.
- --------------------------------------------------------------------------------
Q How did the Fund's real estate holdings perform?
A The real estate portion of the Fund has performed well since our last
report. The Real Estate Investment Trust ("REIT") market continues to
rapidly evolve as investors favor REITs for their high yield and good growth
potential. Initial public offerings proceeded at their record pace as property
owners sought to replace their bank loans maturing. Several stocks contributed
to the strong return and among them are: Merry Land and Investment, an
apartment REIT in the southeast; Developers Diversified, a retail REIT located
in Ohio; and Chateau Properties, a manufactured home community
REIT based in Michigan. Going forward, we continue to believe REIT shares will
perform well as the real estate markets continue their recovery.
Q Money market yields are finally on the rise. Do you see that trend continu-
ing?
A Yes. The Federal Reserve (the "Fed") has acted to move short-term interest
rates higher on four occasions since February 4, 1994. The Federal funds
rate has moved from 3.0% to 4.25% and the discount rate from 3% to 3.5%.
History suggests that once the Fed begins a tightening cycle, it doesn't
casually reverse direction. Economic growth is expanding above what the Fed
considers a non-inflationary rate of 2.5%, and inflationary pressures are
building. The risk is that inflation is stronger than anyone anticipates. In
addition, the dollar's exchange rate has come under considerable pressure
recently, indicating the need for continued monetary restraint. Therefore, more
tightening is likely to follow in 1994 and 1995. We expect gradual increases
for the remainder of 1994, with the Federal funds rate reaching 5% by year-end.
Q In our last report, you stated that the financial markets of the 1990's are
not expected to duplicate the outstanding gains of the 1980's. In this en-
vironment, what comments can you offer The Stellar Fund's shareholders over the
long term?
A We do not believe that the financial markets will be as robust in the
balance of this decade as they had been earlier. This does, however, play
into the hands of the Fund and its diversification concept. The markets, even
though returns will be lower, will probably be more volatile. The Fund gives
diversification into tangible assets such as real estate and also allows
participation in foreign markets which may show greater returns than the U.S.
market. The 20% cash position also offers a buffer in these volatile times.
Again, the Fund's concept is to reduce risk and volatility while producing
long-term attractive rates of return.
The Stellar Fund
Portfolio of Investments
May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- ----------------------------- -----------
<C> <S> <C>
U.S. Equities--21.0%
-----------------------------------------
Basic Industry--2.1%
-----------------------------
Chemicals & Fertilizers--0.6%
-----------------------------
7,500 Monsanto Co. $ 613,125
----------------------------- -----------
Metals & Mining--0.3%
-----------------------------
16,600 Worthington Industries, Inc. 327,850
----------------------------- -----------
Paper--1.2%
-----------------------------
12,000 Crown Cork & Seal, Inc. 433,500(a)
-----------------------------
6,000 International Paper Co. 415,500
-----------------------------
6,400 Weyerhaeuser Co. 266,400
----------------------------- -----------
Total 1,115,400
----------------------------- -----------
Total Basic Industry 2,056,375
----------------------------- -----------
Capital Goods--5.4%
-----------------------------
Aerospace--0.9%
-----------------------------
10,000 Boeing Co. 463,750
-----------------------------
7,500 Raytheon Co. 466,875
----------------------------- -----------
Total 930,625
----------------------------- -----------
Electrical Equipment--1.1%
-----------------------------
13,000 General Electric Co. 645,125
-----------------------------
12,300 Honeywell, Inc. 385,913
----------------------------- -----------
Total 1,031,038
----------------------------- -----------
Electronics--0.6%
-----------------------------
9,000 Intel Corp. 562,500
----------------------------- -----------
Industrial Products--1.5%
-----------------------------
3,500 Caterpillar, Inc. 374,062
-----------------------------
15,000 Daimler Benz A.G.
----------------------------- 736,875
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- --------------------------------- -----------
<C> <S> <C>
U.S. Equities--continued
---------------------------------------------
Capital Goods--continued
---------------------------------
Industrial Products--continued
---------------------------------
5,000 Deere & Co. $ 348,750
--------------------------------- -----------
Total 1,459,687
--------------------------------- -----------
Office & Business Equipment--1.3%
---------------------------------
8,000 Cisco Systems, Inc. 198,000(a)
---------------------------------
7,100 Hewlett Packard Co. 557,350
---------------------------------
4,000 Microsoft Corp. 215,000(a)
---------------------------------
18,000 Novell, Inc. 319,500(a)
--------------------------------- -----------
Total 1,289,850
--------------------------------- -----------
Total Capital Goods 5,273,700
--------------------------------- -----------
Consumer Cyclical--3.3%
---------------------------------
Appliances & Furnishings--0.5%
---------------------------------
9,000 Whirlpool Corp. 482,625
--------------------------------- -----------
Automotive & Related--1.7%
---------------------------------
19,000 Federal Mogul Corp. 560,500
---------------------------------
15,000 Goodyear Tire & Rubber 581,250
---------------------------------
10,000 Johnson Controls, Inc. 490,000
--------------------------------- -----------
Total 1,631,750
--------------------------------- -----------
Hotel & Restaurants--0.2%
---------------------------------
10,000 Morrison Restaurants, Inc. 225,000
--------------------------------- -----------
Retailing & Apparel--0.9%
---------------------------------
10,600 Penney (J.C.), Inc. 541,925
---------------------------------
23,500 Ross Stores, Inc. 314,313
--------------------------------- -----------
Total 856,238
--------------------------------- -----------
Total Consumer Cyclical 3,195,613
--------------------------------- -----------
Consumer Staples--1.9%
---------------------------------
Household--1.0%
---------------------------------
9,900 Clorox Co. 508,612
---------------------------------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
---------- -------------------------------------- -----------
<C> <S> <C>
U.S. Equities--continued
-------------------------------------------------
Consumer Staples--continued
--------------------------------------
Household--continued
--------------------------------------
8,000 Procter & Gamble Co. $ 451,000
-------------------------------------- -----------
Total 959,612
-------------------------------------- -----------
Food & Beverage--0.5%
--------------------------------------
13,000 Pepsico, Inc. 468,000
-------------------------------------- -----------
Miscellaneous--0.4%
--------------------------------------
13,500 Pentair, Inc. 465,750
-------------------------------------- -----------
Total Consumer Staples 1,893,362
-------------------------------------- -----------
Energy--2.3%
--------------------------------------
Energy Service & Equipment--0.4%
--------------------------------------
6,000 Schlumberger, Ltd. 343,500
-------------------------------------- -----------
Domestic Oil--1.4%
--------------------------------------
4,500 Atlantic Richfield Co. 453,938
--------------------------------------
5,000 Chevron Corp. 435,000
--------------------------------------
17,000 Enron Corp. 518,500
-------------------------------------- -----------
Total 1,407,438
-------------------------------------- -----------
International Oil--0.5%
--------------------------------------
5,700 Mobil Corp. 461,700
-------------------------------------- -----------
Total Energy 2,212,638
-------------------------------------- -----------
Finance--1.9%
--------------------------------------
Banks & Savings Institutions--0.9%
--------------------------------------
7,000 BayBanks, Inc. 441,437
--------------------------------------
15,000 PNC Bank Corp. 459,375
-------------------------------------- -----------
Total 900,812
-------------------------------------- -----------
Insurance--0.7%
--------------------------------------
7,000 American International Group, Inc. 653,625
-------------------------------------- -----------
Miscellaneous Financial Services--0.3%
--------------------------------------
10,000 American Express Co. 276,250
--------------------------------------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- ------------------------------------------- ----------
<C> <S> <C>
U.S. Equities--continued
-------------------------------------------------------
Finance--continued
-------------------------------------------
Miscellaneous Financial Services--continued
-------------------------------------------
2,000 Lehman Brothers Holdings, Inc. $ 36,000
------------------------------------------- ----------
Total 312,250
------------------------------------------- ----------
Total Finance 1,866,687
------------------------------------------- ----------
Health Care--0.9%
-------------------------------------------
Drugs--0.3%
-------------------------------------------
5,100 Schering Plough Corp. 332,775
------------------------------------------- ----------
Hospital Management--0.6%
-------------------------------------------
15,000 Columbia/HCA Healthcare Corp. 596,250
------------------------------------------- ----------
Total Health Care 929,025
------------------------------------------- ----------
Miscellaneous--0.7%
-------------------------------------------
Diversified--0.7%
-------------------------------------------
10,000 Allied Signal, Inc. 351,250
-------------------------------------------
4,000 ITT Corp. 334,000
------------------------------------------- ----------
Total Miscellaneous 685,250
------------------------------------------- ----------
Transportation--0.7%
-------------------------------------------
Airlines--0.3%
-------------------------------------------
15,000 Comair Holdings, Inc. 281,250
------------------------------------------- ----------
Railroads--0.4%
-------------------------------------------
7,300 Burlington Northern, Inc. 406,975
------------------------------------------- ----------
Total Transportation 688,225
------------------------------------------- ----------
Utilities--1.8%
-------------------------------------------
Electric--0.5%
-------------------------------------------
18,600 General Public Utilities Corp. 532,425
------------------------------------------- ----------
Telecommunications--1.3%
-------------------------------------------
11,600 American Telephone & Telegraph Co. 632,200
-------------------------------------------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- -------------------------------------------------- -----------
<C> <S> <C>
U.S. Equities--continued
--------------------------------------------------------------
Utilities--continued
--------------------------------------------------
Telecommunications--continued
--------------------------------------------------
30,000 Cable & Wireless Ltd. $ 596,250
-------------------------------------------------- -----------
Total 1,228,450
-------------------------------------------------- -----------
Total Utilities 1,760,875
-------------------------------------------------- -----------
Total U.S. Equities (identified cost $20,815,974) 20,561,750
-------------------------------------------------- -----------
International Securities--18.1%
--------------------------------------------------------------
Australia--1.2%
--------------------------------------------------
Consumer Cyclical--0.5%
--------------------------------------------------
Publishing--0.5%
--------------------------------------------------
10,000 News Corp. Ltd. 535,000
-------------------------------------------------- -----------
Total Consumer Cyclical 535,000
-------------------------------------------------- -----------
Finance--0.7%
--------------------------------------------------
Banks & Savings Institutions--0.7%
--------------------------------------------------
15,500 National Australia Bank Ltd. 680,062
-------------------------------------------------- -----------
Total Finance 680,062
-------------------------------------------------- -----------
Total Australia 1,215,062
-------------------------------------------------- -----------
Canada--2.2%
--------------------------------------------------
Basic Industry--0.7%
--------------------------------------------------
Metals & Mining--0.7%
--------------------------------------------------
30,000 Alcan Aluminum Ltd. 693,750
-------------------------------------------------- -----------
Total Basic Industry 693,750
-------------------------------------------------- -----------
Consumer Staples--0.4%
--------------------------------------------------
Food & Beverage--0.4%
--------------------------------------------------
12,500 Seagram Ltd. 370,313
-------------------------------------------------- -----------
Total Consumer Staples 370,313
-------------------------------------------------- -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- -------------------------- -----------
<C> <S> <C>
International Securities--continued
--------------------------------------
Canada--continued
--------------------------
Energy--0.4%
--------------------------
Natural Gas & Coal--0.4%
--------------------------
32,000 TransCanada Pipelines Ltd. $ 416,000
-------------------------- -----------
Total Energy 416,000
-------------------------- -----------
Miscellaneous--0.7%
--------------------------
Diversified--0.7%
--------------------------
41,000 Canadian Pacific, Inc. 645,750
-------------------------- -----------
Total Miscellaneous 645,750
-------------------------- -----------
Total Canada 2,125,813
-------------------------- -----------
Chile--0.4%
--------------------------
Miscellaneous--0.4%
--------------------------
Diversified--0.4%
--------------------------
8,000 Chile Fund, Inc. 381,000
-------------------------- -----------
Total Chile 381,000
-------------------------- -----------
China--0.3%
--------------------------
Miscellaneous--0.3%
--------------------------
Diversified--0.3%
--------------------------
12,000 Greater China Fund, Inc. 247,500(a)
-------------------------- -----------
Total China 247,500
-------------------------- -----------
France--1.6%
--------------------------
Capital Goods--0.6%
--------------------------
Electrical Equipment--0.6%
--------------------------
20,000 Thomson CSF 612,500
-------------------------- -----------
Total Capital Goods 612,500
-------------------------- -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ ------------------------- -----------
<C> <S> <C>
International Securities--contin-
ued
--------------------------------
France--continued
-------------------------
Healthcare--0.6%
-------------------------
Drugs--0.6%
-------------------------
18,500 Rhone Poulenc Rorer, Inc. $ 617,438
------------------------- -----------
Total Healthcare 617,438
------------------------- -----------
Miscellaneous--0.4%
-------------------------
Diversified--0.4%
-------------------------
33,000 France Growth Fund, Inc. 342,375(a)
------------------------- -----------
Total Miscellaneous 342,375
------------------------- -----------
Total France 1,572,313
------------------------- -----------
Germany--0.5%
-------------------------
Miscellaneous--0.5%
-------------------------
Diversified--0.5%
-------------------------
20,053 Future Germany Fund, Inc. 298,288(a)
-------------------------
15,072 New Germany Fund, Inc. 184,632
------------------------- -----------
Total Germany 482,920
------------------------- -----------
Great Britain--1.6%
-------------------------
Consumer Cyclical--0.5%
-------------------------
Publishing--0.5%
-------------------------
12,000 Reuters Holdings PLC 505,500
------------------------- -----------
Total Consumer Cyclical 505,500
------------------------- -----------
Healthcare--0.6%
-------------------------
Drugs--0.6%
-------------------------
20,600 SmithKline Beecham PLC 548,475
------------------------- -----------
Total Healthcare 548,475
------------------------- -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------------------------- -----------
<C> <S> <C>
International Securities--continued
---------------------------------------
Great Britain--continued
-----------------------------
Transportation--0.5%
-----------------------------
Airlines--0.5%
-----------------------------
8,800 British Airways $ 504,900
----------------------------- -----------
Total Transportation 504,900
----------------------------- -----------
Total Great Britain 1,558,875
----------------------------- -----------
Holland--1.8%
-----------------------------
Capital Goods--0.8%
-----------------------------
Electronics--0.8%
-----------------------------
26,600 Philips Electronics 744,800(a)
----------------------------- -----------
Total Capital Goods 744,800
----------------------------- -----------
Consumer Cyclical--0.3%
-----------------------------
Entertainment & Leisure--0.3%
-----------------------------
8,400 PolyGram N.V. 348,600
----------------------------- -----------
Total Consumer Cyclical 348,600
----------------------------- -----------
Consumer Staples--0.3%
-----------------------------
Household Products--0.3%
-----------------------------
2,800 Unilever N.V. 294,000
----------------------------- -----------
Total Consumer Staples 294,000
----------------------------- -----------
Energy--0.4%
-----------------------------
International Oil--0.4%
-----------------------------
3,300 Royal Dutch Petroleum 352,688
----------------------------- -----------
Total Energy 352,688
----------------------------- -----------
Total Holland 1,740,088
----------------------------- -----------
Italy--0.5%
-----------------------------
Consumer Cyclical--0.5%
-----------------------------
Retailing & Apparel--0.5%
-----------------------------
15,000 Luxottica Group SPA 465,000
----------------------------- -----------
Total Italy 465,000
----------------------------- -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
---------- --------------------------------- -----------
<C> <S> <C>
International Securities--continued
---------------------------------------------
Japan--1.8%
---------------------------------
Capital Goods--1.0%
---------------------------------
Electronics--0.1%
---------------------------------
4,000 Pioneer Electric Corp. $ 110,000
--------------------------------- -----------
Office & Business Equipment--0.9%
---------------------------------
8,500 Hitachi Ltd. 879,750
--------------------------------- -----------
Total Capital Goods 989,750
--------------------------------- -----------
Consumer Cyclical--0.0%
---------------------------------
Entertainment & Leisure--0.0%
---------------------------------
500 Fuji Photo Film Co., Ltd. 21,563
--------------------------------- -----------
Total Consumer Cyclical 21,563
--------------------------------- -----------
Miscellaneous--0.8%
---------------------------------
Diversified--0.8%
---------------------------------
16,250 Asia Pacific Fund, Inc. 351,406
---------------------------------
26,000 Japan Equity Fund, Inc. 419,250(a)
--------------------------------- -----------
Total Miscellaneous 770,656
--------------------------------- -----------
Total Japan 1,781,969
--------------------------------- -----------
Latin America--0.7%
---------------------------------
Miscellaneous--0.7%
---------------------------------
Diversified--0.7%
---------------------------------
25,000 Latin America Equity Fund, Inc. 637,500(a)
--------------------------------- -----------
Total Latin America 637,500
--------------------------------- -----------
Mexico--1.3%
---------------------------------
Utilities--0.6%
---------------------------------
Telecommunications--0.6%
---------------------------------
10,000* Telefonos de Mexico 621,250
--------------------------------- -----------
Total Utilities 621,250
--------------------------------- -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
----------- ------------------------------------ -----------
<C> <S> <C>
International Securities--continued
------------------------------------------------
Mexico--continued
------------------------------------
Miscellaneous--0.7%
------------------------------------
Diversified--0.7%
------------------------------------
15,333 Emerging Mexico Fund, Inc. $ 295,160
------------------------------------
13,508 Mexico Fund, Inc. 425,502
------------------------------------ -----------
Total Miscellaneous 720,662
------------------------------------ -----------
Total Mexico 1,341,912
------------------------------------ -----------
Philippines--0.3%
------------------------------------
Miscellaneous--0.3%
------------------------------------
Diversified--0.3%
------------------------------------
15,000 First Philippines Fund, Inc. 322,500
------------------------------------ -----------
Total Philippines 322,500
------------------------------------ -----------
Spain--1.3%
------------------------------------
Energy--0.7%
------------------------------------
International Oil--0.7%
------------------------------------
21,700 Repsol SA 691,687
------------------------------------ -----------
Total Energy 691,687
------------------------------------ -----------
Finance--0.6%
------------------------------------
Banks & Savings Institutions--0.6%
------------------------------------
20,000 Espirito Santo Financial Holdings SA 577,500
------------------------------------ -----------
Total Finance 577,500
------------------------------------ -----------
Total Spain 1,269,187
------------------------------------ -----------
Switzerland--0.7%
------------------------------------
Miscellaneous--0.7%
------------------------------------
Mutual Funds--0.7%
------------------------------------
34,000 Swiss Helvetia Fund, Inc. 688,500
------------------------------------ -----------
Total Switzerland 688,500
------------------------------------ -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
---------- ------------------------------------------------ -----------
<C> <S> <C>
International Securities--continued
------------------------------------------------------------
Thailand--0.4%
------------------------------------------------
Miscellaneous--0.4%
------------------------------------------------
Mutual Funds--0.4%
------------------------------------------------
20,000 Thai Capital Fund, Inc. $ 375,000
------------------------------------------------ -----------
Total Thailand 375,000
------------------------------------------------ -----------
United Kingdom--1.5%
------------------------------------------------
Energy--0.7%
------------------------------------------------
International Oil--0.7%
------------------------------------------------
10,000 British Petroleum 702,500
------------------------------------------------ -----------
Total Energy 702,500
------------------------------------------------ -----------
Utilities--0.8%
------------------------------------------------
Telecommunications--0.8%
------------------------------------------------
10,000* Vodaphone Group PLC 803,750
------------------------------------------------ -----------
Total Utilities 803,750
------------------------------------------------ -----------
Total United Kingdom 1,506,250
------------------------------------------------ -----------
Total International Securities (identified cost 17,711,389
$15,474,402) -----------
------------------------------------------------
-----------
Real Estate--19.0%
------------------------------------------------------------
Investment Trust--19.0%
------------------------------------------------
20,100 American Health Properties, Inc. 522,600
------------------------------------------------
21,500 Avalon Property, Inc. 499,875
------------------------------------------------
18,500 Camden Property, Inc. 483,313
------------------------------------------------
29,300 Centerpoint Properties, Inc. 622,625
------------------------------------------------
19,000 Chateau Property, Inc. 429,875
------------------------------------------------
4,890 Chelsea GCA Realty, Inc. 136,920
------------------------------------------------
16,800 Clayton Homes, Inc. 325,500(a)
------------------------------------------------
22,700 DeBartolo Realty Corp. 340,500
------------------------------------------------
23,500 Developers Diversified Realty 710,875
------------------------------------------------
15,700 Elcor Corp. 380,725(a)
------------------------------------------------
20,000 Equity Inns, Inc. 265,000
------------------------------------------------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
------ ------------------------------------------------ -----------
<C> <S> <C>
Real Estate--continued
-------------------------------------------------------
Investment Trust--continued
------------------------------------------------
34,400 Federal Realty Investment Trust $ 864,300
------------------------------------------------
22,000 Glimcher Realty Trust 467,500
------------------------------------------------
23,000 Health Care Properties Investment Trust 713,000
------------------------------------------------
14,100 Horizen Outlet Centers 394,800
------------------------------------------------
13,930 JDN Realty Corp. 318,649
------------------------------------------------
17,350 Kaufmann & Broad Home Corp. 281,937
------------------------------------------------
23,500 Kimco Realty Corp. 860,687
------------------------------------------------
23,500 LTC Properties 329,000
------------------------------------------------
34,840 Manufactured Home Community 818,740
------------------------------------------------
20,000 Meditrust 695,000
------------------------------------------------
37,000 Merry Land & Investment Co. 837,125
------------------------------------------------
14,000 National Health Investors, Inc. 386,750
------------------------------------------------
20,000 Nationwide Health Properties 792,500
------------------------------------------------
9,100 Omega Healthcare Investors 220,675
------------------------------------------------
24,200 RFS Hotel Investors, Inc. 435,600
------------------------------------------------
21,000 Simon Property Group, Inc. 574,875
------------------------------------------------
53,500 Sizeler Property Investments, Inc. 662,063
------------------------------------------------
60,000 Southwestern Properties Trust 772,500
------------------------------------------------
19,840 Storage USA, Inc. 525,760(a)
------------------------------------------------
31,800 Summit Properties, Inc. 683,700
------------------------------------------------
25,820 Tanger Factory Outlet Centers, Inc. 739,368
------------------------------------------------
23,000 Toll Brothers, Inc. 301,875(a)
------------------------------------------------
7,900 United Dominion Realty Trust 115,537
------------------------------------------------
22,500 Weingarten Realty Investment Trust 852,188
------------------------------------------------
22,800 Winston Hotels 250,800(a)
------------------------------------------------ -----------
Total Real Estate (identified cost $16,683,455) 18,612,737
------------------------------------------------ -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount or
Shares Value
----------- ------------------------------------------------ -----------
<C> <S> <C>
-----------
Fixed Income Obligations--25.3%
------------------------------------------------------------
Cash & Precious Metals--5.9%
------------------------------------------------
$ 1,000,000 Federal Home Loan Mortgage Corp., 4.44%, 10/4/96 $ 1,000,000
------------------------------------------------
14,000 Newmont Mining Corp. 840,000(a)
------------------------------------------------
4,000,000 U.S. Treasury Note, 4.625%, 11/30/94 3,993,920
------------------------------------------------ -----------
Total 5,833,920
------------------------------------------------ -----------
Finance--1.5%
------------------------------------------------
500,000 Associates Corp. North America, 6.44%, 4/25/2003 455,605
------------------------------------------------
500,000 First Union Corp., 6.625%, 7/15/2005 454,300
------------------------------------------------
250,000 General Electric Capital Corp., 8.75%, 11/26/96 263,438
------------------------------------------------
250,000 International Lease Finance Co., 4.73%, 3/24/99 249,387
------------------------------------------------ -----------
Total 1,422,730
------------------------------------------------ -----------
Industrial--1.9%
------------------------------------------------
250,000 Consolidated Rail Corp., 5.70%, 3/24/97 243,468
------------------------------------------------
250,000 Enron Corp., 7.625%, 9/10/2004 244,292
------------------------------------------------
750,000 General Motors Corp., 9.75%, 5/15/99 791,940
------------------------------------------------
400,000 Philip Morris Cos., Inc., 9.75%, 5/1/97 427,992
------------------------------------------------
130,000 Wal Mart Stores, Inc., 10.875%, 8/15/2000 139,131
------------------------------------------------ -----------
Total 1,846,823
------------------------------------------------ -----------
Railroad & Etc.--0.4%
------------------------------------------------
500,000 Union Pacific Corp., 6.00%, 9/1/2003 443,180
------------------------------------------------ -----------
U.S. Agency--3.5%
------------------------------------------------
1,519,000 Federal Home Loan Mortgage Corp., 6.50%-7.50%,
8/15/2016-2/15/2023 1,406,004
------------------------------------------------
1,300,000 Federal National Mortgage Association, 5.00%-
7.50%, 8/25/2018-1/25/2019 1,271,550
------------------------------------------------
734,329 FNMA Pool, 3.75%-7.00%, 11/1/2023-1/1/2024 707,237
------------------------------------------------ -----------
Total 3,384,791
------------------------------------------------ -----------
</TABLE>
The Stellar Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------------------------------------------- -----------
<C> <S> <C>
Fixed Income Obligations--continued
-------------------------------------------------------------
U.S. Government--11.1%
-------------------------------------------------
$ 6,900,000 U.S. Treasury Notes, 4.625%-8.625%, 8/15/94-
5/15/2002 $ 6,901,016
-------------------------------------------------
3,850,000 U.S. Treasury Bonds, 6.25%-8.125%, 2/15/2007- 3,930,908
8/15/2023 -----------
-------------------------------------------------
Total 10,831,924
------------------------------------------------- -----------
Utility--1.0%
-------------------------------------------------
500,000 Cincinnati Gas & Electric Co., 8.95%, 12/15/2021 512,660
-------------------------------------------------
500,000 Georgia Power Co., 6.625%, 4/1/2003 463,135
------------------------------------------------- -----------
Total 975,795
------------------------------------------------- -----------
Total Fixed Income Obligations (identified cost
$25,771,959) 24,739,163
------------------------------------------------- -----------
**Repurchase Agreement--17.3%
-------------------------------------------------------------
16,945,000 Donaldson, Lufkin & Jenrette Securities Corp.,
4.25% dated 5/31/94, due 6/1/94 (at amortized
cost) (Note 2B) 16,945,000
------------------------------------------------- -----------
Total Investments (identified cost $95,690,790) $98,570,039+
------------------------------------------------- ===========
</TABLE>
(a) Non-income producing.
* American Depositary 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 of investments for federal tax purposes amounts to $95,690,790. The
net unrealized appreciation of investments on a federal tax basis amounts to
$2,879,249, which is comprised of $4,603,928 appreciation and $1,724,679
depreciation at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($97,814,259) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
The Stellar Fund
Statement of Assets and Liabilities
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- -----------------------------------------------------------------
Investments in securities (Note 2A) $81,625,039
- ----------------------------------------------------
Investments in repurchase agreements (Note 2B) 16,945,000
- ---------------------------------------------------- -----------
Total investments, at amortized cost and value
(identified cost and tax cost $95,690,790) $98,570,039
- -----------------------------------------------------------------
Receivable for Fund shares sold 578,481
- -----------------------------------------------------------------
Receivable for investment sold 407,911
- -----------------------------------------------------------------
Dividends and interest receivable 366,919
- -----------------------------------------------------------------
Deferred expenses (Note 2F) 2,139
- ----------------------------------------------------------------- -----------
Total assets 99,925,489
- -----------------------------------------------------------------
Liabilities:
- ---------------------------------------------------- -----------
Payable for investments purchased 1,947,172
- ----------------------------------------------------
Payable for Fund shares redeemed 48,091
- ----------------------------------------------------
Payable for call options written, at market value
(Note 2G) 34,123
- ----------------------------------------------------
Accrued expenses 81,844
- ---------------------------------------------------- -----------
Total liabilities 2,111,230
- ----------------------------------------------------------------- -----------
Net Assets for 8,565,919 shares of beneficial
interest outstanding $97,814,259
- ----------------------------------------------------------------- -----------
Net Assets Consist of:
- -----------------------------------------------------------------
Paid-in capital $93,485,409
- -----------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments 2,893,298+
- -----------------------------------------------------------------
Accumulated net realized gain (loss) on investments 1,055,033
- -----------------------------------------------------------------
Undistributed net investment income 380,519
- ----------------------------------------------------------------- -----------
Total Net Assets $97,814,259
- ----------------------------------------------------------------- -----------
Net Asset Value and Redemption Proceeds Per Share:
- -----------------------------------------------------------------
Trust Shares (net assets of $47,526,256 / 4,161,915
shares of beneficial interest outstanding) $11.42
- ----------------------------------------------------------------- -----------
Investment Shares (net assets of $50,288,003 /
4,404,004 shares of beneficial interest outstanding) $11.42
- ----------------------------------------------------------------- -----------
Offering Price Per Share:
- -----------------------------------------------------------------
Trust Shares $11.42
- ----------------------------------------------------------------- -----------
Investment Shares (100/95.5 of $11.42) $11.96*
- ----------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
+ Includes net unrealized appreciation for options $14,049 (Note 2G)
(See Notes which are an integral part of the Financial Statements)
The Stellar Fund
Statement of Operations
Six Months Ended May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- -------------------------------------
Interest income $ 905,529
- -------------------------------------
Dividend income 907,092
- ------------------------------------- ----------
Total income (Note 2C) 1,812,621
- -------------------------------------
Expenses:
- -------------------------------------
Investment advisory fee
(Note 4) $411,651
- -------------------------
Trustees' fees 1,230
- -------------------------
Administrative personnel
and services fee (Note
4) 53,789
- -------------------------
Custodian fees (Note 4) 11,622
- -------------------------
Portfolio accounting,
transfer and dividend
disbursing agent fees and
expenses (Note 4) 76,201
- -------------------------
Fund share registration
fees 14,393
- -------------------------
Auditing fees 9,158
- -------------------------
Legal fees 3,463
- -------------------------
Printing and postage 23,334
- -------------------------
Insurance premiums 7,386
- -------------------------
Distribution services fee
(Note 4) 92,715
- -------------------------
Miscellaneous 3,084
- ------------------------- -----------
Total expenses 708,026
- -------------------------
Deduct--Waiver of distri-
bution services fee
(Note 4) 78,451
- ------------------------- -----------
Net expenses 629,575
- ------------------------------------- ----------
Net investment income 1,183,046
- ------------------------------------- ----------
Realized and Unrealized Gain (Loss)
on Investments:
- -------------------------------------
Net realized gain (loss) on invest-
ments (identified cost basis) 850,919
- -------------------------------------
Net change in unrealized appreciation
(depreciation) on investments and
options (600,912)
- ------------------------------------- ----------
Net realized and unrealized gain
(loss) on investments 250,007
- ------------------------------------- ----------
Change in net assets resulting
from operations $1,433,053
- ------------------------------------- ----------
</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,
--------------------------
1994* 1993
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- --------------------------------------------------
Operations--
- --------------------------------------------------
Net investment income $ 1,183,046 $ 916,972
- --------------------------------------------------
Net realized gain (loss) on investments ($850,919
and $737,312 net gain, respectively, as computed
for federal income tax purposes) (Note 2D) 850,919 722,961
- --------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments and options (600,912) 2,975,694
- -------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 1,433,053 4,615,627
- -------------------------------------------------- ------------ ------------
Distributions to Shareholders (Note 2C)--
- --------------------------------------------------
Dividends to shareholders from net investment in-
come
Investment Shares (588,183) (1,062,322)
Trust Shares -- --
- --------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions
Investment Shares (510,297) (366,287)
Trust Shares -- --
- --------------------------------------------------
Distributions in excess of net investment income
Investment Shares -- (214,343)
Trust Shares -- --
- -------------------------------------------------- ------------ ------------
Change in net assets resulting from distribu- (1,098,480) (1,642,952)
tions to shareholders ------------ ------------
- --------------------------------------------------
Fund Share (Principal) Transactions (Note 3)--
- --------------------------------------------------
Proceeds from sale of shares 72,775,033 45,217,754
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,024,939 1,594,012
- --------------------------------------------------
Cost of shares redeemed (49,517,170) (12,132,012)
- -------------------------------------------------- ------------ ------------
Change in net assets from Fund share transac-
tions 24,282,802 34,679,754
- -------------------------------------------------- ------------ ------------
Change in net assets 24,617,375 37,652,429
- --------------------------------------------------
Net Assets:
- --------------------------------------------------
Beginning of period 73,196,884 35,544,455
- -------------------------------------------------- ------------ ------------
End of period (including undistributed net invest-
ment income of $380,519 and $0, respectively) $ 97,814,259 $ 73,196,884
- -------------------------------------------------- ------------ ------------
</TABLE>
*Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
The Stellar Fund
Financial Highlights--Investment Shares
- -------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------
1994* 1993 1992 1991**
- ------------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.34 $10.52 $ 9.80 $10.00
- ------------------------------------
Income from investment operations
- ------------------------------------
Net investment income 0.10 0.24 0.29 0.05
- ------------------------------------
Net realized and unrealized gain 0.14 0.99 0.74 (0.25)
(loss) on investments ------ ------ ------ ------
- ------------------------------------
Total from investment operations 0.24 1.23 1.03 (0.20)
- ------------------------------------
Less distributions
- ------------------------------------
Dividends to shareholders from net
investment income (0.08) (0.28) (0.31) --
- ------------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.08) (0.10) (0.00) --
- ------------------------------------
Distributions in excess of net -- (0.03)(a) -- --
investment income ------ ------ ------ ------
- ------------------------------------
Total distributions (0.16) (0.41) (0.31) --
- ------------------------------------ ------ ------ ------ ------
Net asset value, end of period $11.42 $11.34 $10.52 $ 9.80
- ------------------------------------ ------ ------ ------ ------
Total return*** 2.04% 11.99% 10.68% (2.00%)
- ------------------------------------
Ratios to Average Net Assets
- ------------------------------------
Expenses 1.46%(c) 1.45% 1.53% 1.44%(c)
- ------------------------------------
Net investment income 2.76%(c) 1.87% 3.03% 5.32%(c)
- ------------------------------------
Expense waiver/reimbursement (b) 0.21%(c) 0.25% 0.33% 0.29%(c)
- ------------------------------------
Supplemental Data
- ------------------------------------
Net assets, end of period (000 omitted) $50,288 $73,197 $35,544 $13,942
- ----------------------------------------
Portfolio turnover rate 30% 87% 98% 18%
- ----------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** 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
contingent deferred sales charge, if applicable.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions did not represent a return of capital for federal income tax
purposes for the year ended November 30, 1993.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(c) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
The Stellar Fund
Financial Highlights--Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period Ended
May 31, 1994*
-------------
<S> <C> <C>
Net asset value, beginning of period $11.34
- -------------------------------------------------------
Income from investment operations
- -------------------------------------------------------
Net investment income 0.10
- -------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.02)
- ------------------------------------------------------- ------
Total from investment operations 0.08
- -------------------------------------------------------
Less distributions
- -------------------------------------------------------
Total distributions --
- ------------------------------------------------------- ------
Net asset value, end of period $11.42
- ------------------------------------------------------- ------
Total return** 0.71%
- -------------------------------------------------------
Ratios to Average Net Assets
- -------------------------------------------------------
Expenses 1.42%(b)
- -------------------------------------------------------
Net investment income 2.53%(b)
- -------------------------------------------------------
Expense waiver/reimbursement (a) 0.00%(b)
- -------------------------------------------------------
Supplemental Data
- -------------------------------------------------------
Net assets, end of period (000 omitted) $47,526
- ----------------------------------------
Portfolio turnover rate 30%
- ----------------------------------------
</TABLE>
* Reflects operations for the period from April 11, 1994 (date of initial
public offering) to May 31, 1994 (unaudited).
** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
The Stellar Fund
Notes to Financial Statements
May 31, 1994 (unaudited)
- -------------------------------------------------------------------------------
(1) Organization
Star Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of seven diversified portfolios. The financial statements
included herein present only those of The Stellar Fund (the "Fund"). As of May
31, 1994, Star Capital Appreciation Fund was effective but did not have public
investment. 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 April
5, 1994, the Fund added a class (Trust Shares).
The Fund offers two classes of shares, Trust Shares and Investment Shares.
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares are sold pursuant to a distribution plan (the "Plan")
adopted in accordance with the Acts Rule 12b-1, and are sold subject to a
sales load.
(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. These
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sales price reported on
national securities exchanges. U.S. government obligations are generally
valued at the mean between the over-the-counter bid and asked prices as
furnished by an independent pricing service. Unlisted securities and bonds
are generally valued at the price provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value.
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 collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
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 ("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.
The Stellar Fund
- -------------------------------------------------------------------------------
C. Investment Income, Expenses and Distributions--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
D. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. When-Issued and Delayed Delivery Transactions--The Fund may engage in when-
issued or delayed delivery transactions. A Fund records when-issued
securities on the trade date and maintains 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. Options Contracts--The Fund may write or purchase option contracts. 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 Fund had 6 outstanding at May 31, 1994. For the six
months ended May 31, 1994, the Fund had a realized gain of $140,239 on
written options.
At May 31, 1994, the Fund had the following outstanding options:
<TABLE>
<CAPTION>
Unrealized
Expiration Exercise Number of Appreciation Market
Issuer Type Date Price Contracts (Depreciation) Value
--------------- ---- ---------- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Bond Call 7/1/94 87.56 5,000 2,656 3,750
ITT Corp. Call 7/15/94 90.0 40 590 3,250
Caterpillar,
Inc. Call 8/19/94 115.0 35 2,196 8,531
Novell, Inc. Call 8/19/94 22.5 180 11,093 6,188
Microsoft Corp. Call 10/21/94 55.0 40 (2,240) 16,000
Honeywell, Inc. Call 11/18/94 35.5 123 (246) 11,531
------- -------
Total $14,049 $49,250
======= =======
</TABLE>
H. Other--Investment transactions are accounted for on the trade date.
The Stellar Fund
- --------------------------------------------------------------------------------
(3) 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) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------------------
1994* 1993
------------------------ -----------------------
Investment Shares Shares Dollars Shares Dollars
- -------------------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 2,165,598 $25,007,861 4,030,527 $45,217,755
- --------------------------
Shares issued to
shareholders in payment of
dividends declared 88,970 1,024,939 147,387 1,594,012
- --------------------------
Shares redeemed (4,307,627) (48,945,987) (1,098,722) (12,132,012)
- -------------------------- ---------- ------------ ---------- -----------
Net change resulting from
Investment Shares transac-
tions (2,053,059) ($22,913,187) 3,079,192 $34,679,755
- -------------------------- ---------- ------------ ---------- -----------
*Six months ended May 31, 1994.
<CAPTION>
Year Ended November 30,
-------------------------------------------------
1994* 1993
------------------------ -----------------------
Trust Shares Shares Dollars Shares Dollars
- -------------------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 4,212,300 $47,767,172 -- $ --
- --------------------------
Shares issued to
shareholders in payment of
dividends declared -- -- -- --
- --------------------------
Shares redeemed (50,385) (571,183) -- --
- -------------------------- ---------- ------------ ---------- -----------
Net change resulting from 4,161,915 $47,195,989 -- $ --
Trust Shares transactions ---------- ------------ ---------- -----------
- --------------------------
Total net change resulting 2,108,856 $24,282,802 3,079,192 $34,679,755
from Fund transactions ---------- ------------ ---------- -----------
- --------------------------
</TABLE>
*For the period from April 11, 1994 (date of initial public offering) to May
31, 1994.
(4) Investment Advisory Fee and Other Transactions With Affiliates
Investment Advisory Fee--Star Bank, N.A., the Fund's investment adviser (the
"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 its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
The Stellar Fund
- -------------------------------------------------------------------------------
Administrative Fee--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The fee is based on
the level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
Distribution and Service Plan--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Investment Shares. The Plan provides that the
Fund may incur distribution expenses up to .25 of 1% of the average daily net
assets of the Investment Shares, annually, to compensate FSC. The distributor
may voluntarily choose to waive a portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent, Accounting and Custody Fees--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. The FServ fee is based on the size, type and number of accounts
and transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Star Bank, N.A. is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Organizational Expenses--Organizational expenses ($23,641) were borne
initially by the Administrator. The Fund has agreed to reimburse the
Administrator at an annual rate of .005 of 1% of average daily net assets for
organizational expenses until expenses initially borne by the Administrator
are fully reimbursed or the expiration of five years after July 31, 1991, date
the Fund's portfolio first became effective, whichever occurs earlier. For the
six months ended May 31, 1994, the Fund paid $2,092 pursuant to this
agreement.
Certain of the Officers and Trustees of the Trust are also Officers and
Directors or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
six months ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- ---------
Purchases $41,286,775
- --------- -----------
Sales $20,304,973
- --------- -----------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
James E. Dowd President and Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Joseph S. Machi
Peter E. Madden Vice President and Assistant Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
precededor accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Star U.S.
Government Income Fund (the "Fund"), which covers the six-month period ended May
31, 1994. The Report begins with an interview with the Fund's portfolio manager
and follows with a complete list of the Fund's investments, as well as its
Financial Statements.
To help your investment earn monthly income, the Fund invests in a diversified
portfolio that consists primarily of U.S. government bonds. At the end of the
period, 46.6% of the Fund's assets were invested in U.S. Treasury securities,
while 21.4% of its assets were invested in U.S. government mortgage-backed
securities. In addition, the Fund invested 25.2% of its assets in high quality
corporate bonds.
Rising interest rates, which affected all financial markets, made an impact on
the Fund's net asset value. At the end of the period, the Fund's net asset value
stood at $9.53 per share, compared to a net asset value of $10.25 per share at
the beginning of the period. However, the Fund paid a good income stream over
the period that included dividends of $0.27 per share and capital gains of $0.11
per share. At the end of the period, net assets stood at $49.7 million.
Thank you for your confidence in the Star U.S. Government Income Fund. We will
continue to keep you up to date on your progress.
Sincerely,
Edward C. Gonzales
President
July 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
An Interview with Portfolio Manager
Q Can you discuss recent developments in the bond market, particularly the
series of interest rate increases which caused bond prices to fall?
A We believe five principal developments in the bond market have caused
prices to fall in 1994: stronger economic growth, inflation perceptions,
the general global bond market decline, leverage, and monetary policy.
First, economic growth appears self-sustaining and has moved above what the
Federal Reserve (the "Fed") considers a non-inflationary rate of 2.5%.
Inflationary pressures have been building. Commodity prices have been rising
steadily this year, which implies higher raw materials prices. The Commodity
Research Bureau and Journal of Commerce are up 11% and 6%, respectively, year
after year. Both commodity price measures have reached 3-year highs during May.
The Center for International Business Cycle Research's leading inflation
indicator leads the popular inflation indices by about two years and troughed in
September 1991. Also, the dollar has declined appreciably which carries an
implication of higher inflation. In terms of the global bond market, most
participants believed that a weak interrelationship existed between bond yields
of various countries. However, the 1994 domestic bond market decline has been
felt equally or worse in other countries. Fourth, the degree of financial
leverage in the U.S. financial markets reached an extreme level due to a steep
yield curve that encouraged leverage and an accommodative Fed. Many analysts
attributed the use of leverage to the extremely low yields (inflated bond
prices) experienced last October. As the incentives for leverage were removed,
bond price deflation ensued. Lastly, the Fed has acted to move short-term
interest rates higher on four occasions since February 4, 1994. The Federal
funds rate has moved from 3.0% to 4.25% and the discount rate from 3% to 3.5%.
The first three actions resulted in declining bond prices, as expected. However,
longer-term yields have benefited somewhat from the Fed aggressively raising
short-term interest rates in the fourth move due to Fed comments that further
increases may not be necessary.
Q In this environment, how did the Star U.S. Government Income Fund (the
"Fund") perform relative to a comparable benchmark?
A We consider the Fund's comparable benchmark to be the Lehman
Government/Corporate Index.* During the last three months and year-to-date,
the Fund outperformed its benchmark by 36 basis points (0.36%) and 24 basis
points (0.24%), respectively.
*This index is unmanaged.
Q Did you make any notable changes to the Fund's portfolio and why?
A Yes. During the past three months, three key strategies were employed to
help buffer the Fund from adverse market movements. First, we maintained an
average maturity that was 15% to 20% shorter than the benchmark. We believe
this strategy helps to insulate the Fund from any declining prices. Second, we
felt the yield curve would "flatten" during 1994, meaning that the gap between
short-and long-term yields would narrow. The classic strategy in this
environment is to employ a "barbelled" portfolio structure that overweights
short-and long-term maturities to the exclusion of intermediate maturities (4-10
year). Lastly, defensive securities have become more numerous in the Fund. We
have increased the holdings of floating-rate securities and hedged with options.
Taken together, these strategies have served to reduce the Fund's exposure to
the negative consequences of declining bond prices while maintaining a
competitive yield.
Q With a rising interest rate environment still affecting the market, what is
your outlook for the Fund, and what comments can you offer to our
shareholders?
A In addition to the economic and inflation risks discussed previously,
numerous other factors suggest the risk is towards higher yields. Utility
stocks, gold, commodity prices, oil, the dollar, and capacity utilization
all signal higher yields. Thus, our strategy will remain slanted towards a
defensive posture to protect the Fund's net asset value.
We continue to advocate that shareholders take a longer-term view towards their
mutual fund holdings. Diversification, regular investment contributions,
avoidance of emotional buying/selling, and longer investment horizons should all
be considered to lessen the negative impact of market downturns. Our approach to
fixed-income investing is to make maturity and sector allocations based on
proportions established by the Lehman Government/Corporate Index. Using this
index as a proxy for the Fund, we examined how the market performed in previous
market cycles between 1973 and 1993. Over the last 21 years, the Lehman
Government/Corporate Index did not post a negative total return during a single
calendar year. Even during periods of rising short-term interest rates (Fed
tightening), bond investors would not have lost money, provided they didn't sell
during a market downturn. Thus, the evidence suggests that, if the current cycle
is similar to previous periods, bond funds similar in construction to the Lehman
Government/Corporate Index could post positive total rates of return.
STAR U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--25.2%
- --------------------------------------------------------------------------------------------------
$ 100,000 Alabama Power Co., 8.75%, 12/1/2021 $ 101,962
-----------------------------------------------------------------------------------
500,000 Associates Corp. of North America, 6.44%, 4/25/2003 455,605
-----------------------------------------------------------------------------------
1,000,000 Cincinnati Gas & Electric Co., 8.95%, 12/15/2021 1,025,320
-----------------------------------------------------------------------------------
500,000 Consolidated Rail Corp., 5.70%, 3/24/97 486,935
-----------------------------------------------------------------------------------
1,500,000 Enron Corp., 7.625%, 9/10/2004 1,465,755
-----------------------------------------------------------------------------------
1,000,000 First Union Corp., 6.625%, 7/15/2005 908,600
-----------------------------------------------------------------------------------
150,000 Ford Motor Credit Corp., 4.50%, 7/19/96 149,437
-----------------------------------------------------------------------------------
205,000 General Electric Capital Corp., 8.52%, 12/15/2007 208,272
-----------------------------------------------------------------------------------
1,500,000 General Motors Corp., 9.75%, 5/15/99 1,583,880
-----------------------------------------------------------------------------------
1,000,000 Georgia Power Co., 6.625%, 4/1/2003 926,270
-----------------------------------------------------------------------------------
125,000 Georgia Power Co., 6.03%, 7/1/2032 125,019
-----------------------------------------------------------------------------------
500,000 International Lease Finance Co., 5.75%, 3/15/98 476,625
-----------------------------------------------------------------------------------
1,000,000 International Lease Finance Co., 4.73%, 3/24/99 997,550
-----------------------------------------------------------------------------------
750,000 NationsBank Corp., 6.875%, 2/15/2005 700,357
-----------------------------------------------------------------------------------
300,000 Pacific Telephone & Telegraph Co., 7.25%, 2/1/2008 281,802
-----------------------------------------------------------------------------------
1,000,000 Philip Morris Cos., Inc., 9.75%, 5/1/97 1,069,980
-----------------------------------------------------------------------------------
500,000 Procter & Gamble Co., 7.375%, 3/1/2023 452,225
-----------------------------------------------------------------------------------
62,000 Southern California Edison Co., 8.375%, 12/1/2017 61,000
-----------------------------------------------------------------------------------
150,000 Southern California Edison Co., 9.25%, 6/15/2021 157,146
-----------------------------------------------------------------------------------
1,000,000 Union Pacific Corp., 6.00%, 9/1/2003 886,360
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $13,461,798) 12,520,100
----------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT OBLIGATIONS--21.4%
- --------------------------------------------------------------------------------------------------
400,000 Federal Home Loan Banks, 7.26%, 5/26/99 394,384
-----------------------------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 4.85%, 10/4/96 1,000,000
-----------------------------------------------------------------------------------
</TABLE>
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
$ 2,000,000 Federal Home Loan Mortgage Corp., 6.50%, 9/15/2007 $ 1,814,520
---------------------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 7.50%, 8/15/2016 502,480
---------------------------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 9.00%, 6/21/2001 1,001,760
---------------------------------------------------------------------------------
1,457,878 Federal National Mortgage Association, 3.75%, 1/1/2024 1,417,349
---------------------------------------------------------------------------------
500,000 Federal National Mortgage Association, 5.00%, 12/25/2018 478,120
---------------------------------------------------------------------------------
500,000 Federal National Mortgage Association, 5.75%, 1/25/2015 470,850
---------------------------------------------------------------------------------
1,490,074 Federal National Mortgage Association, 7.00%, 11/1/2023 1,408,582
---------------------------------------------------------------------------------
1,500,000 Federal National Mortgage Association, 7.25%, 1/25/2019 1,488,705
---------------------------------------------------------------------------------
700,000 Federal National Mortgage Association, 7.50%, 8/25/2018 693,455
--------------------------------------------------------------------------------- ---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $11,282,988) 10,670,205
--------------------------------------------------------------------------------- ---------------
U.S. TREASURY OBLIGATIONS--46.6%
- ------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS--19.4%
---------------------------------------------------------------------------------
1,500,000 6.25%, 2/15/2023 1,288,530
---------------------------------------------------------------------------------
750,000 7.625%, 2/15/2007 760,358
---------------------------------------------------------------------------------
7,200,000 8.125%, 8/15/2019 7,617,744
--------------------------------------------------------------------------------- ---------------
Total 9,666,632
--------------------------------------------------------------------------------- ---------------
U.S. TREASURY NOTES--27.2%
---------------------------------------------------------------------------------
250,000 3.875%, 2/28/95 247,625
---------------------------------------------------------------------------------
3,100,000 4.25%, 7/31/95 3,057,065
---------------------------------------------------------------------------------
2,750,000 4.625%, 8/15/95 2,721,620
---------------------------------------------------------------------------------
2,250,000 5.125%, 3/31/96 2,219,558
---------------------------------------------------------------------------------
5,250,000 5.875%, 5/15/95 5,278,927
--------------------------------------------------------------------------------- ---------------
Total 13,524,795
--------------------------------------------------------------------------------- ---------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $24,836,854) 23,191,427
--------------------------------------------------------------------------------- ---------------
</TABLE>
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENT--5.5%
- --------------------------------------------------------------------------------------------------
$ 2,743,000 Donaldson, Lufkin & Jenrette Securities Corp., 4.25%, dated 5/31/94, due 6/1/94 (at
amortized cost) (Note 2B) 2,743,000
----------------------------------------------------------------------------------- --------------
49,682,952 TOTAL INVESTMENTS (IDENTIFIED COST $52,324,640) $ 49,124,732+
----------------------------------------------------------------------------------- --------------
</TABLE>
* 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 of investments for federal tax purposes amounts to $52,324,640. The
unrealized depreciation of investments on a federal tax basis amounts to
$3,199,908.
Note: The categories of investments are shown as a percentage of net assets
($49,751,207) at
May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B)
(identified and tax cost $52,324,640) $ 49,124,732
- -------------------------------------------------------------------------------------------------
Cash 337
- -------------------------------------------------------------------------------------------------
Interest receivable 638,969
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 133,590
- -------------------------------------------------------------------------------------------------
Deferred expenses (Note 2F) 27,899
- ------------------------------------------------------------------------------------------------- --------------
Total assets 49,925,527
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Dividends payable $ 42,856
- --------------------------------------------------------------------------------------
Payable for call options written, at market value (Note 2G) 11,250
- --------------------------------------------------------------------------------------
Payable for Fund shares redeemed 12,144
- --------------------------------------------------------------------------------------
Payable to transfer agent (Note 4) 10,697
- --------------------------------------------------------------------------------------
Accrued expenses 97,373
- -------------------------------------------------------------------------------------- ---------
Total liabilities 174,320
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 5,221,247 shares of beneficial interest outstanding) $ 49,751,207
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 53,284,916
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (3,191,939)+
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (342,366)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 596
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 49,751,207
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE and Redemption Proceeds Per Share:
($49,751,207 / 5,221,247 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $9.53
- ------------------------------------------------------------------------------------------------- --------------
COMPUTATION OF OFFERING PRICE:
(100/96.5 of $9.53) $9.88*
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "What Shares Cost" in the prospectus.
+Includes net unrealized appreciation for options $7,969 (Note 2G).
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 1,540,189
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 144,945
- -------------------------------------------------------------------------------------
Trustees' fees 188
- -------------------------------------------------------------------------------------
Administrative personnel and services fee (Note 4) 29,992
- -------------------------------------------------------------------------------------
Custodian fees (Note 4) 5,737
- -------------------------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses (Note 4) 37,035
- -------------------------------------------------------------------------------------
Fund share registration fees 10,256
- -------------------------------------------------------------------------------------
Auditing fees 8,449
- -------------------------------------------------------------------------------------
Legal fees 2,593
- -------------------------------------------------------------------------------------
Printing and postage 6,060
- -------------------------------------------------------------------------------------
Insurance premiums 3,240
- -------------------------------------------------------------------------------------
Distribution services fee (Note 4) 60,394
- -------------------------------------------------------------------------------------
Miscellaneous 1,559
- ------------------------------------------------------------------------------------- -----------
Total expenses 310,448
- -------------------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 12,079
- --------------------------------------------------------------------------
Waiver of distribution services fee (Note 4) 60,394 72,473
- -------------------------------------------------------------------------- --------- -----------
Net expenses 237,975
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 1,302,214
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (343,630)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and options (2,820,673)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (3,164,303)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ (1,862,089)
- -------------------------------------------------------------------------------------------------- -------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
<S> <C> <C>
1994* 1993**
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 1,302,214 $ 1,335,153
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments ($343,630 net loss and $461,719 net gain,
respectively, as computed for federal income tax purposes) (Note 2D) (343,630) 462,635
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and options (2,820,673) (371,266)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations (1,862,089) 1,426,522
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income (1,301,618) (1,335,153)
- ---------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (461,371) --
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from distributions to shareholders (1,762,989) (1,335,153)
- --------------------------------------------------------------------------------- -------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------------------------
Proceeds from sale of shares 17,119,412 47,885,941
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 335,604 133,549
- ---------------------------------------------------------------------------------
Cost of shares redeemed (8,266,189) (3,923,401)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from Fund share transactions 9,188,827 44,096,089
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 5,563,749 44,187,458
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 44,187,458 --
- --------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net income of
$596 and $0, respectively)
$49,751,207
$44,187,458
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** For the period from January 5, 1993 (date of initial public investment), to
November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1994* 1993**
<S> <C> <C>
- -------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.25 $ 10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.27 0.51
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.61) 0.25
- -------------------------------------------------------------------------------------------- --------- ---------
Total from investment operations (0.34) 0.76
- -------------------------------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.27) (0.51)
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized capital gain
on investment transactions (0.11) --
- -------------------------------------------------------------------------------------------- --------- ---------
Total distributions (0.38) (0.51)
- -------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.53 $ 10.25
- -------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN*** (3.50%) 7.63%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.99%(b) 1.12%(b)
- --------------------------------------------------------------------------------------------
Net investment income 5.39%(b) 5.55%(b)
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.30%(b) 0.30%(b)
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$49,751
$44,187
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 43% 105%
- --------------------------------------------------------------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from January 5, 1993 (date of initial
public investment), to November 30, 1993.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Star Funds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end management investment company. The Trust
consists of seven portfolios. The financial statements included herein present
only those of Star U.S. Government Income Fund (the "Fund"). As of May 31, 1994,
Star Capital Appreciation Fund was effective but did not have public investment.
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.
(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. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds (and other fixed-income and
asset backed securities) are valued at the last sale price reported on
national securities exchanges on that day, if available. Otherwise,
corporate bonds (and other fixed-income and asset backed securities) and
Short-term obligations are valued at the prices provided by an independent
pricing service. Short-term securities with remaining maturities of sixty
days, or less may be stated at amortized cost, which approximates value.
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 collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
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 ("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.
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains 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. OPTIONS CONTRACTS--The Fund may write or purchase option contracts. 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 Fund had one option outstanding at May 31, 1994. For
the six months ended May 31, 1994 the Fund had a realized gain of $111,356
on written options.
At May 31, 1994, the Fund had the following outstanding options:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION EXERCISE NUMBER OF APPRECIATION MARKET
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bond Call 7/1/94 87.56 15,000 $7,969 $ 11,250
</TABLE>
H. OTHER--Investment transactions are accounted for on the trade date.
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(3) 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,
1994* 1993**
<S> <C> <C>
- --------------------------------------------------------------------------------------- ----------- -----------
Shares sold 1,711,495 4,681,976
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 33,784 12,892
- ---------------------------------------------------------------------------------------
Shares redeemed (836,271) (382,629)
- --------------------------------------------------------------------------------------- ----------- -----------
Net change resulting from Fund share transactions 909,008 4,312,239
- --------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
* Six months ended May 31, 1994.
** For the period from January 5, 1993 (date of initial public investment) to
November 30, 1993.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Star Bank, N.A., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur distribution expenses up to 0.25 of 1% of the average daily net assets of
the Fund, annually, to compensate FSC. The distributor may voluntarily choose to
waive its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Star Bank, N.A., is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($25,000) were borne initially
by the Administrator. The Fund has agreed to reimburse the Administrator for the
organizational expenses during the five year period following November 23, 1992,
the date the Fund's portfolio first became effective. For the six months ended
May 31, 1994, the Fund paid $2,150 pursuant to this agreement.
Certain Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended
May 31, 1994 were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 28,441,514
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 19,962,163
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
James E. Dowd President and Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Joseph S. Machi
Peter E. Madden Vice President and Assistant Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR INSURED BY ANY BANK NOR ARE THEY INSURED
BY THE FEDERAL GOVERNMENT OR ANY OF ITS AGENCIES. INVESTMENT IN THESE SHARES
INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN
PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS WHICH CONTAINS FACTS
CONCERNING ITS OBJECTIVE AND POLICIES, MANAGEMENT FEES, EXPENSES AND OTHER
INFORMATION.
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for the Star
Money Market Funds (collectively referred to as the "Funds" or individually as
"Fund"), which covers the six-month period ended May 31, 1994. The Report
begins with an interview with the Funds' portfolio manager and follows with a
complete listing of each Fund's investments, and Financial Statements.
Please note the following highlights:
Star Prime Obligations Fund
The Fund continued to help shareholders pursue competitive money market income.
At the end of the period, more than half of the Fund's assets was invested in
U.S. government obligations, with the remainder diversified across short-term
corporate bonds, commercial paper, and repurchase agreements. At the end of the
report period, the Fund's net assets stood at $86 million. Dividends paid to
shareholders during the period totaled $0.01 per share.
Star Tax-Free Money Market Fund
To pursue daily, tax-free income, the Fund's portfolio was diversified across
high-quality short-term securities issued by municipalities across the country.
At the end of the report period, net assets stood at $129 million. Tax-free
dividends paid to shareholders during the period totaled $0.01 per share.
Star Treasury Fund
The Fund continued to put shareholders' cash to work through the relative
safety of U.S. Treasury notes and repurchase agreements fully backed by U.S.
Treasury obligations. At the end of the report period, the Fund's net assets
stood at $346 million. Dividends paid to shareholders during the period totaled
$0.01 per share.
Thank you for continuing to put your cash to work through the Star Money Market
Funds. We will continue to keep you regularly informed of your progress.
Sincerely,
LOGO
Edward C. Gonzales President
July 15, 1994
Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment in
the Funds is neither insured nor guaranteed by the U.S. government.
Investment Review
- --------------------------------------------------------------------------------
An Interview with Portfolio Manager
A With the recent series of interest rate increases, money market yields have
finally turned upward. How did the Star Prime Obligations Fund ("Prime
Fund"), Star Treasury Fund ("Treasury Fund"), and Star Tax-Free Money Market
Fund ("Tax-Free Fund") respond?
Q Yields have risen sharply on money market instruments since the beginning
of 1994. The Treasury Fund maintains a high proportion of its holdings
(66.8%) in overnight repurchase agreements which are the most responsive to
changes in short-term interest rates. Thus, the Treasury Fund has performed
well in this environment. Conversely, both the Prime and Tax-Free Funds utilize
a more "laddered" security approach. Securities are selected to allow for
evenly distributed maturities and cash flows. As maturities occur, they can be
re-invested at higher interest rates to boost Fund returns. Although both Funds
were initially less responsive than the Treasury Fund, the purchase of higher
yielding instruments during the past three months has helped these Funds
quickly restore their competitive yields.
A As a result of this increased interest rate environment, have you made any
notable changes in the strategy of each Fund?
Q We had been forecasting sharply higher short-term rates for the previous
quarter. This forecast enabled us to shorten the average maturity of all
Funds by investing more money in very short-term securities. This was
accomplished in the Treasury Fund by carrying increased amounts in overnight
repurchase agreements. The Prime Fund accomplished this by purchasing floating
rate securities that reset weekly based on an acceptable benchmark, such as
three-month Treasury bills. This allowed money to be invested for an extended
period without increasing the average maturity and gaining responsive
incremental returns. Similarly, the Tax-Free Fund engaged in a strategy of
emphasizing variable rate over fixed rate securities. These changes enhance the
Tax-Free Fund's performance in a rising interest rate environment, while
improving its liquidity position.
A What is your outlook for short-term rates in the near future?
Q The Federal Reserve (the "Fed") has acted to move short-term interest rates
higher on four occasions since February 4, 1994. The Federal funds rate has
moved from 3.0% to 4.25% and the discount rate from 3% to 3.5%. History
suggests that once the Fed begins a tightening cycle, it does not casually
reverse direction. Minimum tightening duration is at least 12 months and
averages closer to 24 months. Economic growth is expanding above what the Fed
considers a non-inflationary rate of 2.5%, and inflationary pressures are
building. The risk is that inflation is stronger than anyone anticipates. In
addition, the dollar's exchange rate has come under considerable pressure
recently, indicating the need for continued monetary restraint. Therefore, more
tightening is likely to follow in 1994 and 1995. We expect gradual increases
for the remainder of 1994, with the Federal funds rate reaching 5% by year-end.
Star Prime Obligations Fund
Portfolio of Investments
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ----------------------------------------------- -----------
<C> <S> <C>
*Commercial Paper--4.0%
-----------------------------------------------------------
Finance--Commercial--4.0%
-----------------------------------------------
$ 3,500,000 General Electric Capital Corp., 4.329%, 6/13/94 $ 3,494,983
----------------------------------------------- -----------
U.S. Government Obligations--53.9%
-----------------------------------------------------------
Federal Farm Credit Bank, 3.56%-5.60%, 6/1/94-
4,900,000 2/14/95 4,924,778
-----------------------------------------------
Federal Home Loan Bank, 4.119%-8.6%, 6/9/94-
4,125,000 6/27/94 4,126,389
-----------------------------------------------
Federal Home Loan Mortgage Assoc., 3.71%-4.15%,
11,477,000 6/1/94-7/22/94 11,459,353
-----------------------------------------------
3,000,000 Federal Home Loan Mortgage Assoc., Variable
Rate Notes, 6/7/94 3,000,000
-----------------------------------------------
Federal National Mortgage Assoc., 4.189%-8.6%,
5,000,000 6/10/94-8/2/94 4,980,949
-----------------------------------------------
1,950,000 Student Loan Marketing Assoc., 7.54%, 10/11/94 1,977,670
-----------------------------------------------
Student Loan Marketing Assoc., Variable Rate
15,000,000 Notes, 6/7/94 15,015,406
-----------------------------------------------
1,000,000 U.S. Treasury Notes, 6.00%, 11/15/94 1,010,565
----------------------------------------------- -----------
Total U.S. Government Obligations 46,495,110
----------------------------------------------- -----------
Short-Term Corporate Bonds--10.6%
-----------------------------------------------------------
1,000,000 American Express Co., 8.625%, 7/15/94 1,006,168
-----------------------------------------------
1,000,000 American Express Credit Co., 5.95%, 1/27/95 1,013,490
-----------------------------------------------
Associates Corp. North America, 6.375%,
1,500,000 11/15/94-4/15/95 1,520,503
-----------------------------------------------
1,000,000 Citizens Southern Corp., 11.70%, 2/1/95 1,052,072
-----------------------------------------------
1,000,000 Ford Motor Co., 9.65%, 12/9/94 1,029,495
-----------------------------------------------
2,000,000 International Leasing Finance, 7.20%, 10/1/94 2,022,737
-----------------------------------------------
1,500,000 Pepsico, Inc., 5.875%, 12/15/94 1,516,539
----------------------------------------------- -----------
Total Short-Term Corporate Bonds 9,161,004
----------------------------------------------- -----------
**Variable Rate Instrument--2.3%
-----------------------------------------------------------
2,000,000 Pepsico, Inc., 4.455%, 4/13/95 2,000,000
----------------------------------------------- -----------
***Repurchase Agreements--28.8%
-----------------------------------------------------------
20,865,000 Donaldson, Lufkin & Jenrette Securities Corp.,
4.25%, dated 5/31/94, due 6/1/94 20,865,000
-----------------------------------------------
Kidder, Peabody & Co., Inc., 4.20%, dated
4,000,000 5/31/94, due 6/1/94 4,000,000
----------------------------------------------- -----------
Total Repurchase Agreements (Note 2B) 24,865,000
----------------------------------------------- -----------
Total Investments (at amortized cost) $86,016,097+
----------------------------------------------- -----------
</TABLE>
+Also represents cost for federal tax purposes.
*Each issue shows the rate of discount at time of purchase.
** Current date and next demand date shown.
*** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
Note:The categories of investments are shown as a percentage of net assets
($86,339,004) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
Star Prime Obligations Fund
Statement of Assets and Liabilities
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ------------------------------------------------- ------------
Investments in repurchase agreements (Note 2B) $24,865,000
- -------------------------------------------------
Investments in securities 61,151,097
- ------------------------------------------------- ------------
Total investments, at amortized cost and value
(Note 2A) $86,016,097
- ------------------------------------------------- ------------
Cash
707
- ------------------------------------------------- ------------
Interest receivable 579,942
- ------------------------------------------------- ------------
Deferred expenses (Note 2F) 2,294
- ------------------------------------------------- ------------ -----------
Total assets 86,599,040
- ------------------------------------------------- ------------
Liabilities:
- ------------------------------------------------- ------------
Dividends payable 232,617
- -------------------------------------------------
Accrued expenses 27,419
- ------------------------------------------------- ------------
Total liabilities 260,036
- ------------------------------------------------- ------------ -----------
Net Assets for 86,339,004 shares of beneficial
interest outstanding $86,339,004
- ------------------------------------------------- ------------ -----------
Net Asset Value, Offering Price, and Redemption Proceeds Per
Share:
($86,339,004 / 86,339,004 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------- ------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Prime Obligations Fund
Statement of Operations
Six Months Ended May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- ----------------------------
Interest income (Note 2C) $1,532,263
- ----------------------------
Expenses:
- ----------------------------
Investment
advisory fee
(Note 4) $ 241,766
- ---------------
Trustees' fees 1,010
- ---------------
Administrative
personnel and
services fee
(Note 4) 54,577
- ---------------
Custodian fees
(Note 4) 7,974
- ---------------
Portfolio
accounting,
transfer and
dividend
disbursing
agent fees and
expenses (Note
4) 34,121
- ---------------
Fund share
registration
fees 7,341
- ---------------
Auditing fees 7,604
- ---------------
Legal fees 3,203
- ---------------
Printing and
postage 6,354
- ---------------
Insurance
premiums 3,730
- ---------------
Distribution
services fee
(Note 4) 109,894
- ---------------
Miscellaneous 1,563
- --------------- ------------
Total
expenses 479,137
- ---------------
Deduct--Waiver
of
distribution
services fee
(Note 4) 109,894
- --------------- ------------
Net expenses 369,243
- ---------------------------- ----------
Net investment income $1,163,020
- ---------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Prime Obligations Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------
1994* 1993
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income $ 1,163,020 $ 2,515,354
- ------------------------------------------------ ------------- -------------
Distributions to Shareholders (Note 2C)--
- ------------------------------------------------
Dividends to shareholders from net investment
income (1,163,020) (2,515,354)
- ------------------------------------------------ ------------- -------------
Fund Share (Principal) Transactions (Note 3)--
- ------------------------------------------------
Proceeds from sale of shares 235,295,596 483,797,019
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 50,696
- ------------------------------------------------
Cost of shares redeemed (241,408,326) (504,033,551)
- ------------------------------------------------ ------------- -------------
Change in net assets from Fund share
transactions (6,112,730) (20,185,836)
- ------------------------------------------------ ------------- -------------
Change in net assets (6,112,730) (20,185,836)
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 92,451,734 112,637,570
- ------------------------------------------------ ------------- -------------
End of period $ 86,339,004 $ 92,451,734
- ------------------------------------------------ ------------- -------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Star Prime Obligations Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------
1994* 1993 1992 1991 1990**
- ------------------------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------
Income from investment
operations
- -------------------------
Net investment income 0.01 0.02 0.03 0.05 0.06
- ------------------------- ------ ------ ------ ------ ------
Less distributions
- -------------------------
Dividends to sharehold-
ers from net investment
income (0.01) (0.02) (0.03) (0.05) (0.06)
- ------------------------- ------ ------ ------ ------ ------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------- ------ ------ ------ ------ ------
Total return*** 1.33% 2.48% 3.37% 5.62% 6.31%
- -------------------------
Ratios to Average Net As-
sets
- -------------------------
Expenses 0.84%(b) 0.82% 0.80% 0.87% 0.78%(b)
- -------------------------
Net investment income 2.65%(b) 2.45% 3.33% 5.31% 7.50%(b)
- -------------------------
Expense waiver/
reimbursement (a) 0.25%(b) 0.25% 0.25% 0.10% 0.03%(b)
- -------------------------
Supplemental Data
- -------------------------
Net assets, end of
period (000 omitted) $86,339 $92,452 $112,638 $107,164 $54,441
- -------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from February 5, 1990 (date of initial
public investment) to November 30, 1990.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Star Tax-Free Money Market Fund
Portfolio of Investments
May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- ----------------------------------------- ---------- ------------
Short-Term Municipal Securities--99.2%
----------------------------------------------------
Alabama--0.9%
-----------------------------------------
$1,200,000 BMC Special Care Facilities Financing
Authority of Montgomery, AL, Weekly VRDNs
(VHA of Alabama, Inc. Capital Asset
Financing Program)/(AMBAC Insured) A-1 $ 1,200,000
----------------------------------------- ------------
California--8.1%
-----------------------------------------
3,000,000 California Higher Education Loan
Authority, Inc., 2.70% (Series 87B)/(SLMA
LOC), 7/1/94 VMIG1 3,000,000
-----------------------------------------
2,000,000 California State, 3.75% Revenue
Anticipation Warrants (Series A),
12/21/94 MIG1 2,008,134
-----------------------------------------
2,000,000 Los Angeles County, CA, 3.00% TRANs,
6/30/94 MIG1/SP-1+ 2,000,696
-----------------------------------------
2,000,000 Placer County, CA, 3.25% TRANs, 8/10/94 MIG1/NR 1,999,779
-----------------------------------------
1,500,000 Student Education Loan Marketing Corp.,
CA, 2.65% (Dresdner Bank A.G. LOC),
Mandatory Tender 11/1/94 VMIG1 1,500,000
----------------------------------------- ------------
Total 10,508,609
----------------------------------------- ------------
Colorado--0.6%
-----------------------------------------
720,000 Loveland, CO, 3.40% Industrial
Development Revenue Bonds (Bankers Trust
Co. LOC), Mandatory Tender 12/1/94 A-1+ 720,000
----------------------------------------- ------------
Florida--1.5%
-----------------------------------------
2,000,000 Escambia County, FL, IDA Weekly VRDNs
(Series 1991)/(Pacer Industries,
Inc.)/(Trust Company Bank LOC) AA-3 2,000,000
----------------------------------------- ------------
Georgia--1.7%
-----------------------------------------
225,000 Georgia State Municipal Electric
Authority, 6.50% Revenue Bonds, 1/1/95 AAA 229,779
-----------------------------------------
2,000,000 Municipal Electric Authority, GA, 2.55%
(Series 1985B)/ (General Resolution
Project), Optional Tender 6/1/94 VMIG1 2,000,000
----------------------------------------- ------------
Total 2,229,779
----------------------------------------- ------------
Illinois--17.6%
-----------------------------------------
2,000,000 Cook County, IL, Adjustable Demand
Revenue Bonds Weekly VRDNs (Series 1988A-
1)/(Catholic Charities Development
Corporation)/(National Westminster LOC) NR/VMIG1 2,000,000
-----------------------------------------
1,500,000 Illinois Development Finance Authority,
2.40% (Illinois Power Company)/(Canadian
Imperial Bank LOC), Mandatory Tender
6/8/94 A-1+/P1 1,500,000
-----------------------------------------
2,200,000 Illinois Educational Facilities Authority
Weekly VRDNs (Newberry Library)/(Northern
Trust LOC) VMIG1 2,200,000
-----------------------------------------
</TABLE>
Star Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- ----------------------------------------- ---------- ------------
Short-Term Municipal Securities--continued
----------------------------------------------------
Illinois--continued
-----------------------------------------
$2,000,000 Illinois Educational Facilities Authority
Weekly VRDNs (Series 1992)/(DePaul
University)/(Sanwa Bank, Ltd. LOC) VMIG1 $ 2,000,000
-----------------------------------------
2,000,000 Illinois Health Facilities Authority
Weekly VRDNs (Gottlieb Health Resources,
Inc.)/(First National Bank of Chicago
LOC) VMIG1 2,000,000
-----------------------------------------
2,600,000 Illinois Health Facilities Authority
Weekly VRDNs (Revolving Fund Pooled
Financing Program)/(Swiss Bank LOC) VMIG1 2,600,000
-----------------------------------------
4,000,000 Illinois Health Facilities Authority
Weekly VRDNs (West Suburban Hospital
Medical Center)/(First National Bank of
Chicago LOC) VMIG1 4,000,000
-----------------------------------------
4,000,000 Illinois Health Facilities Authority,
3.15% (Victory Health Services
Project)/(First National Bank of Chicago
LOC), Mandatory Tender 7/14/94 VMIG1 4,000,000
-----------------------------------------
2,000,000 Schaumburg, IL, IDR Weekly VRDNs (Nations
Bank,
NC, LOC) AA-3 2,000,000
-----------------------------------------
500,000 Springfield, IL, Community Improvement
Weekly VRDNs (Kent Family,
Inc.)/(Pittsburgh National Bank LOC) AA-1 500,000
----------------------------------------- ------------
Total 22,800,000
----------------------------------------- ------------
Indiana--11.4%
-----------------------------------------
3,195,000 City of Logansport, IN, Weekly VRDNs
(MMMs Investment Project)/(Bank One,
Indianapolis LOC) NR(B) 3,195,000
-----------------------------------------
3,000,000 Indiana Bond Bank, 3.03% (Series 1993A-
2), 1/17/95 SP-1+/MIG1 3,005,137
-----------------------------------------
4,000,000 Indianapolis, IN, EDR Weekly VRDNs (First
Union National Bank LOC)/(Rand McNally
Project) A-1 4,000,000
-----------------------------------------
3,000,000 Purdue University Student Fee, Weekly
VRDNs VMIG1 3,000,000
-----------------------------------------
1,500,000 St. Joseph County, IN, 2.50%, 6/30/94 NR/A-1 1,500,000
----------------------------------------- ------------
Total 14,700,137
----------------------------------------- ------------
Iowa--1.5%
-----------------------------------------
2,000,000 State of Iowa, 3.25% TRANs, 6/30/94 MIGI/SP-1+ 2,000,572
----------------------------------------- ------------
Kentucky--2.9%
-----------------------------------------
2,000,000 City of Fulton, KY, IDA Weekly VRDNs
(United Health Care of Kentucky,
Inc.)/(First Union National Bank,
Charlotte LOC) VMIG1 2,000,000
-----------------------------------------
1,800,000 City of Louisville, KY, IDA Weekly VRDNs
(222 Project)/(Citizens Fidelity Bank
LOC) A-1 1,800,000
----------------------------------------- ------------
Total 3,800,000
----------------------------------------- ------------
Maine--0.8%
-----------------------------------------
1,000,000 Maine State Turnpike Authority, 3.15%
BANs, 10/3/94 MIG1 1,001,665
----------------------------------------- ------------
</TABLE>
Star Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- ----------------------------------------- ---------- ------------
Short-Term Municipal Securities--continued
----------------------------------------------------
Maryland--0.8%
-----------------------------------------
$1,000,000 Maryland IDA EDR, Weekly VRDNs (Nations
Bank, NC, LOC) (Maryland Academy of
Sciences Project) VMIG1 $ 1,000,000
----------------------------------------- ------------
Michigan--0.8%
-----------------------------------------
1,010,000 Economic Development Corp. of Lenawee,
MI, Weekly VRDNs (Series 1989)/
(Hardwoods of Michigan, Inc.)/(National
City Bank, Cleveland LOC) VMIG1 1,010,000
----------------------------------------- ------------
Missouri--5.7%
-----------------------------------------
1,000,000 Forest, MS, IDR Weekly VRDNs (Sara Lee
Corporation) AA- 1,000,000
-----------------------------------------
900,000 Independence, MO, IDA Weekly VRDNs
(Shoney's Inn of Independence)/ (Wachovia
Bank of Co. LOC) NR(B) 900,000
-----------------------------------------
2,100,000 Independence, MO, 2.70% Water Utility
Revenue Bonds (National Westminster LOC),
Mandatory Tender 6/10/94 VMIG1 2,100,000
-----------------------------------------
1,000,000 State of Missouri, Environmental
Improvement and Energy Resources
Authority, Weekly VRDNs (Kansas City
Power & Light Co.) VMIG1 1,000,000
-----------------------------------------
2,366,000 State of Missouri, Environmental
Improvement and Energy Resources
Authority, 3.30% (Kansas City Power &
Light Co.), 9/29/94 P-1 2,366,000
----------------------------------------- ------------
Total 7,366,000
----------------------------------------- ------------
New Mexico--1.8%
-----------------------------------------
2,300,000 City of Belen, NM, IDA Weekly VRDNs
(United Desiccaills, Inc.)/(National City
Bank, KY) NR(B) 2,300,000
----------------------------------------- ------------
Ohio--12.0%
-----------------------------------------
500,000 Centerville, OH, Health Care Revenue,
Weekly VRDNs (Bethany Village Continuing
Care Facility)/(PNC Bank LOC) VMIG1 500,000
-----------------------------------------
1,500,000 Cincinnati, OH, 3.15% TANs (Cincinnati
City School District)/(Series D), 6/28/94 NR(C) 1,500,159
-----------------------------------------
1,000,000 Columbus, OH, Sewer Revenue, Weekly VRDNs VMIG1 1,000,000
-----------------------------------------
3,000,000 Columbus, OH, 2.85%, 9/15/94 AA+/AA1 3,000,111
-----------------------------------------
2,230,000 Marion County, OH, Hospital Revenue Bonds
Weekly VRDNs (Pooled Lease Program)/(Bank
One, Columbus, N.A. LOC) A-1+ 2,230,000
-----------------------------------------
2,035,000 Ohio State, IDR Weekly VRDNs (Cincinnati
Riverfront Coliseum)/(Pittsburgh National
Bank LOC) NR/AA3 2,035,000
-----------------------------------------
600,000 Ohio State University, Weekly VRDNs
(Series 1992B)/ (General Receipts) VMIG1/A-1+ 600,000
-----------------------------------------
700,000 University of Cincinnati, OH, 2.82% BANs,
9/1/94 MIG1/SP-1+ 700,990
-----------------------------------------
2,000,000 University of Cincinnati, OH, 3.02%,
BANs, 9/1/94 MIG1/SP-1+ 2,001,079
-----------------------------------------
</TABLE>
Star Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- ------------------------------------------ ---------- -----------
Short-Term Municipal Securities--continued
------------------------------------------ -----------
Ohio--continued
-----------------------------------------------------
$2,000,000 University of Cincinnati, OH, 4.00%, BANs,
3/23/95 MIG1/SP-1+ $ 2,011,735
------------------------------------------ -----------
Total 15,579,074
------------------------------------------ -----------
Pennsylvania--5.9%
------------------------------------------
4,000,000 Allegheny County, PA, IDR, 2.70% (Duquesne
Light Company)/(Canadian Imperial Bank
LOC), Mandatory Tender 7/12/94 P1/AA- 4,000,000
------------------------------------------
575,000 Allegheny County, PA, Hospital Development
Revenue Bonds Daily VRDNs (Series B-
3)/(Presbyterian University Hospital)/(PNC
Bank LOC) VMIG1 575,000
------------------------------------------
700,000 Allegheny County, PA, Hospital Development
Revenue Bonds Daily VRDNs (Series
A)/(Presbyterian University
Hospital)/(SPA--Credit Suisse)/(MBIA
Insured) VMIG1 700,000
------------------------------------------
590,000 Allegheny County, PA, Hospital Development
Revenue Bonds Daily VRDNs (Series
B)/(Presbyterian University
Hospital)/(SPA--Credit Suisse)/(MBIA
Insured) VMIG1 590,000
------------------------------------------
500,000 Allegheny County, PA, Hospital Development
Revenue Bonds Daily VRDNs (Series
C)/(Presbyterian University
Hospital)/(SPA--Credit Suisse)/(MBIA
Insured) VMIG1 500,000
------------------------------------------
300,000 Allegheny County, PA, Hospital Development
Revenue Bonds Daily VRDNs (Series
D)/(Presbyterian University
Hospital)/(SPA--Credit Suisse)/(MBIA
Insured) VMIG1 300,000
------------------------------------------
1,000,000 East Penn, PA, Industrial & Commercial
Development Authority, Weekly VRDNs
(Electronic Data System Corp.)/(Wachovia
LOC) AA2 1,000,000
------------------------------------------ -----------
Total 7,665,000
------------------------------------------ -----------
Tennessee--4.2%
------------------------------------------
1,000,000 Greenville, Tennessee, IDR Weekly VRDNs
(Ball Corporation)/(Wachovia Bank LOC) AA+ 1,000,000
------------------------------------------
400,000 State of Tennessee, BANs Weekly VRDNs VMIG1 400,000
------------------------------------------
4,020,000 Sullivan, TN, HEFA Weekly VRDNs (Asbury
Center)/(Nations Bank, NC, LOC) NR(C) 4,020,000
------------------------------------------ -----------
Total 5,420,000
------------------------------------------ -----------
Texas--14.6%
------------------------------------------
2,580,000 Bexar County, TX, HFDC Retirement
Community Weekly VRDNs (Army Retirement-
Residence Foundation)/(Banque Parabis LOC) A-1 2,580,000
------------------------------------------
2,000,000 Greater East, TX, Higher Education
Authority, 3.05% Student Loan Revenue
Bonds (Series 1992A)/(Student Loan
Marketing Association LOC), Mandatory
Tender 6/3/94 VMIG1 2,000,000
------------------------------------------
3,200,000 Gulf Coast, TX, IDA Weekly VRDNs (Bay
Tank, Inc.)/(Morgan Guaranty Trust Co.
LOC) NR(A) 3,200,000
------------------------------------------
</TABLE>
Star Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- ----------------------------------------- ---------- ------------
Short-Term Municipal Securities--continued
----------------------------------------------------
Texas--continued
-----------------------------------------
$1,100,000 Houston, TX, Weekly VRDNs (Series A) VMIG1 $ 1,100,000
-----------------------------------------
1,100,000 Lone Star, TX, Airport Improvement
Authority 3.35% Multi-Mode Demand Bonds
(Series B-4)/(American Airlines)/(Bank of
New York LOC), Mandatory Tender 11/17/94 VMIG1 1,100,000
-----------------------------------------
2,200,000 Lone Star, TX, Airport Improvement
Authority 2.35% Multi-Mode Demand Bonds
(Series B-3)/(American Airlines)/(Bank of
New York LOC), Mandatory Tender 6/13/94 VMIG1 2,200,000
-----------------------------------------
2,000,000 San Antonio, TX, IDA Weekly VRDNs (San
Antonio Rivercenter Association)/(PNC
Bank LOC) AA3 2,000,000
-----------------------------------------
1,500,000 State of Texas, 3.50%, 10/1/94 AA 1,503,676
-----------------------------------------
1,925,000 State of Texas, 3.25% TRANs, 8/31/94 MIG1/SP-1+ 1,927,548
-----------------------------------------
1,230,000 Texas Hospital Equipment Financing
Council Weekly VRDNs (Series 1985A)/(MBIA
Insured) AAA/AAA 1,230,000
----------------------------------------- ------------
Total 18,841,224
----------------------------------------- ------------
Utah--0.3%
-----------------------------------------
400,000 Castle Dale, UT, 2.50% IDR Bonds
(Safeway, Inc.)/(Bankers Trust Co. LOC),
Mandatory Tender 8/1/94 A-1+ 400,000
----------------------------------------- ------------
Virginia--3.6%
-----------------------------------------
1,990,000 Charlottesville, VA, 2.75% IDA (Safeway
Inc.)/(Bankers Trust Co. LOC) Optional
Tender 6/01/94 A-1+ 1,990,000
-----------------------------------------
1,920,000 Charlottesville, VA, 3.40%, IDR Bonds
(Safeway, Inc.)/(Bankers Trust Co. LOC),
Mandatory Tender 12/1/94 A-1+ 1,920,000
-----------------------------------------
800,000 Virginia HDA, A.H.C. Service Center
Weekly VRDNs (Series 1987A)/(Mitsubishi
Bank, Ltd. LOC) P-1 800,000
----------------------------------------- ------------
Total 4,710,000
----------------------------------------- ------------
Wisconsin--1.6%
-----------------------------------------
2,000,000 School District of Waukesha, WI, 3.25%
TRANs, 10/28/94 NR(B) 2,003,565
----------------------------------------- ------------
Wyoming--0.9%
-----------------------------------------
1,200,000 Gillette, WY, 3.15% Pollution Control
Revenue Bonds (PacificCorp)/(Deutsche
Bank, A.G., NY LOC), 7/18/94 P-1/A-1+ 1,200,000
----------------------------------------- ------------
Total Short-Term Municipal Securities 128,455,625
----------------------------------------- ------------
</TABLE>
Star Tax-Free Money Market Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Credit
Rating:
Principal Moody's
Amount or S&P* Value
<C> <S> <C> <C>
---------- -------------------------------------- --- ------------
Other--1.3%
-------------------------------------------------
$1,574,345 Dreyfus Tax Exempt Money Market Fund $ 1,574,345
--------------------------------------
57,804 Vanguard Municipal Bond Fund, Inc. 57,804
-------------------------------------- ------------
Total Other (at net asset value) 1,632,149
-------------------------------------- ------------
Total Investments (at amortized cost) $130,087,774+
-------------------------------------- ------------
</TABLE>
+Also represents cost for federal tax purposes.
*Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($129,499,920) at May 31, 1994.
The following abbreviations are used in this portfolio:
AMBAC--American Municipal Bond LOC(s)--Letter(s) of Credit
Assurance Corp. MBIA--Municipal Bond Investors
BANs--Bond Anticipation Notes Assurance
EDR--Economic Development MMMs--Money Market Municipals
Revenue SLMA--Student Loan Marketing
HDA--Housing Development Association
Authority SPA--Standby Purchase Agreement
HEFA--Health and Education TANs--Tax Anticipation Notes
Facility Authority TRANs--Tax Revenue Anticipation
HFDC--Health Facilities Notes
Development Corporation VHA--Veterans Housing
IDA--Industrial Development Administration
Authority VRDNs--Variable Rate Demand
IDR--Industrial Development Notes
Revenue
(See Notes which are an integral part of the Financial Statements)
Star Tax-Free Money Market Fund
Statement of Assets and Liabilities
May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ------------------------------------------------------ ----------
Investments in securities, at amortized cost and value
(Note 2A) $130,087,774
- ------------------------------------------------------ ----------
Cash 4,251
- ------------------------------------------------------ ----------
Receivable for investments sold 1,500,000
- ------------------------------------------------------ ----------
Interest receivable 834,972
- ------------------------------------------------------ ----------
Deferred expenses (Note 2F) 13,656
- ------------------------------------------------------ ---------- ------------
Total assets 132,440,653
- ------------------------------------------------------ ----------
Liabilities:
- ------------------------------------------------------ ----------
Payable for investments purchased $2,640,000
- ------------------------------------------------------
Dividends payable 252,187
- ------------------------------------------------------
Accrued expenses 48,546
- ------------------------------------------------------ ----------
Total liabilities 2,940,733
- ------------------------------------------------------ ---------- ------------
Net Assets for 129,499,920 shares of beneficial
interest outstanding $129,499,920
- ------------------------------------------------------ ---------- ------------
Net Asset Value, Offering Price, and Redemption
Proceeds Per Share:
($129,499,920 / 129,499,920 shares of beneficial
interest outstanding)
$1.00
- ------------------------------------------------------ ---------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Tax-Free Money Market Fund
Statement of Operations
Six Months Ended May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- -----------------------------------------------------------------
Interest income (Note 2C) $1,778,792
- -----------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------
Investment advisory fee (Note 4) $ 388,540
- ------------------------------------------------------
Trustees' fees 1,603
- ------------------------------------------------------
Administrative personnel and services fee (Note 4) 87,685
- ------------------------------------------------------
Custodian fees (Note 4) 17,609
- ------------------------------------------------------
Portfolio accounting, transfer and dividend
disbursing agent fees and expenses (Note 4) 32,205
- ------------------------------------------------------
Fund share registration fees 11,788
- ------------------------------------------------------
Auditing fees 9,871
- ------------------------------------------------------
Legal fees 5,192
- ------------------------------------------------------
Printing and postage 8,725
- ------------------------------------------------------
Insurance premiums 3,939
- ------------------------------------------------------
Distribution services fee (Note 4) 176,609
- ------------------------------------------------------
Miscellaneous 5,056
- ------------------------------------------------------ ----------
Total expenses 748,822
- ------------------------------------------------------
Deduct--
- ------------------------------------------------------
Waiver of investment advisory fee (Note 4) $105,965
- --------------------------------------------
Waiver of distribution services fee (Note 4) 176,609 282,574
- -------------------------------------------- -------- ----------
Net expenses 466,248
- ----------------------------------------------------------------- ----------
Net investment income $1,312,544
- ----------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Tax-Free Money Market Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------
1994* 1993
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ----------------------------------------------
Operations--
- ----------------------------------------------
Net investment income $ 1,312,544 $ 2,517,686
- ---------------------------------------------- ------------- -------------
Distributions to Shareholders (Note 2C)--
- ----------------------------------------------
Dividends to shareholders from net investment
income (1,312,544) (2,517,686)
- ---------------------------------------------- ------------- -------------
Fund Share (Principal) Transactions (Note 3)--
- ----------------------------------------------
Proceeds from sale of shares 234,243,893 361,101,526
- ----------------------------------------------
Cost of shares redeemed (239,766,319) (370,566,359)
- ---------------------------------------------- ------------- -------------
Change in net assets from Fund share
transactions (5,522,426) (9,464,833)
- ---------------------------------------------- ------------- -------------
Change in net assets (5,522,426) (9,464,833)
- ----------------------------------------------
Net Assets:
- ----------------------------------------------
Beginning of period 135,022,346 144,487,179
- ---------------------------------------------- ------------- -------------
End of period $ 129,499,920 $ 135,022,346
- ---------------------------------------------- ------------- -------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Star Tax-Free Money Market Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------
1994* 1993 1992 1991**
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------
Income from investment opera-
tions
- -------------------------------
Net investment income 0.01 0.02 0.03 0.03
- ------------------------------- ------ ------ ------ ------
Less distributions
- -------------------------------
Dividends to shareholders from
net
investment income (0.01) (0.02) (0.03) (0.03)
- ------------------------------- ------ ------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------- ------ ------ ------ ------
Total return*** 0.94% 1.91% 2.59% 2.84%
- -------------------------------
Ratios to Average Net Assets
- -------------------------------
Expenses 0.66%(a) 0.65% 0.66% 0.55%(a)
- -------------------------------
Net investment income 1.86%(a) 1.90% 2.54% 3.95%(a)
- -------------------------------
Expense waiver/reimbursement
(b) 0.40%(a) 0.40% 0.40% 0.48%(a)
- -------------------------------
Supplemental Data
- -------------------------------
Net assets, end of period (000
omitted) $129,500 $135,022 $144,487 $113,731
- -------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from March 15, 1991 (date of initial
public investment), to November 30, 1991.
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Star Treasury Fund
Portfolio of Investments
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- -------------------------------------------------- ------------
<C> <S> <C>
Short-Term Obligations--33.3%
--------------------------------------------------------------
$42,000,000 U.S. Treasury Bills, 6/16/94-6/23/94 $ 41,926,237
--------------------------------------------------
73,250,000 U.S. Treasury Notes, 3.875%-8.25%, 6/30/94-6/30/95 73,358,566
-------------------------------------------------- ------------
Total Short-Term Obligations 115,284,803
-------------------------------------------------- ------------
*Repurchase Agreements--66.8%
--------------------------------------------------------------
Carroll McEntee & McGinley, Inc., 4.20%, dated
17,000,000 5/31/94, due 6/1/94 17,000,000
--------------------------------------------------
85,189,000 Donaldson, Lufkin & Jenrette Securities Corp., 85,189,000
4.22%, dated 5/31/94, due 6/1/94
--------------------------------------------------
16,000,000 First Boston Corp., 4.20%, dated 5/31/94, due 16,000,000
6/1/94
--------------------------------------------------
Kidder Peabody & Co., Inc., 4.20%, dated 5/31/94,
80,000,000 due 6/1/94 80,000,000
--------------------------------------------------
Morgan Stanley & Co., Inc., 4.20%, dated 5/31/94,
16,500,000 due 6/1/94 16,500,000
--------------------------------------------------
Sanwa-BGK Securities Co., 4.20%, dated 5/31/94,
16,500,000 due 6/1/94 16,500,000
-------------------------------------------------- ------------
Total Repurchase Agreements (Note 2B) 231,189,000
-------------------------------------------------- ------------
Total Investments (at amortized cost) $346,473,803+
-------------------------------------------------- ------------
</TABLE>
+Also represents cost for federal tax purposes.
* The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
Note:The categories of investments are shown as a percentage of net assets
($346,249,435) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
Star Treasury Fund
Statement of Assets and Liabilities
May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ------------------------------------------------
Investments in repurchase agreements (Note 2B) $231,189,000
- ------------------------------------------------
Investments in securities 115,284,803
- ------------------------------------------------ ------------
Total investments, at amortized cost and value
(Note 2A) $346,473,803
- ------------------------------------------------ ------------
Cash 651
- ------------------------------------------------ ------------
Interest receivable 756,836
- ------------------------------------------------ ------------ ------------
Total assets 347,231,290
- ------------------------------------------------ ------------
Liabilities:
- ------------------------------------------------ ------------
Dividends payable 902,088
- ------------------------------------------------
Accrued expenses 79,767
- ------------------------------------------------ ------------
Total liabilities 981,855
- ------------------------------------------------ ------------ ------------
Net Assets for 346,249,435 shares of beneficial
interest outstanding $346,249,435
- ------------------------------------------------ ------------ ------------
Net Asset Value, Offering Price, and Redemption
Proceeds Per Share:
($346,249,435 / 346,249,435 shares of beneficial
interest outstanding)
$1.00
- ------------------------------------------------ ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Treasury Fund
Statement of Operations
Six Months Ended May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Investment Income:
- ----------------------------
Interest income (Note 2C) $5,796,680
- ----------------------------
Expenses:
- ----------------------------
Investment
advisory fee
(Note 4) $850,698
- -----------------
Trustees' fees 3,335
- -----------------
Administrative
personnel and
services fee
(Note 4) 210,985
- -----------------
Custodian fees
(Note 4) 44,009
- -----------------
Portfolio
accounting,
transfer and
dividend
disbursing agent
fees and expenses
(Note 4) 58,406
- -----------------
Fund share
registration
fees 9,297
- -----------------
Auditing fees 9,871
- -----------------
Legal fees 3,732
- -----------------
Printing and
postage 9,543
- -----------------
Insurance
premiums 5,557
- -----------------
Distribution
services fee
(Note 4) 425,349
- -----------------
Miscellaneous 2,558
- ----------------- ----------
Total expenses 1,633,340
- -----------------
Deduct--Waiver of
distribution
services fee
(Note 4) 425,349
- ----------------- ----------
Net expenses 1,207,991
- ---------------------------- ----------
Net investment income $4,588,689
- ---------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Treasury Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Year Ended November 30,
--------------------------------
1994* 1993
--------------- ---------------
Increase (Decrease) in Net Assets:
- -----------------------------------------
Operations--
- -----------------------------------------
Net investment income $ 4,588,689 $ 8,718,009
- ----------------------------------------- --------------- ---------------
Distributions to Shareholders (Note 2C)--
- -----------------------------------------
Dividends to shareholders from net
investment income (4,588,689) (8,718,009)
- ----------------------------------------- --------------- ---------------
Fund Share (Principal) Transactions (Note
3)--
- -----------------------------------------
Proceeds from sale of shares 2,312,939,396 6,480,157,946
- -----------------------------------------
Net asset value of shares issued to
shareholders in payment of dividends
declared 753 --
- -----------------------------------------
Cost of shares redeemed (2,352,710,827) (6,440,645,468)
- ----------------------------------------- --------------- ---------------
Change in net assets from Fund share
transactions (39,770,678) 39,512,478
- ----------------------------------------- --------------- ---------------
Change in net assets (39,770,678) 39,512,478
- -----------------------------------------
Net Assets:
- -----------------------------------------
Beginning of period 386,020,113 346,507,635
- ----------------------------------------- --------------- ---------------
End of period $ 346,249,435 $ 386,020,113
- ----------------------------------------- --------------- ---------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Star Treasury Fund
Financial Highlights
- -------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------------------------------
1994* 1993 1992 1991 1990 1989**
- ---------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------
Income from investment
operations
- ----------------------
Net investment income 0.01 0.03 0.03 0.06 0.07 0.05
- ---------------------- ------ ------ ------ ------ ------ ------
Less distributions
- ----------------------
Dividends to
shareholders from net
investment income (0.01) (0.03) (0.03) (0.06) (0.07) (0.05)
- ---------------------- ------ ------ ------ ------ ------ ------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------- ------ ------ ------ ------ ------ ------
Total return*** 1.36% 2.56% 3.41% 5.72% 7.72% 5.36%
- ----------------------
Ratios to Average
Net Assets
- ----------------------
Expenses 0.71%(a) 0.70% 0.71% 0.71% 0.73% 0.77%(a)
- ----------------------
Net investment income 2.70%(a) 2.53% 3.33% 5.51% 7.44% 8.28%(a)
- ----------------------
Expense waiver/
reimbursement (b) 0.25%(a) 0.25% 0.25% 0.10% 0.03% 0.01%(a)
- ----------------------
Supplemental Data
- ----------------------
Net assets, end of
period (000 omitted) $346,249 $386,020 $346,508 $307,278 $226,519 $174,062
- ----------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from April 14, 1989 (date of initial
public investment) to November 30, 1989.
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Star Funds
Combined Notes to Financial Statements
May 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Star Funds (the "Trust"), is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company. The
Trust consists of seven diversified portfolios (individually referred to as a
"Fund", or collectively as the "Funds"). The financial statements included
herein are only those of Star Prime Obligations Fund ("Prime Obligations"),
Star Tax-Free Money Market Fund ("Tax-Free"), and Star Treasury Fund
("Treasury"). As of May 31, 1994, Star Capital Appreciation Fund was effective
but did not have public investment. The financial statements of the other
portfolios of the Trust 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.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Each Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2A-7 under the Act.
Investments in other regulated investment companies are valued at net asset
value.
B. Repurchase Agreements--It is the policy of the Funds 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 Funds to
monitor on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees ("Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Funds could receive less than the repurchase price on the
sale of collateral securities.
C. Investment Income, Expenses and Distributions--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. Federal Taxes--It is each Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable or tax-exempt
income. Accordingly, no provisions for federal tax are necessary.
E. When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and 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 each 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
each Fund's commencement date.
G.Other--Investment transactions are accounted for on the trade date.
Star Funds
- --------------------------------------------------------------------------------
(3) 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). At May
31, 1994, capital paid-in for Prime Obligations, Tax-Free and Treasury aggre-
gated $86,339,004, $129,499,920, and $346,249,435, respectively. Transactions
in Fund shares were as follows:
<TABLE>
<CAPTION>
Prime Obligations
--------------------------
Year Ended November 30,
--------------------------
1994* 1993
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 235,295,596 483,797,019
- -------------------------------------------------
Shares issued to shareholders in payment of divi-
dends declared 50,696
- -------------------------------------------------
Shares redeemed (241,408,326) (504,033,551)
- -------------------------------------------------
------------ ------------
Net changes resulting from Fund share transac-
tions (6,112,730) (20,185,836)
- -------------------------------------------------
------------ ------------
<CAPTION>
Tax-Free
--------------------------
Year Ended November 30,
--------------------------
1994* 1993
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 234,243,893 361,101,526
- -------------------------------------------------
Shares issued to shareholders in payment of divi-
dends declared -- --
- -------------------------------------------------
Shares redeemed (239,766,319) (370,566,359)
- -------------------------------------------------
------------ ------------
Net change resulting from Fund share transac-
tions (5,522,426) (9,464,833)
- -------------------------------------------------
------------ ------------
</TABLE>
* Six months ended May 31, 1994.
Treasury
------------------------------
Year Ended November 30,
------------------------------
1994* 1993
- --------------------------------------------- -------------- --------------
Shares sold 2,312,939,396 6,480,157,946
- ---------------------------------------------
Shares issued to shareholders in payment of
dividends declared 753 --
- ---------------------------------------------
Shares redeemed (2,352,710,827) (6,440,645,468)
- ---------------------------------------------
-------------- --------------
Net change resulting from Fund share trans-
actions (39,770,678) 39,512,478
- ---------------------------------------------
-------------- --------------
* Six months ended May 31, 1994.
(4) Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Star Bank, N.A., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee based
on a percentage of each Fund's average daily net assets (see below). The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
certain operating expenses of each Fund. The Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
<TABLE>
<CAPTION>
Annual
Fund Rate
- ---------------------- ------
<S> <C>
Prime Obligations Fund 0.55%
- ----------------------
Tax-Free Fund 0.55%
- ----------------------
Treasury Fund 0.50%
- ----------------------
</TABLE>
Administrative Fee--Federated Administrative Services ("FAS") provides each
Fund with certain administrative personnel and services. The FAS fee is based
on the level of average aggregate net assets of the Trust for the period. FAS
may voluntarily choose to waive a portion of its fee.
Distribution Plan--The Trust has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Funds
will compensate Federated Securities Corp.
Star Funds
- -------------------------------------------------------------------------------
("FSC"), the principal distributor, from the net assets of the Funds to
finance activities intended to result in the sale of the Funds Shares. The
Plan provides that the Funds may incur distribution expenses up to .25 of 1%
of the average daily net assets of the Funds, annually, to compensate FSC. The
distributor may voluntarily choose to waive its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent, Accounting and Custody Fees--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Funds. The FServ fee is based on the size, type and number of accounts
and transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of each Fund's average net assets for the period plus out-of-pocket
expenses.
Star Bank, N.A., is the Fund's custodian. The fee is based on the level of
each Fund's average net assets for the period plus out-of-pocket expenses.
Organizational Expenses--Organizational expenses of the Funds ($15,129 for
Prime Obligations, $17,739 for Tax-Free, and $35,260 for Treasury) were borne
initially by the Administrator. The Funds have agreed to reimburse the
Administrator at an annual rate of .005 of 1% of average daily net assets
until expenses initially borne by the Administrator are fully reimbursed, or
five years from the date the portfolio became effective, whichever first
occurs. For Tax-Free, the portfolios' effective date is March 14, 1991. For
the six months ended May 31, 1994, the fund paid $3,575 pursuant to this
agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors
or Trustees of the above companies.
Trustees Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
James E. Dowd President and Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Joseph S. Machi
Peter E. Madden Vice President and Assistant Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
President's Message
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for the Star
Relative Value Fund (the "Fund"), which covers the six-month period ended May
31, 1994. The Report begins with an interview with the Fund's portfolio manager
and follows with a complete list of the Fund's investments, as well as its
Financial Statements.
To help your investment grow in value, the Fund pursues a high level of total
return through a portfolio of stocks that appear to be undervalued and offer
above-average yields with low volatility.
Rising interest rates, which affected all financial markets, made an impact on
the Fund. At the end of the period, the Fund's net asset value stood at $11.62
per share. This figure represented a decrease of $0.18 per share compared to
the net asset value at the beginning of the period. However, the Fund paid
distributions of $0.15 per share in dividends and capital gains over the
period.
At the end of the period, more than 90% of the Fund's portfolio remained highly
diversified among well-known stocks, such as Aluminum Company of America,
General Electric, Goodyear Tire and Rubber, Ford, Philip Morris, Procter &
Gamble, Texaco, Merck, ITT, and AT&T. The remainder of the portfolio was
invested in a U.S. Treasury note and a repurchase agreement. As of May 31,
1994, net assets stood at $63.1 million.
Thank you for your confidence in the Star Relative Value Fund as an investment
for your long-term goals. We will continue to keep you up to date on your
progress.
Sincerely,
LOGO
Edward C. Gonzales
President
July 15, 1994
Investment Review
- --------------------------------------------------------------------------------
An interview with Portfolio Manager
Q The recent series of interest rate increases had its effect on the finan-
cial markets. How did the stock market react to this and other influences?
A The stock market has struggled through the recent series of interest rate
increases. Other factors such as a weak dollar, concern over corporate
earnings, lack of confidence in our administration, and a declining
price/earnings ratio have added volatility to the financial markets.
Q In this environment, how did the Star Relative Value Fund (the "Fund") per-
form relative to the overall stock market?
A During the six-month period ended May 31, 1994, the Fund had a total return
of (0.33%)* on a net asset value basis compared to the Standard & Poor's
500** return of 0.23%. Over the past twelve months, the Fund had a total return
of 6.16%* on a net asset value basis versus the Standard & Poor's 500 return of
4.38%.***
Q What notable changes did you make to the Fund's portfolio and why?
A During the last six months, the Fund has continued to overweight the
capital goods sector of the market because of positive earnings revisions
to these stocks while remaining underweighted in consumer stocks due to margin
pressures and negative earnings revisions. An emphasis has been placed on
stocks with above average dividend yields and positive growth prospects such as
Dow Chemical, Royal Dutch, Texaco and GTE Corporation.
Q With interest rate jitters still affecting the market, what is your outlook
for the Fund, and what comments can you offer to our shareholders?
A The Fund is currently well diversified across various sectors of the market
with an emphasis on capital goods and energy stocks. These two sectors
represent one-third of the total portfolio. The Fund's cash level has
fluctuated between 5%-10% in 1994. With potential further interest rate hikes
on the horizon, individual stock selection will continue to play a major role
in determining investment performance over the balance of the year.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** This index is unmanaged.
*** During the six-month period ended May 31, 1994, the Fund had a total return
of (4.85%) with load charges. Over the past twelve months, the Fund had a
total return of 1.35% with load charges.
Star Relative Value Fund
Portfolio of Investments
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ------------------------------- -----------
<C> <S> <C>
Common Stocks--93.8%
-----------------------------------------
Basic Industry--7.0%
-------------------------------
12,000 Aluminum Co. of America $ 847,500
-------------------------------
27,000 Dow Chemical Co. 1,842,750
-------------------------------
3,750 Eastman Chemical Co. 180,469
-------------------------------
20,000 International Paper Co. 1,385,000
-------------------------------
5,750 Rayonier, Inc. 161,719
------------------------------- -----------
Total 4,417,438
------------------------------- -----------
Capital Goods--21.8%
-------------------------------
13,000 Boeing Co. 602,875
-------------------------------
52,000 General Electric Co. 2,580,500
-------------------------------
42,000 Intel Corp. 2,625,000
-------------------------------
29,000 International Business Machines 1,834,250
-------------------------------
55,000 Martin Marietta Corp. 2,392,500
-------------------------------
25,000 Motorola, Inc. 1,168,750
-------------------------------
40,500 Raytheon Co. 2,521,125
------------------------------- -----------
Total 13,725,000
------------------------------- -----------
Consumer Cyclical--12.8%
-------------------------------
25,000 Eastman Kodak Co. 1,171,875
-------------------------------
30,000 Ford Motor Co. 1,732,500
-------------------------------
70,000 Goodyear Tire and Rubber Co. 2,712,500
-------------------------------
48,000 Penney (J.C.), Inc. 2,454,000
------------------------------- -----------
Total 8,070,875
------------------------------- -----------
Consumer Staples--8.7%
-------------------------------
25,000 Gillette Co. 1,743,750
-------------------------------
20,000 Philip Morris Cos., Inc. 985,000
-------------------------------
49,000 Procter & Gamble Co. 2,762,375
------------------------------- -----------
Total 5,491,125
------------------------------- -----------
</TABLE>
Star Relative Value Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- -------------------------------------------------- -----------
<C> <S> <C>
Common Stocks--continued
------------------------------------------------------------
Energy--12.4%
--------------------------------------------------
42,000 Ashland Oil, Inc. $ 1,559,250
--------------------------------------------------
66,000 Nicor, Inc. 1,773,750
--------------------------------------------------
23,500 Royal Dutch Petroleum 2,511,563
--------------------------------------------------
31,000 Texaco, Inc. 1,968,500
-------------------------------------------------- -----------
Total 7,813,063
-------------------------------------------------- -----------
Finance--9.4%
--------------------------------------------------
29,700 Banc One Corp. 991,237
--------------------------------------------------
25,000 Cincinnati Financial Corp. 1,290,625
--------------------------------------------------
15,000 Federal National Mortgage Association 1,252,500
--------------------------------------------------
15,000 Mellon Bank Corp. 877,500
--------------------------------------------------
27,000 Nationsbank Corp. 1,495,125
-------------------------------------------------- -----------
Total 5,906,987
-------------------------------------------------- -----------
Health Care--6.6%
--------------------------------------------------
10,000 American Home Products Corp. 580,000
--------------------------------------------------
45,000 Bristol Myers Squibb Co. 2,458,125
--------------------------------------------------
36,000 Merck & Co., Inc. 1,098,000
-------------------------------------------------- -----------
Total 4,136,125
-------------------------------------------------- -----------
Miscellaneous--3.0%
--------------------------------------------------
23,000 ITT Corp. 1,920,500
--------------------------------------------------
-----------
Transportation--2.5%
--------------------------------------------------
29,000 Conrail, Inc. 1,591,375
--------------------------------------------------
-----------
Utilities--9.6%
--------------------------------------------------
40,000 AT&T Co. 2,180,000
--------------------------------------------------
45,000 GTE Corp. 1,389,375
--------------------------------------------------
40,000 Telefonos de Mexico SA 2,485,000
-------------------------------------------------- -----------
Total 6,054,375
-------------------------------------------------- -----------
Total Common Stocks (identified cost $53,132,642) 59,126,863
-------------------------------------------------- -----------
</TABLE>
Star Relative Value Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ------------------------------------------------ -----------
<C> <S> <C> <C>
U.S. Treasury Obligations--2.8%
-----------------------------------------------------------
U.S. Treasury Notes--2.8%
------------------------------------------------
$1,750,000 4.625%, 11/30/94 $ 1,747,340
------------------------------------------------ -----------
Total U.S. Treasury Obligations (identified 1,747,340
cost $1,746,719) -----------
------------------------------------------------
*Repurchase Agreement--3.0%
-----------------------------------------------------------
1,913,000 Donaldson, Lufkin & Jenrette, 4.25%, dated
5/31/94, due 6/1/94 1,913,000
(at amortized cost) (Note 2B) -----------
------------------------------------------------
Total Investments (identified cost $56,792,361) $62,787,203+
------------------------------------------------ -----------
</TABLE>
* 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 of investments for federal tax purposes amounts to $56,792,361. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,994,842, which is comprised of $6,456,833 appreciation and $461,991
depreciation at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($63,058,437) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
Star Relative Value Fund
Statement of Assets and Liabilities
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ------------------------------------------------------- --------
Investments in securities, at value (identified and tax
cost $56,792,361)
(Notes 2A and 2B) $62,787,203
- ------------------------------------------------------- --------
Cash 916
- ------------------------------------------------------- --------
Dividends and interest receivable 237,140
- ------------------------------------------------------- --------
Receivable for Fund shares sold 218,871
- ------------------------------------------------------- --------
Deferred expenses (Note 2F) 6,797
- ------------------------------------------------------- -------- -----------
Total assets 63,250,927
- ------------------------------------------------------- --------
Liabilities:
- ------------------------------------------------------- --------
Payable for Fund shares redeemed $121,592
- -------------------------------------------------------
Accrued expenses 70,898
- ------------------------------------------------------- --------
Total liabilities 192,490
- ------------------------------------------------------- -------- -----------
Net Assets for 5,425,025 shares of beneficial interest
outstanding $63,058,437
- ------------------------------------------------------- -------- -----------
Net Assets Consist of:
- ------------------------------------------------------- --------
Paid-in capital $57,461,966
- ------------------------------------------------------- --------
Net unrealized appreciation (depreciation) of
investments 5,994,842
- ------------------------------------------------------- --------
Accumulated net realized gain (loss) on investments (558,695)
- ------------------------------------------------------- --------
Undistributed net investment income 160,324
- ------------------------------------------------------- -------- -----------
Total Net Assets $63,058,437
- ------------------------------------------------------- -------- -----------
Net Asset Value and Redemption Proceeds Per Share:
($63,058,437 / 5,425,025 shares of beneficial interest
outstanding)
$11.62
- ------------------------------------------------------- -------- -----------
Offering Price Per Share: (100/95.5 of $11.62) $12.17*
- ------------------------------------------------------- -------- -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Star Relative Value Fund
Statement of Operations
Six Months Ended May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- ---------------------------
Interest income $ 58,927
- ---------------------------
Dividend income 805,780
- --------------------------- ---------
Total income (Note 2C) 864,707
- ---------------------------
Expenses:
- ---------------------------
Investment
advisory fee
(Note 4) $211,278
- -----------------
Trustees' fees 962
- -----------------
Administrative
personnel and
services fee
(Note 4) 34,969
- -----------------
Custodian fees
(Note 4) 9,329
- -----------------
Portfolio
accounting,
transfer and
dividend
disbursing agent
fees and
expenses (Note
4) 45,185
- -----------------
Fund share
registration
fees 15,571
- -----------------
Auditing fees 11,416
- -----------------
Legal fees 5,561
- -----------------
Printing and
postage 11,034
- -----------------
Insurance
premiums 1,981
- -----------------
Distribution
services fee
(Note 4) 70,690
- -----------------
Miscellaneous 2,783
- ----------------- ---------
Total expenses 420,759
- -----------------
Deduct--Waiver of
distribution
services fee 70,690
(Note 4) ---------
- -----------------
Net expenses 350,069
- --------------------------- ---------
Net investment income 514,638
- --------------------------- ---------
Realized and Unrealized
Gain (Loss) on
Investments:
- ---------------------------
Net realized gain (loss) on
investments (identified
cost basis) (558,893)
- ---------------------------
Net change in unrealized
appreciation
(depreciation) on (220,681)
investments ---------
- ---------------------------
Net realized and
unrealized gain (loss) on (779,574)
investments ---------
- ---------------------------
Change in net assets ($264,936)
resulting from operations ---------
- ---------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Star Relative Value Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------
1994* 1993
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ----------------------------------------------------
Operations--
- ----------------------------------------------------
Net investment income $ 514,638 $ 737,423
- ----------------------------------------------------
Net realized gain (loss) on investments ($558,893
net loss and $686,144 net gain, respectively, as
computed for federal income tax purposes) (Note 2D) (558,893) 686,144
- ----------------------------------------------------
Net change in unrealized appreciation (depreciation) (220,681) 4,000,888
on investments ----------- -----------
- ----------------------------------------------------
Change in net assets resulting from operations (264,936) 5,424,455
- ---------------------------------------------------- ----------- -----------
Distributions to Shareholders (Note 2C)--
- ----------------------------------------------------
Dividends to shareholders from net investment income (488,776) (816,026)
- ----------------------------------------------------
Distributions to shareholders from net realized gain
on investment (158,063) --
transactions ----------- -----------
- ----------------------------------------------------
Change in net assets from distributions to (646,839) (816,026)
shareholders ----------- -----------
- ----------------------------------------------------
Fund Share (Principal) Transactions (Note 3)--
- ----------------------------------------------------
Proceeds from sale of shares 17,435,868 15,216,931
- ----------------------------------------------------
Net asset value of shares issued to shareholders in
payment of
dividends declared 78,742 26,210
- ----------------------------------------------------
Cost of shares redeemed (3,245,084) (8,304,775)
- ---------------------------------------------------- ----------- -----------
Change in net assets from Fund share transactions 14,269,526 6,938,366
- ---------------------------------------------------- ----------- -----------
Change in net assets 13,357,751 11,546,795
- ----------------------------------------------------
Net Assets:
- ----------------------------------------------------
Beginning of period 49,700,686 38,153,891
- ---------------------------------------------------- ----------- -----------
End of period (including undistributed net
investment income of $63,058,437 $49,700,686
$160,324 and $134,462, respectively) ----------- -----------
- ----------------------------------------------------
</TABLE>
*Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Star Relative Value Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------
1994* 1993 1992 1991**
- ------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.80 $10.52 $ 9.43 $10.00
- ------------------------------------
Income from investment operations
- ------------------------------------
Net investment income 0.10 0.20 0.30 0.22
- ------------------------------------
Net realized and unrealized gain (0.13) 1.30 1.12 (0.66)
(loss) on investments ------- ------- ------- -------
- ------------------------------------
Total from investment operations (0.03) 1.50 1.42 (0.44)
- ------------------------------------
Less distributions
- ------------------------------------
Dividends to shareholders from net
investment income (0.11) (0.22) (0.33) (0.13)
- ------------------------------------
Distributions to shareholders from
net
realized gain on investment trans- (0.04) -- -- --
actions ------- ------- ------- -------
- ------------------------------------
Total distributions (0.15) (0.22) (0.33) (0.13)
- ------------------------------------ ------- ------- ------- -------
Net asset value, end of period $11.62 $11.80 $10.52 $ 9.43
- ------------------------------------ ------- ------- ------- -------
Total return*** (0.33%) 14.47% 15.39% (4.31%)
- ------------------------------------
Ratios to Average Net Assets
- ------------------------------------
Expenses 1.24%(b) 1.19% 0.47% 0.40%(b)
- ------------------------------------
Net investment income 1.83%(b) 1.79% 3.01% 4.75%(b)
- ------------------------------------
Expense waiver/reimbursement (a) 0.25%(b) 0.31% 1.00% 0.93%(b)
- ------------------------------------
Supplemental Data
- ------------------------------------
Net assets, end of period (000
omitted) $63,058 $49,701 $38,154 $33,015
- ------------------------------------
Portfolio turnover rate 13% 59% 45% 38%
- ------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited).
** Reflects operations for the period from June 5, 1991 (date of initial
public investment) to November 30, 1991.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Star Relative Value Fund
Notes to Financial Statements
May 31, 1994
(unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Star Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company. The
Trust consists of seven, diversified portfolios. The financial statements
included herein present only those of Star Relative Value Fund (the "Fund"). As
of May 31, 1994, Star Capital Appreciation Fund was effective but did not have
public investment. 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.
(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. These
policies are in conformity with generally accepted accounting principles.
A. Investment Valuations--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term obligations (and private placement securities) are generally
valued at the prices provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
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 collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
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 ("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. Investment Income, Expenses and Distributions--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily.
Star Relative Value Fund
- --------------------------------------------------------------------------------
Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
D. Federal Taxes--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary.
E. When-Issued and Delayed Delivery Transactions--The Fund may engage in when-
issued or delayed delivery transactions. A Fund records when-issued
securities on the trade date and maintains 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.Other--Investment transactions are accounted for on the trade date.
(3) 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,
--------------------
1994* 1993
- ----------------------------------------------------- --------- ---------
<S> <C> <C>
Shares sold 1,479,823 1,350,233
- -----------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 6,606 2,318
- -----------------------------------------------------
Shares redeemed (274,255) (765,703)
- ----------------------------------------------------- --------- ---------
Net change resulting from Fund share transactions 1,212,174 586,848
- ----------------------------------------------------- --------- ---------
</TABLE>
*Six months ended May 31, 1994.
(4) Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Star Bank, N.A., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal
to .75 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
Star Relative Value Fund
- -------------------------------------------------------------------------------
Administrative Fee--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The FAS fee is based
on the level of average aggregate net assets of the Trust for the period. FAS
may voluntarily choose to waive a portion of its fee.
Distribution Fee--The Trust has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund
will compensate Federated Securities Corp. ("FSC"), the principal distributor,
from the net assets of the Fund to finance activities intended to result in
the sale of the Fund's shares. The Plan provides that the Fund may incur
distribution expenses up to .25 of 1% of the average daily net assets of the
Fund, annually, to compensate FSC. The distributor may voluntarily choose to
waive its fee. The distributor can modify or terminate this voluntary waiver
at any time at its sole discretion.
Transfer and Dividend Disbursing Agent, Accounting and Custody Fees--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. The FServ fee is based on the size, type and number of accounts
and transactions made by shareholders.
FServe also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Star Bank, N.A., is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Organizational Expenses--Organizational expenses ($33,500) were borne
initially by the Administrator. The Fund has agreed to reimburse the
Administrator at an annual rate of .005 of 1% of average daily net assets for
organizational expenses until expenses initially borne by the Administrator
are fully reimbursed or the expiration of five years after December 5, 1990,
date the Fund's portfolio first became effective, whichever occurs earlier.
For the six months ended May 31, 1994, the Fund paid $1,368 pursuant to this
agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors
or Trustees of the above companies.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
six months ended May 31, 1994 were as follows:
<TABLE>
<S> <C>
- ---------
Purchases $19,353,934
- --------- -----------
Sales $ 7,062,064
- --------- -----------
</TABLE>
Trustees Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
James E. Dowd President and Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Joseph S. Machi
Peter E. Madden Vice President and Assistant Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
precededor accompanied by the Fund's prospectus which contains facts concerning
itsobjective and policies, management fees, expenses and other information.
