[LOGO]
Star Funds
MONEY
MARKET FUNDS
ANNUAL
REPORT
DATED NOVEMBER 30, 1996
STAR TAX-FREE MONEY MARKET FUND
STAR TREASURY FUND
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the Star Money
Market Funds: Star Tax-Free Money Market Fund and the Star Treasury Fund. The
Report covers activity over the
12-month period from December 1, 1995, through November 30, 1996.
First, you will find an interview with your fund's portfolio manager about the
interest rate environment during the period, fund yields and strategy. Next is a
list of fund holdings and the financial statements.
Each fund is a practical way to put your ready cash to work pursuing daily
income, while giving you the additional advantages of easy access to your money
and relative stability.* The following are each fund's highlights during the 12
months covered by this report:
STAR TAX-FREE MONEY MARKET FUND
On behalf of its tax-sensitive shareholders, the fund's portfolio was
diversified in high-quality money market securities issued by municipalities
across 22 states. The fund paid tax-free dividends of $0.03 per share during the
12-month period.** The fund's assets stood at $153.2 million at the end of the
period.
STAR TREASURY FUND
The fund's extremely conservative portfolio of U.S. Treasury money market
securities paid dividends of $0.05 per share during the 12-month period. The
fund's assets continued to soar, increasing from $654.9 million on the first day
of the period to reach $829.2 million on the last day of the period.
Thank you for keeping your ready cash at work through the Star Money Market
Funds. As we begin a new year, we look forward to keeping you up-to-date on your
investment progress through the highest level of service possible.
Sincerely,
Edward C. Gonzales
President
January 15, 1997
*Although money market mutual funds pursue a stable $1.00 net asset value,
there is no guarantee that a stable net asset value will be maintained.
Investments in money market mutual funds are neither insured nor guaranteed by
the U.S. government.
**Income may be subject to the federal alternative minimum tax and state and
local taxes.
INVESTMENT REVIEWS
- --------------------------------------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND
Q
Short term interest rates bounced back and forth during the period. Can you
comment?
A
As noted, short-term interest rates were volatile during the fiscal year.
Most of the periods of extreme volatility were caused by speculation about
possible action by the Federal Open Market Committee. The general trend of
rates, however, was lower. Many money market funds responded to this
trend by buying securities with longer maturities, which extended the
average maturities of those funds.
Q
How did the Star Tax-Free Money Market Fund respond?
A
Our outlook for short-term interest rates was relatively neutral throughout
the period. We responded to short-rate volatility during the past fiscal
year by keeping the fund's average maturity close to that of the average of
its peer group, as reported by IBC Money Market Insight.* Consequently, the
yield of the fund remained within a few basis points of the peer average. The
twelve-month yield for the year ended November 30, 1996, was 2.95%, compared to
3.01% for the IBC Money Market Insight.** Also, the yield volatility of the fund
was less than some of its competitors because we chose not to aggressively
extend the fund's average maturity past that benchmark.
Q
Contrary to expectation, the Federal Reserve Board (the "Fed") took no
action on interest rates late in the year. What is your outlook for
short-term tax-free rates in 1997?
A
The lower interest rates during 1995 provided a much needed stimulus to the
economy which responded strongly in the first half of 1996. By mid-year,
perceptions had swayed from anticipation of recession to fears of an
economy accelerating too quickly. Treasury yields reached their peak in July as
many economists were calling for the Fed to increase interest rates to hold-off
inflation fears. Throughout this period, our outlook was neutral. With the aid
of a longer-term outlook and proprietary models, the fund was spared any damage
caused by wide swings in perception and interest rates.
Our 1997 economic outlook calls for slower growth and contained inflationary
pressures. Leading indicators of inflation show encouraging signs that inflation
rates remain stable. The National Association of Purchasing Managers price
index, industrial prices, agricultural prices, value of the dollar, and monetary
aggregates have all shown little change over the past twelve months.
Additionally, the favorable Employment Cost Index figures for the third quarter
at 0.6% and 2.8% over the past year, better than economists expectations. Thus,
we believe the Fed will leave monetary policy unchanged for the foreseeable
future with the Federal funds rate remaining at 5.25%.
Q
Do you anticipate making any changes to the fund's average maturity based
on your outlook?
A
We intend to maintain the strategy of keeping the average maturity close to
that of its benchmark. We will, however, extend or shorten the fund's
average maturity to take advantage of temporary opportunities in the market
as those opportunities present themselves.
* IBC Money Market Insight figures represent the average of the yields reported
by all of the mutual funds designated by IBC Financial Data, Inc. as falling
into the respective categories indicated.
** Performance quoted represents past performance and is not indicative of
future results. Yield will vary.
STAR TREASURY FUND
Q
Short term interest rates bounced back and forth during the period. Can you
comment?
A
As noted, short-term interest rates were volatile during the fiscal year.
Most of the periods of extreme volatility were caused by speculation about
possible action by the Federal Open Market Committee. The general trend of
rates, however, was lower. Many money market funds responded to this trend by
buying securities with longer maturities, which extended the average maturities
of those funds.
Q
How did the Star Treasury Fund's yield respond?
A
Our outlook for short-term interest rates was relatively neutral throughout
the period. We responded to short-rate volatility during the past fiscal
year by keeping the fund's average maturity close to that of the average of
its peer group, as reported by IBC Money Market Insight. Consequently, the yield
of the fund remained within a few basis points of the peer average. The
twelve-month yield for the year ended November 30, 1996, was 4.83%, compared to
4.84% for the IBC Money Market Insight.** Also, the yield volatility of the fund
was less than some of its competitors because we chose not to aggressively
extend the fund's average maturity past that benchmark.
Q
Contrary to expectation, the Federal Reserve Board (the "Fed") took no
action on interest rates late in the year. What is your outlook for
short-term rates in 1997?
A
The lower interest rates during 1995 provided a much needed stimulus to the
economy which responded strongly in the first half of 1996. By mid-year,
perceptions had swayed from anticipation of recession to fears of an
economy accelerating too quickly. Treasury yields reached their peak in July as
many economists were calling for the Fed to increase interest rates to hold-off
inflation fears. Throughout this period, our outlook was neutral. With the aid
of a longer-term outlook and proprietary models, the fund was spared any damage
caused by wide swings in perception and interest rates.
Our 1997 economic outlook calls for slower growth and contained inflationary
pressures. Leading indicators of inflation show encouraging signs that inflation
rates remain stable. The National Association of Purchasing Managers price
index, industrial prices, agricultural prices, value of the dollar, and monetary
aggregates have all shown little change over the past twelve months.
Additionally, the favorable Employment Cost Index figures for the third quarter
at 0.6% and 2.8% over the past year, better than economists expectations. Thus,
we believe the Fed will leave monetary policy unchanged for the foreseeable
future with the Federal funds rate remaining at 5.25%.
Q
Are you maintaining a neutral average maturity based on your outlook?
A
We intend to maintain the strategy of keeping the average maturity close to
that of its benchmark. We will, however, extend or shorten the fund's
average maturity to take advantage of temporary opportunities in the market
as those opportunities present themselves.
** Performance quoted represents past performance and is not indicative of
future results. Yield will vary.
STAR TAX-FREE MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--99.2%
- -------------------------------------------------------------------------------
ALABAMA--0.8%
-----------------------------------------------------------------
$ 1,200,000 Montgomery, AL BMC Special Care Facilities Finance Authority,
Refunding Revenue Bonds (Series G) Weekly VRDNs (VHA Alabama,
Inc.)/(AMBAC INS) -/A1 $ 1,200,000
----------------------------------------------------------------- --------------
COLORADO--2.0%
-----------------------------------------------------------------
3,000,000 Smith Creek Metropolitan District of Colorado, Revenue Bonds
Weekly VRDNs (Nationsbank, Fort Worth LOC) -/A1 3,000,000
----------------------------------------------------------------- --------------
FLORIDA--1.3%
-----------------------------------------------------------------
2,000,000 Escambia County, FL, Refunding Revenue Bonds Weekly VRDNs (Pacer
Industries, Inc.)/(Trust Co. Bank LOC) Aa3/- 2,000,000
----------------------------------------------------------------- --------------
GEORGIA--2.1%
-----------------------------------------------------------------
2,150,000 Fulton County, GA Development Authority, Revenue Bonds Weekly
VRDNs (Georgia Tech Athletic Association, Inc.)/(Trust Co. Bank
LOC) Aa3/- 2,150,000
-----------------------------------------------------------------
1,000,000 Fulton County, GA Development Authority, Revenue Bonds Weekly
VRDNs (Robert W. Woodruff Arts Center)/(SunTrust Bank, Atlanta
LOC) Aa3/- 1,000,000
----------------------------------------------------------------- --------------
Total 3,150,000
----------------------------------------------------------------- --------------
ILLINOIS--19.9%
-----------------------------------------------------------------
2,400,000 Cook County, IL, Refunding Revenue Bonds Weekly VRDNs (Catholic
Charities Housing Development Corp)/(National Westminster Bank,
PLC, London LOC) VMIG1/- 2,400,000
-----------------------------------------------------------------
1,055,000 Illinois Development Finance Authority, Revenue Bonds Weekly
VRDNs (Lake Forest Academy)/ (Northern Trust Corp. LOC) A1+ 1,055,000
-----------------------------------------------------------------
2,000,000 Illinois Development Finance Authority, Revenue Bonds Weekly
VRDNs (Roosevelt University)/ (American National Bank, Chicago
LOC) -/A1+ 2,000,000
-----------------------------------------------------------------
3,000,000 Illinois Development Finance Authority, Revenue Bonds Weekly
VRDNs (St. Ignatius College)/(Northern Trust Corp. LOC) -/A1+ 3,000,000
-----------------------------------------------------------------
1,500,000 Illinois Development Finance Authority, Series A Weekly VRDNs
(Presbyterian Home Lake)/(Lasalle National Bank, Chicago LOC) VMIG1/A1+ 1,500,000
-----------------------------------------------------------------
2,500,000 Illinois Educational Facilities Authority, Refunding Revenue
Bonds Weekly VRDNs (Newberry Library Project)/(Northern Trust
Corp. LOC) VMIG1/- 2,500,000
-----------------------------------------------------------------
1,500,000 Illinois Health Facilities Authority, Revenue Bonds (Series A)
Weekly VRDNs (Evangelical Hospitals Corp.)/(First National Bank
of Chicago LOC) VMIG1/- 1,500,000
-----------------------------------------------------------------
</TABLE>
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
ILLINOIS--CONTINUED
-----------------------------------------------------------------
$ 4,000,000 Illinois Health Facilities Authority, Revenue Bonds (Series C),
3.60% TOBs (Victory Health Project)/(First National Bank of
Chicago LOC) 12/5/1996 VMIG1/- $ 4,000,000
-----------------------------------------------------------------
3,000,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs
(Gottlieb Health Resources, Inc.)/ (Harris Trust & Savings Bank,
Chicago LOC) VMIG1/- 3,000,000
-----------------------------------------------------------------
3,000,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs
(Gottlieb Health Resources, Inc.)/ (Harris Trust & Savings Bank,
Chicago LOC) VMIG1/- 3,000,000
-----------------------------------------------------------------
4,700,000 Illinois Health Facilities Authority, Revenue Bonds Weekly VRDNs
(West Suburban Hospital Medical Center)/(First National Bank of
Chicago LOC) VMIG1/- 4,700,000
-----------------------------------------------------------------
1,530,000 Schaumburg, IL, IDR Refunding Bonds Weekly VRDNs (La Quita Motor
Inns)/(Nationsbank, Fort Worth LOC) Aa3/- 1,530,000
-----------------------------------------------------------------
300,000 Springfield, IL , Community Improvement Refunding Revenue Bonds
Weekly VRDNs (Kent Family Project)/ (PNC Bank, N.A. LOC) A1/- 300,000
----------------------------------------------------------------- --------------
Total 30,485,000
----------------------------------------------------------------- --------------
INDIANA--8.0%
-----------------------------------------------------------------
2,000,000 Indiana Bond Bank, Advance Funding Program Notes (Series 1996
A-2), 4.25% BANs, 1/9/1997 MIG1/SP1+ 2,001,549
-----------------------------------------------------------------
2,000,000 Indianapolis, IN, EDRB Weekly VRDNs (Rand McNally Co.)/(First
Union National Bank, Charlotte, N.C. LOC) /A1 2,000,000
-----------------------------------------------------------------
3,195,000 Logansport, IN, Revenue Bonds Weekly VRDNs (MMM Invest,
Inc.)/(Bank One, Indianapolis, IN LOC) NR(B) 3,195,000
-----------------------------------------------------------------
2,000,000 Purdue University, IN, Revenue Bonds (Series K) Weekly VRDNs
(Purdue University, IN LOC) VMIG1/A1+ 2,000,000
-----------------------------------------------------------------
3,000,000 Purdue University, IN, Student Fees Revenue Bonds (Series H)
Weekly VRDNs VMIG1/A1+ 3,000,000
----------------------------------------------------------------- --------------
Total 12,196,549
----------------------------------------------------------------- --------------
KENTUCKY--4.3%
-----------------------------------------------------------------
1,000,000 Boone County, KY, IDRB (Series 1994A) Weekly VRDNs (Square D.
Co.)/(Societe Generale, Paris LOC) -/A1+ 1,000,000
-----------------------------------------------------------------
4,000,000 Fulton, KY, Revenue Bonds Weekly VRDNs (Community Health System
of Kentucky)/(First Union National Bank, Charlotte, N.C. LOC) VMIG1/- 4,000,000
-----------------------------------------------------------------
1,600,000 Louisville, KY, Refunding Bonds Weekly VRDNs (Two Twenty-Two
Project)/(PNC Bank, Kentucky LOC) -/A1 1,600,000
----------------------------------------------------------------- --------------
Total 6,600,000
----------------------------------------------------------------- --------------
MAINE--1.0%
-----------------------------------------------------------------
1,500,000 Maine State, GO UT, 4.50% TANs, 6/27/1997 MIG1/SP1+ 1,505,139
----------------------------------------------------------------- --------------
</TABLE>
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
MARYLAND--0.5%
-----------------------------------------------------------------
$ 700,000 Maryland State IDFA, (Series 1991) Weekly VRDNs (Maryland Academy
of Sciences Facility)/(Nationsbank, N.A. LOC) VMIG1/- $ 700,000
----------------------------------------------------------------- --------------
MASSACHUSETTS--1.3%
-----------------------------------------------------------------
2,000,000 Massachusetts Bay Transit Authority, (Series C), 3.55% CP
(Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender
1/6/1997 P1/A1+ 2,000,000
----------------------------------------------------------------- --------------
MICHIGAN--0.3%
-----------------------------------------------------------------
535,000 Lenawee County, MI EDC, Revenue Bonds Weekly VRDNs (Hardwoods of
Michigan, Inc.)/(National City Bank, Cleveland, OH LOC) VMIG1/- 535,000
----------------------------------------------------------------- --------------
MISSISSIPPI--1.3%
-----------------------------------------------------------------
2,000,000 Forest, MS, IDR Refunding Bonds Weekly VRDNs (Sara Lee Corp.) -/AA- 2,000,000
----------------------------------------------------------------- --------------
MISSOURI--10.7%
-----------------------------------------------------------------
800,000 Independence, MO IDA, IDRB Weekly VRDNs (Shoney's Inn)/(Wachovia
Bank of NC, NA, Winston-Salem LOC) NR(B) 800,000
-----------------------------------------------------------------
4,100,000 Independence, MO, Water Utility Revenue Bonds, 3.50% CP
(Westdeutsche Landesbank Girozentrale LOC), Mandatory Tender
1/13/1997 VMIG1/- 4,100,000
-----------------------------------------------------------------
4,000,000 Missouri State Environmental Improvement & Energy Authority,
(Series 1985A), 3.55% CP (Union Electric Co.)/(Union Bank of
Switzerland, Zurich LOC), Mandatory Tender 1/8/1997 P1/A1+ 4,000,000
-----------------------------------------------------------------
2,500,000 Missouri State Environmental Improvement & Energy Authority,
(Series 1985A), 3.65% CP (Union Electric Co.)/(Union Bank of
Switzerland, Zurich LOC), Mandatory Tender 12/4/1996 P1/A1+ 2,500,000
-----------------------------------------------------------------
4,000,000 Missouri State Environmental Improvement & Energy Authority,
Refunding Revenue Bonds Weekly VRDNs (Kansas City Power And Light
Co.) VMIG1/A1 4,000,000
-----------------------------------------------------------------
1,000,000 Missouri State HEFA, Revenue Bonds (Series C) Daily VRDNs
(Washington University) VMIG1/A1+ 1,000,000
----------------------------------------------------------------- --------------
Total 16,400,000
----------------------------------------------------------------- --------------
NEW MEXICO--1.1%
-----------------------------------------------------------------
1,700,000 Belen, NM, IDR Refunding Bonds (Series 1991) Weekly VRDNs (United
Desiccants, Inc.)/(National City Bank, Kentucky LOC) NR(B) 1,700,000
----------------------------------------------------------------- --------------
NORTH CAROLINA--1.0%
-----------------------------------------------------------------
1,500,000 North Carolina Educational Facilities Finance Agency, Revenue
Bonds Daily VRDNs (Guilford College)/ (Wachovia Bank of NC, NA,
Winston-Salem LOC) VMIG1/A1+ 1,500,000
----------------------------------------------------------------- --------------
</TABLE>
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
OHIO--16.6%
-----------------------------------------------------------------
$ 2,000,000 Butler County, OH, 4.25% BANs, 10/23/1997 NR(C) $ 2,006,877
-----------------------------------------------------------------
1,250,000 Butler County, OH, GO LT Bonds, 4.07% BANs,
4/24/1997 NR(C) 1,251,998
-----------------------------------------------------------------
490,000 Centerville, OH, Health Care Revenue Bonds Weekly VRDNs (Bethany
Lutheran Village)/(PNC Bank, Ohio, N.A. LOC) VMIG1 490,000
-----------------------------------------------------------------
2,500,000 Columbus, OH Sewer System, Revenue Bonds (Series 1994) Weekly
VRDNs VMIG1/A1+ 2,500,000
-----------------------------------------------------------------
2,000,000 Franklin County, OH Hospital Facility Authority, Series A Weekly
VRDNs (U.S. Health Corporation of Columbus)/(Morgan Guaranty
Trust Co., New York LOC) VMIG1/- 2,000,000
-----------------------------------------------------------------
2,000,000 Hamilton County, OH, (Series A), 4.00% BANs,
4/10/1997 MIG1/- 2,003,436
-----------------------------------------------------------------
3,000,000 Hamilton County, OH, (Series A), 4.25% BANs,
7/10/1997 MIG1/- 3,006,407
-----------------------------------------------------------------
2,000,000 Ohio School Districts, 1996 Cash Flow Borrowing Program
Certificates of Participation, 4.53% RANs,
6/30/1997 MIG1/- 2,005,885
-----------------------------------------------------------------
310,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati
Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) A1/- 310,000
-----------------------------------------------------------------
385,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati
Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) A1/- 385,000
-----------------------------------------------------------------
450,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati
Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) A1/- 450,000
-----------------------------------------------------------------
485,000 Ohio State IDR, Refunding Bonds Weekly VRDNs (Cincinnati
Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) A1/- 485,000
-----------------------------------------------------------------
360,000 Ohio State IDR, Refunding Revenue Bonds Weekly VRDNs (Cincinnati
Riverfront Coliseum, Inc.)/(PNC Bank, Ohio, N.A. LOC) A1/- 360,000
-----------------------------------------------------------------
500,000 Ohio State University, Revenue Bonds Weekly VRDNs VMIG1/A1+ 500,000
-----------------------------------------------------------------
600,000 Perry Local School District, OH, UT GO Bonds, 3.75% Bonds (Bank
One, Cleveland, N.A. LOC), 12/1/1996 Aa2/- 600,000
-----------------------------------------------------------------
400,000 University of Cincinnati, OH, (Series Q), 3.75% BANs, 3/20/1997 MIG1/SP1+ 400,520
-----------------------------------------------------------------
2,600,000 University of Cincinnati, OH, (Series S1), 3.75% BANs, 3/20/1997 MIG1/SP1+ 2,603,379
-----------------------------------------------------------------
4,000,000 University of Cincinnati, OH, Series T, 4.25% BANs,
8/28/1997 MIG1/SP1+ 4,011,392
----------------------------------------------------------------- --------------
Total 25,369,894
----------------------------------------------------------------- --------------
</TABLE>
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
PENNSYLVANIA--8.2%
-----------------------------------------------------------------
$ 500,000 Allegheny County, PA HDA Daily VRDNs (Presbyterian University
Hospital)/(MBIA Insurance Corporation INS)/(PNC Bank, Northeast,
PA SA) VMIG1/A1 $ 500,000
-----------------------------------------------------------------
1,145,000 Allegheny County, PA HDA, Revenue Bonds Daily VRDNs (Presbyterian
University Hospital)/(PNC Bank, N.A. LOC) VMIG1/- 1,145,000
-----------------------------------------------------------------
4,000,000 Allegheny County, PA IDA, PCR (Series 1992A), 3.65% TOBs
(Duquesne Light Power Co.)/(Canadian Imperial Bank of Commerce,
Toronto LOC), Optional Tender 10/30/1997 P1/A/+ 4,000,000
-----------------------------------------------------------------
2,000,000 Commonwealth of Pennsylvania, 4.50% TANs,
6/30/1997 MIG1/SP1+ 2,009,002
-----------------------------------------------------------------
1,000,000 East Penn, PA IDA, IDR Refunding Bonds Weekly VRDNs (Electronic
Data Systems Corp.)/(Wachovia Bank of Georgia NA, Atlanta LOC) Aa2/- 1,000,000
-----------------------------------------------------------------
2,000,000 Philadelphia, PA School District, 4.50% TRANs,
6/30/1997 MIG1/SP1 2,005,566
-----------------------------------------------------------------
2,000,000 Temple University, Commonwealth System of Higher Education
University Funding Obligations, 4.625% Bonds, 5/20/1997 -/SP-1+ 2,008,304
----------------------------------------------------------------- --------------
Total 12,667,872
----------------------------------------------------------------- --------------
TENNESSEE--3.0%
-----------------------------------------------------------------
1,000,000 Greenville, TN IDB, IDRB Weekly VRDNs (Ball Corp.)/ (Wachovia
Bank of Georgia NA, Atlanta LOC) -/A1+ 1,000,000
-----------------------------------------------------------------
3,720,000 Sullivan County, TN Health Educational & Housing Facilities
Board, Revenue Bonds Weekly VRDNs (Asbury Center)/(Nationsbank,
N.A. LOC) NR(C) 3,720,000
----------------------------------------------------------------- --------------
Total 4,720,000
----------------------------------------------------------------- --------------
TEXAS--9.8%
-----------------------------------------------------------------
2,380,000 Bexar County, Health Facilities Development Authority Weekly
VRDNs (Army Retirement Resources Foundation)/(Rabobank Nederland,
Utrecht LOC) /A1+ 2,380,000
-----------------------------------------------------------------
5,800,000 Harris County, TX HFDC, (Series 1994) Daily VRDNs (Methodist
Hospital, Harris County, TX) -/A1+ 5,800,000
-----------------------------------------------------------------
2,500,000 Harris County, TX HFDC, (Series D) Daily VRDNs
(St. Luke's Episcopal Hospital) -/A1+ 2,500,000
-----------------------------------------------------------------
600,000 Lone Star, TX Airport Improvement Authority Daily VRDNs American
Airlines (Royal Bank of Canada, Montreal LOC) VMIG1 600,000
-----------------------------------------------------------------
1,100,000 Lone Star, TX Airport Improvement Authority Daily VRDNs American
Airlines (Royal Bank of Canada, Montreal LOC) VMIG1 1,100,000
-----------------------------------------------------------------
700,000 Lone Star, TX Airport Improvement Authority, Revenue Bonds
(Series B-1) Daily VRDNs (American Airlines)/(Royal Bank of
Canada, Montreal LOC) VMIG1 700,000
-----------------------------------------------------------------
</TABLE>
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ------------ ----------------------------------------------------------------- ---------------- --------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS--CONTINUED
- -------------------------------------------------------------------------------
TEXAS--CONTINUED
-----------------------------------------------------------------
$ 1,900,000 San Antonio, TX IDA Weekly VRDNs (San Antonio River Center
Associates)/(PNC Bank, N.A. LOC) A1/- $ 1,900,000
----------------------------------------------------------------- --------------
Total 14,980,000
----------------------------------------------------------------- --------------
VIRGINIA--2.3%
-----------------------------------------------------------------
1,750,000 Charlottesville, VA IDA, IDR Refunding Bonds, 3.65% TOBs
(Safeway, Inc.)/(Bankers Trust Co., New York LOC), Mandatory
Tender 12/2/1996 -/A1 1,750,000
-----------------------------------------------------------------
1,885,000 Rockbridge County, VA IDA, IDR Bonds, 3.85% TOBs (Safeway,
Inc.)/(Bankers Trust Co., New York LOC)
2/3/1997 -/A1 1,885,000
----------------------------------------------------------------- --------------
Total 3,635,000
----------------------------------------------------------------- --------------
WISCONSIN--1.3%
-----------------------------------------------------------------
2,000,000 Racine County, WI School District, 4.25% TRANs,
8/22/1997 -/SP-1+ 2,005,573
----------------------------------------------------------------- --------------
WYOMING--2.4%
-----------------------------------------------------------------
2,545,000 Douglas, WY, IDR Bonds, 3.65% TOBs (Safeway, Inc.)/ (Bankers
Trust Co., New York LOC), Mandatory Tender 12/2/1996 -/A1 2,545,000
-----------------------------------------------------------------
1,200,000 Gillette, WY, PCR, 3.45% CP (Pacificorp)/(Deutsche Bank, AG LOC),
Mandatory Tender 12/5/1996 P-1/A1+ 1,200,000
----------------------------------------------------------------- --------------
Total 3,745,000
----------------------------------------------------------------- --------------
TOTAL SHORT-TERM MUNICIPALS 152,095,027
----------------------------------------------------------------- --------------
MUTUAL FUND SHARES--0.4%
- -------------------------------------------------------------------------------
579,129 SEI Tax Exempt Trust (at net asset value) 579,128
----------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $ 152,674,155
----------------------------------------------------------------- --------------
</TABLE>
(a) 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. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($153,255,707) at November 30, 1996.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
BANs--Bond Anticipation Notes
CP--Commercial Paper
EDC--Economic Development Commission
EDRB--Economic Development Revenue Bonds
GO--General Obligation
HDA--Hospital Development Authority
HEFA--Health and Education Facilities Authority
HFDC--Health Facility Development Corporation
IDA--Industrial Development Authority
IDB--Industrial Development Bond
IDR--Industrial Development Revenue
STAR TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
IDRB--Industrial Development Revenue Bond
IDFA--Industrial Development Finance Authority
INS--Insured
LOC--Letter of Credit
LT--Limited Tax
MBIA--Municipal Bond Investors Assurance
MMM--Money Market Municipal
PCR--Pollution Control Revenue
PLC--Public Limited Company
RANs--Revenue Anticipation Notes
SA--Support Agreement
TANs--Tax Anticipation Notes
TOBs--Tender Option Bonds
TRANs--Tax and Revenue Anticipation Notes
UT--Unlimited Tax
VHA--Veterans Housing Administration
VRDNs--Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
STAR TAX-FREE MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 152,674,155
- -------------------------------------------------------------------------------------------------
Income receivable 999,607
- ------------------------------------------------------------------------------------------------- --------------
Total assets 153,673,762
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Income distribution payable $ 339,645
- -------------------------------------------------------------------------------------
Accrued expenses 78,410
- ------------------------------------------------------------------------------------- ----------
Total liabilities 418,055
- ------------------------------------------------------------------------------------------------- --------------
Net Assets for 153,255,707 shares outstanding $ 153,255,707
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
$153,255,707 / 153,255,707 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR TAX-FREE MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 6,378,856
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $ 984,158
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 179,533
- --------------------------------------------------------------------------------------
Custodian fees 39,658
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 34,227
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 5,347
- --------------------------------------------------------------------------------------
Auditing fees 17,107
- --------------------------------------------------------------------------------------
Legal fees 3,518
- --------------------------------------------------------------------------------------
Portfolio accounting fees 47,662
- --------------------------------------------------------------------------------------
Shareholder services fee 72,090
- --------------------------------------------------------------------------------------
Share registration costs 41,369
- --------------------------------------------------------------------------------------
Printing and postage 15,566
- --------------------------------------------------------------------------------------
Insurance premiums 3,581
- --------------------------------------------------------------------------------------
Miscellaneous 3,121
- -------------------------------------------------------------------------------------- ------------
Total expenses 1,446,937
- --------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------------------
Waiver of investment advisory fee (201,332)
- -------------------------------------------------------------------------------------- ------------
Net expenses 1,245,605
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 5,133,251
- ---------------------------------------------------------------------------------------------------- ------------
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 5,133,251 $ 5,121,416
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (5,133,251) (5,121,416)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 573,340,058 512,575,789
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 890 771
- -------------------------------------------------------------------------------
Cost of shares redeemed (587,441,413) (480,647,041)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions (14,100,465) 31,929,519
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (14,100,465) 31,929,519
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 167,356,172 135,426,653
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 153,255,707 $ 167,356,172
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(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,
1996 1995 1994 1993 1992 1991(A)
<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 0.03 0.03 0.02 0.02 0.03 0.03
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 2.91% 3.32% 2.15% 1.91% 2.59% 2.84%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.70% 0.66% 0.65% 0.65% 0.66% 0.55%*
- -----------------------------------------------
Net investment income 2.87% 3.26% 2.12% 1.90% 2.54% 3.95%*
- -----------------------------------------------
Expense waiver/
reimbursement (c) 0.11% 0.15% 0.15% 0.40% 0.40% 0.48%*
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period
(000 omitted) $153,256 $167,356 $135,427 $135,022 $144,487 $113,731
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 15, 1991 (date of initial
public investment) to November 30, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR TREASURY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------- --------------------------------------------------------------------------------- --------------
<C> <S> <C>
U.S. TREASURY--25.2%
- -------------------------------------------------------------------------------------------------
$ 19,000,000 U.S. Treasury Bills, 1/2/1997--6/26/1997 $ 18,822,023
---------------------------------------------------------------------------------
189,000,000 U.S. Treasury Notes, 5.50%--8.75%, 12/31/1996--12/31/1997 190,001,276
--------------------------------------------------------------------------------- --------------
TOTAL U.S. TREASURY 208,823,299
--------------------------------------------------------------------------------- --------------
(A) REPURCHASE AGREEMENTS--74.7%
- -------------------------------------------------------------------------------------------------
40,000,000 Bear, Stearns and Co., Inc., 5.55%, dated 11/29/1996, due 12/2/1996 40,000,000
---------------------------------------------------------------------------------
40,000,000 CS First Boston Corp., 5.50%, dated 11/29/1996, due 12/2/1996 40,000,000
---------------------------------------------------------------------------------
40,000,000 Dean Witter Reynolds, Inc., 5.55%, dated 11/29/1996, due 12/2/1996 40,000,000
---------------------------------------------------------------------------------
202,466,000 Donaldson, Lufkin and Jenrette Securities Corp., 5.65%, dated
11/29/1996, due 12/2/1996 202,466,000
---------------------------------------------------------------------------------
40,000,000 HSBC Securities, Inc., 5.65%, dated 11/29/1996, due 12/2/1996 40,000,000
---------------------------------------------------------------------------------
40,000,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.65%, dated 11/29/1996, due
12/2/1996 40,000,000
---------------------------------------------------------------------------------
15,000,000 Morgan Stanley Group, Inc., 5.57%, dated 11/29/1996, due 12/2/1996 15,000,000
---------------------------------------------------------------------------------
202,468,000 SBC Capital Markets, Inc., 5.50%, dated 11/29/1996, due 12/2/1996 202,468,000
--------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 619,934,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST) (B) $ 828,757,299
--------------------------------------------------------------------------------- --------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($829,259,091) at November 30, 1996.
(See Notes which are an integral part of the Financial Statements)
STAR TREASURY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements $ 619,934,000
- ---------------------------------------------------------------------------------
Investments in securities 208,823,299
- --------------------------------------------------------------------------------- --------------
Total investments in securities, at amortized cost and value $ 828,757,299
- -------------------------------------------------------------------------------------------------
Cash 4,794
- -------------------------------------------------------------------------------------------------
Income receivable 3,557,801
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 123,484
- ------------------------------------------------------------------------------------------------- --------------
Total assets 832,443,378
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for shares redeemed 1,925
- ---------------------------------------------------------------------------------
Income distribution payable 3,118,265
- ---------------------------------------------------------------------------------
Accrued expenses 64,097
- --------------------------------------------------------------------------------- --------------
Total liabilities 3,184,287
- ------------------------------------------------------------------------------------------------- --------------
Net Assets for 829,259,091 shares outstanding $ 829,259,091
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
$829,259,091 / 829,259,091 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR TREASURY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 38,628,782
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 3,586,051
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 717,407
- -------------------------------------------------------------------------------------
Custodian fees 173,933
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 45,823
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 8,962
- -------------------------------------------------------------------------------------
Auditing fees 17,560
- -------------------------------------------------------------------------------------
Legal fees 5,010
- -------------------------------------------------------------------------------------
Portfolio accounting fees 105,490
- -------------------------------------------------------------------------------------
Shareholder services fee 295,244
- -------------------------------------------------------------------------------------
Share registration costs 38,507
- -------------------------------------------------------------------------------------
Printing and postage 18,253
- -------------------------------------------------------------------------------------
Insurance premiums 6,537
- -------------------------------------------------------------------------------------
Miscellaneous 2,371
- ------------------------------------------------------------------------------------- ------------
Total expenses 5,021,148
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 33,607,634
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR TREASURY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 33,607,634 $ 23,555,979
- ---------------------------------------------------------------------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------
Distributions from net investment income (33,607,634) (23,555,979)
- ---------------------------------------------------------------------------- ----------------- -----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------
Proceeds from sale of shares 7,139,876,502 4,733,626,896
- ----------------------------------------------------------------------------
Net asset value of shares issued in connection with acquisition of Prime
Obligations Fund -- 86,272,662
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 102,722 102,122
- ----------------------------------------------------------------------------
Cost of shares redeemed (6,965,683,064) (4,523,804,720)
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from share transactions 174,296,160 296,196,960
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 174,296,160 296,196,960
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 654,962,931 358,765,971
- ---------------------------------------------------------------------------- ----------------- -----------------
End of period $ 829,259,091 $ 654,962,931
- ---------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(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,
1996 1995 1994 1993 1992 1991 1990 1989(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.05 0.05 0.03 0.03 0.03 0.06 0.07 0.05
- -------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------
Distributions from net investment
income (0.05) (0.05) (0.03) (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 $ 1.00 $ 1.00
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 4.80% 5.23% 3.30% 2.56% 3.41% 5.72% 7.72% 5.36%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 0.70% 0.71% 0.70% 0.70% 0.71% 0.71% 0.73% 0.77%*
- -------------------------------------
Net investment income 4.69% 5.14% 3.24% 2.53% 3.33% 5.51% 7.44% 8.28%*
- -------------------------------------
Expense waiver/
reimbursement (c) -- -- -- 0.25% 0.25% 0.10% 0.03% 0.01%*
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period
(000 omitted) $829,259 $654,963 $358,766 $386,020 $346,508 $307,278 $226,519 $174,062
- -------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 14, 1989 (date of initial
public investment) to November 30, 1989.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
(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 eight diversified portfolios. The following portfolios comprise the
Trust:
PORTFOLIO NAME
Star Capital Appreciation Fund ("Capital Appreciation Fund")
Star Growth Equity Fund ("Growth Equity Fund")
Star Relative Value Fund ("Relative Value Fund")
The Stellar Fund ("Stellar Fund")
Star Strategic Income Fund ("Strategic Income Fund")
Star Tax-Free Money Market Fund ("Tax-Free Money Market Fund")
Star Treasury Fund ("Treasury Fund")
Star U.S. Government Income Fund ("U.S. Government Income Fund")
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein:
PORTFOLIO NAME
Tax-Free Money Market Fund
Treasury Fund
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
Tax-Free Money Market Fund seeks to provide current income exempt from federal
regular income consistent with stability of principal.
Treasury Fund seeks to achieve stability of principal and current income
consistent with stability of principal.
Star Funds, except Stellar Fund, are offered without class designation. Shares
of Stellar Fund are offered in two classes: Investment Shares and Trust Shares.
(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.
INVESTMENT VALUATIONS--The Funds' use of the amortized cost method to value
their portfolio securities is in accordance with Rule 2a-7 under the Act.
Investments in other open-end investment companies are valued at net asset
value.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"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.
STAR FUNDS
- --------------------------------------------------------------------------------
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.
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 their income. Accordingly, no
provisions for federal tax are necessary.
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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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). At
November 30, 1996, capital paid-in for Tax-Free Money Market Fund and Treasury
Fund aggregated $153,255,707 and $829,259,091, respectively. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
TAX-FREE MONEY
MARKET FUND
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 573,340,058 512,575,789
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 890 771
- ----------------------------------------------------------------------------------
Shares redeemed (587,441,413) (480,647,041)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (14,100,465) 31,929,519
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
TREASURY FUND
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 7,139,876,502 4,733,626,896
- ------------------------------------------------------------------------------
Shares issued in connection with acquisition of Prime Obligations Fund -- 86,272,662
- ------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 102,722 102,122
- ------------------------------------------------------------------------------
Shares redeemed (6,965,683,064) (4,523,804,720)
- ------------------------------------------------------------------------------ ---------------- ----------------
Net change resulting from share transactions 174,296,160 296,196,960
- ------------------------------------------------------------------------------ ---------------- ----------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Star Bank N.A., the Trust'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 as follows:
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL
FUND NAME RATE
<S> <C>
Tax-Free Money Market Fund 0.55%
- -------------------------------------------------------------------------------------------------------
Treasury Fund 0.50%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Adviser may voluntarily choose to waive a portion of its fee.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Star Bank, N.A., each Fund will pay Star Bank, N.A. up to 0.25% of average
daily net assets of the Funds for the period. For the foreseeable future, Star
Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average daily
net assets. The fee paid to Star Bank, N.A. is used to finance certain services
for shareholders and to maintain shareholder accounts. Star Bank, N.A. can
modify or terminate this limitation at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ"), through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Funds for
which it receives a fee. The fee paid to FSSC is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Star Bank, N.A. is the Funds' custodian for which it receives a
fee. The fee is based on the level of each Fund's average daily net assets for
the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
STAR FUNDS
(Star Tax-Free Money Market Fund and Star Treasury Fund):
We have audited the accompanying statements of assets and liabilities of Star
Tax-Free Money Market Fund and Star Treasury Fund (investment portfolios of Star
Funds, a Massachusetts business trust), including the schedules of portfolio
investments, as of November 30, 1996, the related statements of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of Star
Tax-Free Money Market Fund and Star Treasury Fund (investment portfolios of Star
Funds) as of November 30, 1996, and the results of their operations for the year
then ended, and the changes in their net assets and their financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
January 10, 1997
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Thomas L. Conlan, Jr. Edward C. Gonzales
Edward C. Gonzales President and Treasurer
Dr. Alfred Gottschalk Joseph S. Machi
Dr. Robert J. Hill Vice President and Assistant Treasurer
William H. Zimmer III C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risks,
including the possible loss of principal. Although 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.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
- ----------------------------------
STAR BANK, N.A.
INVESTMENT ADVISER
- ----------------------------------
FEDERATED SECURITIES CORP.
DISTRIBUTOR
- ----------------------------------
CUSIP 854911302
CUSIP 854911104
G00299-08 (1/97)
4289TR
[LOGO]
STAR FUNDS
STOCK AND
BOND FUNDS
ANNUAL
REPORT
DATED NOVEMBER 30, 1996
STAR CAPITAL APPRECIATION FUND
STAR GROWTH EQUITY FUND
STAR RELATIVE VALUE FUND
THE STELLAR FUND
STAR STRATEGIC INCOME FUND
STAR U.S. GOVERNMENT INCOME FUND
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the Star Stock and
Bond Funds. The Report combines information about all of the Star Stock and Bond
Funds over the 12-month period from December 1, 1995, through November 30, 1996.
First, you will find an interview with the portfolio manager, which covers
economic and market conditions and their impact on fund performance and
strategy. Next is a graph of long-term fund performance, followed by a complete
list of each fund's holdings and the financial statements.
As the following fund-by-fund highlights show, the 12-month period ended
November 30, 1996, proved to be a favorable one for stocks, while bonds were
affected by interest rate volatility.
STAR CAPITAL APPRECIATION FUND
Managed to pursue growth over time through a diversified portfolio of stocks,
the fund's portfolio of stocks achieved a total return of 8.95%, for the year
ended November 30, 1996, or 4.02% adjusted for the sales charge.* The share
price rose from $11.82 on the first day of the period to $12.55 at the period's
end. The fund paid a total of $0.29 per share in capital gains. Fund assets grew
by more than $22 million to end the period at $79.1 million.
STAR GROWTH EQUITY FUND
This fund's portfolio of high-quality stocks included Boeing, General Motors,
DuPont, Microsoft, General Electric, Pepsico, Gillette, Sears, and many other
household names. It delivered a strong total return of 27.34%, for the year
ended November 30, 1996, or 22.05% adjusted for the contingent deferred sales
charge.* The share price rose from $12.70 to reach $15.17 at the period's end.
Shareholders received a total of $0.16 per share in dividends and $0.66 in
capital gains. Fund assets reached $85.3 million.
STAR RELATIVE VALUE FUND
The fund's portfolio of stocks 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. At the end of the period, many of the fund's holdings were
household names like General Motors, Dow Chemical, Bristol-Myers Squibb, General
Electric, Intel, Procter & Gamble, and American Express, to name a few. Over the
period, the fund delivered a very strong total return of 28.86%, for the year
ended November 30, 1996, or 23.04% adjusted for the sales charge.* The fund's
share price rose significantly, starting the period at $15.02 and ending the
period at $19.03. Shareholders received total dividends of $0.26 per share, and
capital gains totaling $0.01 per share. Fund assets grew from $132.0 million to
$215.8 million.
THE STELLAR FUND
To pursue a high level of total return over the long term, the fund invests in
approximately equal weightings in U.S. stocks, U.S. bonds, international
securities,+ real estate securities, and money market securities. This highly
diversified approach produced, for Investment Shares, a total return of 16.64%,
for the year ended November 30, 1996, or 11.43% adjusted for the sales charge.*
The share price rose 11% to reach $13.59 on the last day of the period.
Shareholders received dividends totaling $0.34 per share and capital gains
totaling $0.20 per share.
For Trust Shares, the fund's total return was 16.94%,* for the year ended
November 30, 1996. The share price rose 11% to reach $13.59 on the last day of
the period. Shareholders received dividends totaling $0.37 per share and capital
gains totaling $0.20 per share.
Total Stellar Fund assets reached $117.1 million.
*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.
+Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
- --------------------------------------------------------------------------------
STAR STRATEGIC INCOME FUND
The fund's diversified portfolio of income-producing securities was invested in
corporate bonds (40.9%), government agency bonds (20.9%), real estate investment
trusts (17.7%), preferred stocks (7.0%), international bonds (5.6%), common
stocks (5.2%), and cash equivalents (1.0%) based on net assets at the end of the
period. The fund paid dividends totaling $0.72 per share while the share price
declined by a minimal $0.03 due to interest rate volatility. The Fund's total
return was 6.99%, for the year ended November 30, 1996, or 1.59% adjusted for
the contingent deferred sales charge.* Fund assets more than doubled during the
period, from $47.5 million to $110.8 million.
STAR U.S. GOVERNMENT INCOME FUND
Managed to pursue income through a diversified portfolio consisting primarily of
U.S. government bonds, this fund produced $0.57 per share in income over the
12-month period, while the share price declined by $0.15 due to interest rate
volatility. As a result of dividend income and share price movement, the fund
delivered a total return of 4.46%, for the year ended November 30, 1996, or
0.83% adjusted for the sales charge.* The fund's net assets grew to reach $138.9
million at the end of the period.
Thank you for pursuing your financial goals through the Star Stock and Bond
Funds. As we begin a new year, we look forward to keeping you up-to-date on your
investment progress through the highest level of service possible.
Sincerely,
Edward C. Gonzales
President
January 15, 1997
*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.
INVESTMENT REVIEWS
- --------------------------------------------------------------------------------
STAR CAPITAL APPRECIATION FUND
Q
The stock market continued to delight investors, although a degree of
volatility emerged. Can you comment?
A
The stock market advance since the midsummer pause has been very selective.
Many companies in the small to mid-capitalization segment of the market
continue to trade at prices well below their highs of the year. Volatility
has clearly become a factor in management of the fund; this has forced a greater
degree of diversification on the fund.
Q
How did Star Capital Appreciation Fund perform during the period?
A
The fund had struggled as investors displayed a clear preference for large
companies even within the S&P 400 Index.* The fund focus, by definition, is
on those companies with the best earnings growth forecast regardless of
size. This focus resulted in sub-benchmark performance for the period.
Q
What sectors contributed most to the fund's performance?
A
The technology and energy sectors drove the performance and in the case of
technology, most of the volatility.
Q
What role did mid-cap stocks play in the fund during the year?
A
Market capitalization was a far greater determinant of performance than was
inclusion in any of the market basket benchmarks.
Q
As we leave 1996, do you anticipate slower economic growth in 1997, what
strategies are you employing and what sectors of the market are you
emphasizing in response?
A
Our 1997 economic forecast calls for a decelerating economy. It is
typically in these economic environments that the market focus shifts to
those stocks capable of generating revenue growth, the small to mid-size
corporations. We have aligned the portfolio to concentrate on the industry
leaders within the key growth sectors of the mid-cap universe. To augment this
strategy we are committing up to twenty percent of the fund to overweight those
focus industries.
*Standard & Poor's 400 Index is an unmanaged composite index of common stocks in
industry, transportation, and financial and public utility companies that can
be used to compare to the total returns of funds whose portfolios are invested
primarily in common stocks. Investments cannot be made in an index.
STAR GROWTH EQUITY FUND
Q
In an environment which saw stocks soar, how did the fund perform?
A
The Star Growth Equity Fund had a very strong year as it performed right in
line with the Standard and Poor's 500 Stock Index ("S&P 500") and
outperformed many similar funds. The fund had a total rate of return of
27.34%,* based on net asset value, for the past year versus the S&P 500 at
27.78%. The fund was a consistent performer throughout the year and did not
deviate significantly from the index during this period. While the market was
volatile, the continued usage of option strategies proved helpful in dampening
volatility. The fund continues to be operated looking for companies with strong
earnings growth yet within a controlled price/earnings environment.
Q
What sectors drove the fund performance?
A
The fund was clearly helped by our overweighting, for most of the year, in
both technology and financials. The financial stocks struggled early but
weightings were increased as interest rates approached their peak. This
proved very beneficial as those stocks rallied strongly during the eventual
decline in rates. Our technology stocks did well throughout the year as we
really concentrated on the quality names. Another group which helped during the
year, although in a more sporadic fashion, was the energy group. The general
rise in the price of oil during the year led to an overall upward bias in these
stock prices.
Q
Did you lower the market capitalization of the fund's holdings during the
year, and did this have an impact on performance?
A
While the growth equity fund is a large cap stock fund, we did slightly
lower the average market cap during the year. The average market cap for
the fund is about 80% of that of the S&P 500. This lowering of the
capitalization did not have a dramatic impact on the fund. Some of the names we
added, such as Clear Channel and Kohl's, did very well. Overall, however, as the
year progressed the market strength became more narrow and was actually
concentrated in the larger cap names. Thus, this move to lower caps did not
provide much lift to the fund.
Q
As 1996 draws to a close, what is your outlook for economic growth in 1997
and how will that influence your strategy?
A
Our outlook is for a continuing slowdown in economic growth during 1997.
This could lead interest rates to be stable to slightly down and earnings
growth should also deteriorate. This should set up a market which again is
extremely volatile. Great emphasis will need to be placed on security selection
as the number of rising stocks should remain narrow. The difference from 1996,
however, is that we still expect smaller capitalization stocks to perform better
in this scenario. Some of these companies should be able to grow their earnings
at rates which are superior to that of the market and should accordingly be
rewarded. Therefore, we will continue to keep the average market cap of the fund
at a level below that of the S&P 500. Further declines in interest rates should
remain as a positive for groups such as financials.
*Performance quoted reflects past performance and is not indicative of future
results. 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. Total return for the period, based on offering price, is 22.05%.
STAR RELATIVE VALUE FUND
Q
The stock market continued its record-setting climb during 1996. How did
Star Relative Value Fund perform relative to the overall stock market?
A
For the fiscal year ended November 30, 1996, the Star Relative Value Fund
had a total rate of return of 28.86% on a no-load, net asset value basis*
compared to the Standard and Poor's 500 Stock Index return of 27.78% for
the same period.
Q
What specific sectors and stocks made the greatest impact on fund
performance?
A
The technology and finance sectors were the leading sectors that had a
positive impact on the Star Relative Value Fund in 1996. The top performing
stocks in these sectors included Intel and IBM in technology and Citicorp,
Nationsbank, and Mellon Bank in finance. Consumer stocks such as Philip Morris,
Procter & Gamble and Gillette were leading performers as well.
Q
As 1996 draws to a close with the Dow approaching the 6500 mark, what
sectors do you feel offer opportunities in 1997?
A
In 1997, we continue to believe that there are select opportunities still
available in technology, financial services and retail along with health
care, pharmaceutical, energy and consumer staples. Sector rotation should
be more rapid as the markets take on greater volatility.
Q
While the voices warning of overvaluation are growing more vocal, do you
see longer-term positives supporting the market?
A
Our 1997 forecast of sluggish economic growth and stable interest rates
leads us to focus on stocks which can provide steady profit growth with
minimal reliance on expansion of overall Gross Domestic Product. We look
for the domestic stock market to continue to experience higher volatility and
increased industry rotation in 1997. We believe that respectable rather than
spectacular returns should be the norm in the coming year.
*Performance quoted reflects past performance and is not indicative of future
results. 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. Total return for the period, based on offering price, is 23.04%.
THE STELLAR FUND
Q
During the period, how did The Stellar Fund's multi-asset investment mix
perform for shareholders?
A
The Stellar Fund participated in the overwhelming strength of the domestic
stock market through both the domestic equity portfolio and the REIT
holdings. The portfolio holdings in the remaining asset classes did reduce
overall volatility but did represent a drag on the performance of the fund.
Q
The U.S. stock market continued its incredible climb as the Dow Jones
Industrial Average surged past the 6000 mark. How well did the fund's stock
holdings contribute to performance?
A
The domestic equity portfolio extended its performance margin over the
Standard & Poor's 500 Stock Index* in the period. The driving force behind
this performance rests with the portfolio overweighing in the energy,
health care and technology issues.
Q
Bonds, on the other hand, reversed completely from a strong 1995 and
exhibited a high level of volatility. How did the fund's domestic bond
holdings perform in this environment?
A
The bond portion of the fund, while positive for the year, has reduced the
absolute performance of the fund. The active management of the portfolio
kept losses, by and large, in check.
Q
International stock and bond market performance generally does not
correlate with U.S. stock and bond markets. How did the fund's
international holdings perform?
A
Many of the international markets have performed well this year in local
currency terms but when adjusted for strength in the dollar the returns
have been high single digit. This is part of the strategy driving the
investment process of the Stellar Fund. These countervailing forces seek to
reduce the overall volatility to the shareholder and stabilize returns.
Q
Which regions of the world seem to show the most opportunity, and how have
you structured the fund's holdings to respond?
A
The fund's international component is heavily weighted to Europe with
limited exposure to Canada, Australia, Japan and Chile. We find in these
markets attractive valuations, improving economies and stable political
environments.
Q
How did the fund's real estate holdings perform?
A
The REIT market over the past two years has witnessed explosive growth as
traditional direct investors move to the securitization of portfolios. Our
performance continued to outpace the industry benchmarks while providing
income yields beyond those of the bond portfolio.
Q
As we enter 1997 with U.S. stocks at such high levels, and mixed economic
signals, have you made or do you anticipate making any significant
weighting changes among the fund's asset classes? What opportunities do you
see ahead in this environment?
A
The Stellar Fund domestic portfolio is focusing on smaller growth companies
as this cycle progresses. In the international realm, our focus on Europe
continues, in REITs we continue to underweight the retail sector and in
fixed income we continue to gauge all possible securities vs. their U.S.
Treasury counterpart. Our 1997 forecast calls for a slowing economy and a more
subdued rate of return for domestic equities. We look for strong performance
from the international and REIT segments of the portfolio.
*The S&P 500 is a composite index of common stocks in industry, transportation,
and financial and public utility companies that can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. This index is unmanaged, and actual investments may not be made in an
index.
STAR STRATEGIC INCOME FUND
Q
The bond market reversed itself from a positive 1995, and exhibited a very
high level of volatility in 1996 as an economic recovery forced rates
higher. Can you comment?
A
Returns in 1995 were outstanding due to dramatically lower yields. Some
market observers had speculated that a recession was close at hand. As it
turned out, the lower interest rates during the 1995 period provided a much
needed stimulus to the economy which responded strongly in the first half of
1996. By mid-year, perceptions had swayed from anticipation of recession to
fears of an economy accelerating too quickly. Bond yields reached their peak at
7.20% in July, 1996, as many economists were calling for the Fed to increase
interest rates to hold-off inflation fears. Throughout this period, our outlook
was neutral. With the aid of a longer-term outlook and proprietary models, the
fund was spared significant damage caused by wide swings in perception and
interest rates.
Q
In this environment, how did the Star Strategic Income Fund's income
producing investments perform for shareholders?
A
Income levels have remained fairly steady throughout 1996. As yields
peaked, we made adjustments to the portfolio to "lock-in" higher yields.
Thus, income levels and performance improved somewhat. The corporate bond
market has seen yield premiums compared to Treasury bonds narrowed dramatically
in 1996. Past performance has been excellent, but we must now look to other
asset classes to maintain the high income levels. One of the best remaining
sources of income, mortgage-backed bonds, remains at 20% of the fund's invested
assets. Mortgage bonds have performed well this year, but could still offer
generous income levels. Likewise, our international exposure has been increasing
to take advantage of income opportunities abroad.
Q
Did the fund's diversification among different income-producing investments
help cushion shareholders against the difficult market?
A
Clearly, the answer is yes. The benefits of broad diversification were
clear once again this year in the Star Strategic Income Fund. Fixed income
assets had a difficult year as yields remained above their starting point
from last year. Thus, positive returns were generated only through income
without the help of capital gains. Funds with the best returns were able to take
advantage of incremental income opportunities in different sectors such as
corporate, mortgage-backed, and international bonds. Fortunately, the fund's
multiple asset allocations allowed us to tap all of these areas and buffer the
markets' volatility. Additionally, our exposure to the high income Real Estate
Investment Trusts (REITs) market provided a much needed boost to capital
positions, not to mention the income generated. Our allocation to REITs ranged
from 16% to 20% of invested assets during the past year.
Q
As we leave 1996, do you see an improved environment for bonds ahead?
A
Yes. Our 1997 economic outlook calls for slower growth and contained
inflationary pressures. Leading indicators of inflation show encouraging
signs that inflation rates should remain stable. The National Association
of Purchasing Managers price index, industrial prices, agricultural prices,
value of the dollar, and monetary aggregates have all shown little change over
the past twelve months. Additionally, the favorable Employment Cost Index
figures for the third quarter at 0.6% and 2.8% over the past year, are better
than economists expectations. Thus, we believe the Fed will leave monetary
policy unchanged for the foreseeable future with the Fed funds rate remaining at
5.25%.
BOND YIELDS have fallen dramatically over the past few weeks as slower economic
growth was reflected in the markets. Going forward, we expect somewhat of a
stalemate between the longer-
term positives and short-term negatives. Our proprietary "Bond Market Barometer"
model confirms this view with a neutral reading of +1 (-13 signals higher yields
and +13 signals lower yields). Positives for the bond market include excellent
value, supportive economic data, slowing federal deficit growth, low gold
prices, and declining money supply growth. Assuming our predicted inflation rate
of 3%, real bond yields of 3.5% are at a historically attractive level.
Impediments to further yield declines include strong performance in the
coincident indicators, a late business cycle, and optimistic sentiment from bond
investors. Bond yields should remain within a range, albeit lower. We think
better fundamentals lower the yield range from 6.25% to 6.75% over the next six
months.
STAR U.S. GOVERNMENT INCOME FUND
Q
The bond market reversed itself from a positive 1995, and exhibited a very
high level of volatility in 1996 as an economic recovery forced rates
higher. Can you comment?
A
Returns in 1995 were outstanding due to dramatically lower yields. Some
market observers had speculated that a recession was close at hand. As it
turned out, the lower interest rates during the 1995 period provided a much
needed stimulus to the economy which responded strongly in the first half of
1996. By mid-year, perceptions had swayed from anticipation of recession to
fears of an economy accelerating too quickly. Bond yields reached their peak at
7.20% in July as many economists were calling for the Federal Reserve Board (the
"Fed") to increase interest rates to hold-off inflation fears. Throughout this
period, our outlook was neutral. With the aid of a longer-term outlook and
proprietary models, the fund was spared significant damage caused by wide swings
in perception and interest rates.
Q
In this environment, how did the Star U.S. Government Income Fund's
portfolio perform for shareholders in terms of income and total return?
A
Income levels have remained fairly steady throughout 1996. As yields
peaked, we made adjustments to the portfolio to "lock-in" higher yields.
Thus, income levels and performance improved somewhat. Total return for the
year ended November 30, 1996 was 4.46%,* compared to 4.54% for the Lipper U.S.
Government bond fund average.** Relative performance was improved through new
systems implemented during the year, including the CMS Bondedge Portfolio
Analytics software and security review methodology.
Q
What was the fund's allocation among mortgage-backed, U.S. Treasury, and
corporate holdings? Did this mix help cushion shareholders against the
difficult market?
A
At the beginning of 1996, the sector allocation was 20% mortgage-backed, 5%
agency, 50% Treasury, and 25% corporate bonds. The incremental income of
mortgage-backed and corporate bonds helped buffer the portfolio from a
difficult market. Mortgages in particular performed well when interest rates
rose in the first half. Corporate bonds have been the best performing fixed
income asset in 1996. Thus, our 25% allocation to corporate issues clearly
helped performance.
Q
As we leave 1996, do you see an improved environment for bonds ahead?
A
Yes. Our 1997 economic outlook calls for slower growth and contained
inflationary pressures. Leading indicators of inflation show encouraging
signs that inflation rates should remain stable. The National Association
of Purchasing Managers price index, industrial prices, agricultural prices,
value of the dollar, and monetary aggregates have all shown little change over
the past twelve months. Additionally, the favorable Employment Cost Index
figures for the third quarter at 0.6% and 2.8% over the past year, are better
than economists expectations. Thus, we believe the Fed will leave monetary
policy unchanged for the foreseeable future with the Fed funds rate remaining at
5.25%. BOND YIELDS have fallen dramatically over the past few weeks as slower
economic growth was reflected in the markets. Going forward, we expect somewhat
of a stalemate between the longer-term positives and short-term negatives. Our
proprietary "Bond Market Barometer" model confirms this view with a neutral
reading of +1 (-13 signals higher yields and +13 signals lower yields).
Positives for the bond markets include excellent value, supportive economic
data, slowing federal deficit growth, low gold prices, and declining money
supply growth. Assuming our predicted inflation rate of 3%, real bond yields of
3.5% are at a historically attractive level. Impediments to further yield
declines include strong performance in the coincident indicators, a late
*Performance quoted reflects past performance and is not indicative of future
results. 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. Total return for the period, based on offering price, is 0.83%.
**Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
business cycle, and optimistic sentiment from bond investors. Bond yields should
remain within a range, albeit lower. We think better fundamentals lower the
yield range to 6.25% from 6.75% over the next six months.
STAR CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR CAPITAL APPRECIATION FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR CAPITAL APPRECIATION FUND (THE "FUND") FROM JUNE 13, 1994 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE S&P MIDCAP 400 INDEX.+
SEE APPENDIX A FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 4.02%
START OF PERFORMANCE (6/13/94) 9.10%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment $10,000 in the Fund after deducting the
maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P Midcap 400 Index has been adjusted to reflect
reinvestment of dividends on securities in the index. This index is unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The S&P Midcap 400 Index is not adjusted to reflect sales charges, expenses,
or other fees that the SEC requires to be reflected in the Fund's performance.
STAR GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR GROWTH EQUITY FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR GROWTH EQUITY FUND (THE "FUND") FROM DECEMBER 12, 1994 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE STANDARD & POOR'S 500 INDEX.+
SEE APPENDIX B FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 22.05%
START OF PERFORMANCE (12/12/94) 27.14%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge on any
redemption less than one year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The Standard &
Poor's 500 Index has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The Standard & Poor's 500 Index is not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance.
STAR RELATIVE VALUE FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR RELATIVE VALUE FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR RELATIVE VALUE FUND (THE "FUND") FROM JUNE 4, 1991 (START OF PERFORMANCE)
TO NOVEMBER 30, 1996 COMPARED TO THE STANDARD & POOR'S 500 INDEX.+
SEE APPENDIX C FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 23.04%
5 YEAR 16.68
START OF PERFORMANCE (6/4/91) 14.17%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The Standard & Poor's 500 Index has been adjusted to
reflect reinvestment of dividends on securities in the index. This index is
unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The Standard & Poor's 500 Index is not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance.
THE STELLAR FUND--TRUST SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE STELLAR FUND--TRUST SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STELLAR FUND--TRUST SHARES (THE "FUND") FROM APRIL 6, 1994 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE STANDARD & POOR'S 500/LEHMAN
GOVERNMENT CORPORATE TOTAL INDEX.+
SEE APPENDIX D FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 16.94%
START OF PERFORMANCE (4/6/94) 11.40%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The Standard & Poor's 500/Lehman Government Corporate Total
Index has been adjusted to reflect reinvestment of all dividends on securities
in the index. This index is unmanaged.
+The Standard & Poor's 500/Lehman Government Corporate Total Index is not
adjusted to reflect sales charges, expenses, or other fees that the SEC
requires to be reflected in the Fund's performance.
THE STELLAR FUND--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE STELLAR FUND--INVESTMENT SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STELLAR FUND-- INVESTMENT SHARES (THE "FUND") FROM OCTOBER 18, 1991 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE STANDARD & POOR'S 500/LEHMAN
GOVERNMENT CORPORATE TOTAL INDEX.+
SEE APPENDIX E FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 11.43%
5 YEAR 9.55%
START OF PERFORMANCE (10/18/91/94) 8.88%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The Standard & Poor's 500/Lehman Government Corporate Total
Index has been adjusted to reflect reinvestment of dividends on securities in
the index. This index is unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The Standard & Poor's 500/Lehman Government Corporate Total Index is not
adjusted to reflect sales charges, expenses, or other fees that the SEC
requires to be reflected in the Fund's performance.
STAR STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR STRATEGIC INCOME FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR STRATEGIC INCOME FUND (THE "FUND") FROM DECEMBER 12, 1994 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE LEHMAN GOVERNMENT/CORPORATE
TOTAL INDEX.+
SEE APPENDIX F FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 1.59%
START OF PERFORMANCE (12/12/94) 7.82%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.00% contingent deferred sales charge on any
redemption less than one year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The Lehman
Government/Corporate Total Index has been adjusted to reflect reinvestment of
dividends on securities in the index. This index is unmanaged
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The Lehman Government/Corporate Total Index is not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance.
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR U.S. GOVERNMENT INCOME FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR U.S. GOVERNMENT FUND (THE "FUND") FROM JANUARY 5, 1993 (START OF
PERFORMANCE) TO NOVEMBER 30, 1996 COMPARED TO THE LEHMAN GOVERNMENT/CORPORATE
TOTAL INDEX.+
SEE APPENDIX F FOR GRAPHIC DESCRIPTION
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED NOVEMBER 30, 1996
1 YEAR 0.83%
START OF PERFORMANCE (1/5/93) 4.88%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 3.50% ($10,000 investment minus $350 sales charge
= $9,650). The Fund's performance assumes the reinvestment of all dividends
and distributions. The Lehman Government/Corporate Total Index has been
adjusted to reflect reinvestment of dividends on securities in the index. This
index is unmanaged.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The Lehman Government/Corporate Total Index is not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance.
STAR CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--95.6%
- -------------------------------------------------------------------------------------------------
BANKING--2.0%
-----------------------------------------------------------------------------------
22,000 North Fork Bancorp, Inc. $ 748,000
-----------------------------------------------------------------------------------
22,000 Astoria Financial Corp. 830,500
----------------------------------------------------------------------------------- -------------
Total 1,578,500
----------------------------------------------------------------------------------- -------------
CHEMICALS--2.9%
-----------------------------------------------------------------------------------
20,000 (a)Cytec Industries, Inc. 740,000
-----------------------------------------------------------------------------------
50,000 Spartech Corp. 531,250
-----------------------------------------------------------------------------------
22,000 Goodrich (B.F.) Co. 987,250
----------------------------------------------------------------------------------- -------------
Total 2,258,500
----------------------------------------------------------------------------------- -------------
COMMERCIAL SERVICES--2.3%
-----------------------------------------------------------------------------------
20,000 Omnicom Group, Inc. 1,020,000
-----------------------------------------------------------------------------------
60,000 (a)Prepaid Legal Services, Inc. 832,500
----------------------------------------------------------------------------------- -------------
Total 1,852,500
----------------------------------------------------------------------------------- -------------
COMPUTER SERVICES--8.9%
-----------------------------------------------------------------------------------
12,000 (a)U.S. Robotics Corp. 943,500
-----------------------------------------------------------------------------------
22,000 (a)Medic Computer Systems, Inc. 742,500
-----------------------------------------------------------------------------------
22,500 (a)Cadence Design Systems, Inc. 897,188
-----------------------------------------------------------------------------------
17,000 (a)Shiva Corp. 701,250
-----------------------------------------------------------------------------------
23,000 (a)FORE Systems, Inc. 902,750
-----------------------------------------------------------------------------------
38,000 (a)Alternative Resources Corp. 655,500
-----------------------------------------------------------------------------------
22,000 (a)Brooktrout Technology, Inc. 706,750
-----------------------------------------------------------------------------------
20,000 (a)Gartner Group, Inc., Class A 730,000
-----------------------------------------------------------------------------------
12,000 (a)CDW Computer Centers, Inc. 792,000
----------------------------------------------------------------------------------- -------------
Total 7,071,438
----------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--0.8%
-----------------------------------------------------------------------------------
15,000 (a)Blyth Industries, Inc. 650,625
----------------------------------------------------------------------------------- -------------
ELECTRONICS--5.5%
-----------------------------------------------------------------------------------
22,000 BMC Industries, Inc. 632,500
-----------------------------------------------------------------------------------
80,000 (a)Richey Electronics, Inc. 780,000
-----------------------------------------------------------------------------------
20,000 (a)Vitesse Semiconductor Corp. 955,000
-----------------------------------------------------------------------------------
10,000 (a)C-Cube Microsystems, Inc. 436,250
-----------------------------------------------------------------------------------
15,000 (a)SCI Systems, Inc. 791,250
-----------------------------------------------------------------------------------
22,000 (a)Atmel Corp. 723,250
----------------------------------------------------------------------------------- -------------
Total 4,318,250
----------------------------------------------------------------------------------- -------------
ENERGY-OIL EXPLORATION--2.3%
-----------------------------------------------------------------------------------
25,000 Noble Affiliates, Inc. 1,178,125
-----------------------------------------------------------------------------------
13,000 (a)Triton Energy Ltd. 617,500
----------------------------------------------------------------------------------- -------------
Total 1,795,625
----------------------------------------------------------------------------------- -------------
</TABLE>
STAR CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ENTERTAINMENT & LEISURE--4.8%
-----------------------------------------------------------------------------------
32,000 Hilton Hotels Corp. $ 936,000
-----------------------------------------------------------------------------------
20,000 (a)MGM Grand, Inc. 772,500
-----------------------------------------------------------------------------------
30,000 (a)Speedway Motorsports, Inc. 648,750
-----------------------------------------------------------------------------------
48,000 Callaway Golf Co. 1,458,000
----------------------------------------------------------------------------------- -------------
Total 3,815,250
----------------------------------------------------------------------------------- -------------
FINANCIAL SERVICES--8.9%
-----------------------------------------------------------------------------------
25,000 Green Tree Financial Corp. 1,046,875
-----------------------------------------------------------------------------------
14,000 State Street Boston Corp. 946,750
-----------------------------------------------------------------------------------
50,400 Bear Stearns Cos., Inc. 1,386,000
-----------------------------------------------------------------------------------
60,000 Money Stores, Inc. 1,815,000
-----------------------------------------------------------------------------------
30,000 SunAmerica, Inc. 1,256,250
-----------------------------------------------------------------------------------
42,500 (a)Olympic Financial Ltd. 589,688
----------------------------------------------------------------------------------- -------------
Total 7,040,563
----------------------------------------------------------------------------------- -------------
FOOD & BEVERAGE--1.0%
-----------------------------------------------------------------------------------
17,000 Pan American Beverage, Class A 794,750
----------------------------------------------------------------------------------- -------------
HEALTH SERVICES--2.2%
-----------------------------------------------------------------------------------
35,000 (a)Curative Health Services, Inc. 910,000
-----------------------------------------------------------------------------------
15,000 (a)Oxford Health Plans, Inc. 870,000
----------------------------------------------------------------------------------- -------------
Total 1,780,000
----------------------------------------------------------------------------------- -------------
HOSPITAL MANAGEMENT--1.0%
-----------------------------------------------------------------------------------
20,000 (a)HEALTHSOUTH Corp. 752,500
----------------------------------------------------------------------------------- -------------
HOSPITAL SUPPLIES--2.7%
-----------------------------------------------------------------------------------
37,000 (a)Hologic, Inc. 925,000
-----------------------------------------------------------------------------------
25,000 (a)VISX, Inc. 587,500
-----------------------------------------------------------------------------------
32,000 (a)Physician Sales & Service, Inc. 648,000
----------------------------------------------------------------------------------- -------------
Total 2,160,500
----------------------------------------------------------------------------------- -------------
HOUSEHOLD PRODUCTS--1.2%
-----------------------------------------------------------------------------------
35,000 (a)Fort Howard Corp. 988,750
----------------------------------------------------------------------------------- -------------
INDUSTRIAL SERVICES--1.0%
-----------------------------------------------------------------------------------
11,000 Harsco Corp. 767,250
----------------------------------------------------------------------------------- -------------
INSURANCE--2.6%
-----------------------------------------------------------------------------------
20,000 CMAC Investment Corp. 1,525,000
-----------------------------------------------------------------------------------
15,000 (a)American Travellers Corp. 529,688
----------------------------------------------------------------------------------- -------------
Total 2,054,688
----------------------------------------------------------------------------------- -------------
MACHINERY & EQUIPMENT--1.7%
-----------------------------------------------------------------------------------
35,000 (a)Global Industrial Technologies, Inc. 717,500
-----------------------------------------------------------------------------------
27,000 (a)Input/Output, Inc. 648,000
----------------------------------------------------------------------------------- -------------
Total 1,365,500
----------------------------------------------------------------------------------- -------------
</TABLE>
STAR CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
MANUFACTURING--5.3%
-----------------------------------------------------------------------------------
30,000 (a)Olympic Steel, Inc. $ 723,750
-----------------------------------------------------------------------------------
47,000 JLG Industries, Inc. 846,000
-----------------------------------------------------------------------------------
18,000 (a)Zygo Corp. 715,500
-----------------------------------------------------------------------------------
28,000 (a)Sealed Air Corp. 1,162,000
-----------------------------------------------------------------------------------
25,000 Stanley Works 737,500
----------------------------------------------------------------------------------- -------------
Total 4,184,750
----------------------------------------------------------------------------------- -------------
METALS & MINING--1.6%
-----------------------------------------------------------------------------------
19,000 Zeigler Coal Holding Co. 349,125
-----------------------------------------------------------------------------------
26,000 Oregon Metallurgical Corp. 923,000
----------------------------------------------------------------------------------- -------------
Total 1,272,125
----------------------------------------------------------------------------------- -------------
MULTI-INDUSTRY--1.4%
-----------------------------------------------------------------------------------
30,000 Eastern Enterprises 1,125,000
----------------------------------------------------------------------------------- -------------
OIL-INTERNATIONAL--5.3%
-----------------------------------------------------------------------------------
44,000 (a)Smith International, Inc. 1,798,500
-----------------------------------------------------------------------------------
42,000 (a)Reading & Bates Corp. 1,218,000
-----------------------------------------------------------------------------------
15,000 Tosco Corp. 1,141,875
----------------------------------------------------------------------------------- -------------
Total 4,158,375
----------------------------------------------------------------------------------- -------------
PAPER--1.0%
-----------------------------------------------------------------------------------
23,000 Caraustar Industries, Inc. 779,125
----------------------------------------------------------------------------------- -------------
PERSONAL CARE PRODUCTS--2.1%
-----------------------------------------------------------------------------------
33,500 Natures Sunshine Products, Inc. 678,375
-----------------------------------------------------------------------------------
56,000 (a)General Nutrition Cos., Inc. 966,000
----------------------------------------------------------------------------------- -------------
Total 1,644,375
----------------------------------------------------------------------------------- -------------
PHARMACEUTICALS--0.9%
-----------------------------------------------------------------------------------
26,000 (a)Biovail Corp. International 741,000
----------------------------------------------------------------------------------- -------------
RESTAURANTS--2.5%
-----------------------------------------------------------------------------------
34,000 Applebee's International, Inc. 990,250
-----------------------------------------------------------------------------------
25,000 (a)Boston Chicken, Inc. 968,750
----------------------------------------------------------------------------------- -------------
Total 1,959,000
----------------------------------------------------------------------------------- -------------
RETAIL--5.5%
-----------------------------------------------------------------------------------
39,000 (a)Just For Feet, Inc. 921,375
-----------------------------------------------------------------------------------
30,000 (a)Bed Bath & Beyond, Inc. 785,625
-----------------------------------------------------------------------------------
40,000 (a)Staples, Inc. 790,000
-----------------------------------------------------------------------------------
25,000 Gap (The), Inc. 803,125
-----------------------------------------------------------------------------------
20,000 (a)Vons Companies, Inc. 1,052,500
----------------------------------------------------------------------------------- -------------
Total 4,352,625
----------------------------------------------------------------------------------- -------------
SERVICES--3.9%
-----------------------------------------------------------------------------------
25,000 (a)Apollo Group, Inc., Class A 646,875
-----------------------------------------------------------------------------------
26,000 (a)Corrections Corp. America 646,750
-----------------------------------------------------------------------------------
</TABLE>
STAR CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
-----------------------------------------------------------------------------------
41,000 (a)AccuStaff, Inc. $ 830,250
-----------------------------------------------------------------------------------
32,000 (a)CDI Corp. 932,000
----------------------------------------------------------------------------------- -------------
Total 3,055,875
----------------------------------------------------------------------------------- -------------
TECHNOLOGY SERVICES--0.9%
-----------------------------------------------------------------------------------
30,000 (a)EPIC Design Technology, Inc. 750,000
----------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS--5.8%
-----------------------------------------------------------------------------------
35,000 (a)Centennial Cellular Corp., Class A 406,875
-----------------------------------------------------------------------------------
18,000 (a)Adtran, Inc. 803,250
-----------------------------------------------------------------------------------
12,000 (a)Aspect Telecommunications Corp. 654,000
-----------------------------------------------------------------------------------
16,000 (a)ADC Telecommunications, Inc. 580,000
-----------------------------------------------------------------------------------
30,000 (a)Picturetel Corp. 832,500
-----------------------------------------------------------------------------------
80,000 Geotek Communications, Inc. 560,000
-----------------------------------------------------------------------------------
37,500 ECI Telecommunications, Ltd. 750,000
----------------------------------------------------------------------------------- -------------
Total 4,586,625
----------------------------------------------------------------------------------- -------------
TRANSPORTATION--1.7%
-----------------------------------------------------------------------------------
55,000 Comair Holdings, Inc. 1,368,125
----------------------------------------------------------------------------------- -------------
UTILITIES--5.8%
-----------------------------------------------------------------------------------
32,000 Sierra Pacific Resources 916,000
-----------------------------------------------------------------------------------
20,000 NIPSCO Industries, Inc. 775,000
-----------------------------------------------------------------------------------
25,000 Ipalco Enterprises, Inc. 681,250
-----------------------------------------------------------------------------------
22,000 Idaho Power Co. 679,250
-----------------------------------------------------------------------------------
40,000 Washington Gas Light Co. 955,000
-----------------------------------------------------------------------------------
20,000 Pinnacle West Capital Corp. 622,500
----------------------------------------------------------------------------------- -------------
Total 4,629,000
----------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $64,355,274) 75,651,189
----------------------------------------------------------------------------------- -------------
COMMERCIAL PAPER--5.2%
- -------------------------------------------------------------------------------------------------
$ 4,099,000 Merrill Lynch & Co., Inc., 5.85%, dated 11/29/1996, due 12/2/1996
(AT AMORTIZED COST) 4,098,334
----------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $68,453,608)(B) $ 79,749,523
----------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing security.
(b) The cost of investments for federal tax purposes amounts to $68,455,203. The
net unrealized appreciation of investments on a federal tax basis amounts to
$11,294,320 which is comprised of $13,721,235 appreciation and $2,426,915
depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($79,162,809) at November 30, 1996.
(See Notes which are an integral part of the Financial Statements)
STAR CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified cost $68,453,608, and tax cost $68,455,203) $ 79,749,523
- ---------------------------------------------------------------------------------------------------
Cash 135
- ---------------------------------------------------------------------------------------------------
Income receivable 49,109
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 25,642
- ---------------------------------------------------------------------------------------------------
Deferred expenses 5,676
- --------------------------------------------------------------------------------------------------- -------------
Total assets 79,830,085
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------
Payable for investments purchased $ 600,339
- ---------------------------------------------------------------------------------------
Payable for shares redeemed 1,513
- ---------------------------------------------------------------------------------------
Accrued expenses 65,424
- --------------------------------------------------------------------------------------- ----------
Total liabilities 667,276
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 6,306,199 shares outstanding $ 79,162,809
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 68,554,222
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 11,295,915
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (687,328)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 79,162,809
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
($79,162,809 / 6,306,199 shares outstanding) $12.55
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share: (100/95.50 of $12.55)* $13.14
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STAR CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 542,868
- ----------------------------------------------------------------------------------------------------
Interest 217,510
- ---------------------------------------------------------------------------------------------------- ------------
Total income 760,378
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 665,476
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 70,082
- ----------------------------------------------------------------------------------------
Custodian fees 17,513
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 42,414
- ----------------------------------------------------------------------------------------
Directors'/Trustees' fees 658
- ----------------------------------------------------------------------------------------
Auditing fees 13,045
- ----------------------------------------------------------------------------------------
Legal fees 2,580
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 49,293
- ----------------------------------------------------------------------------------------
Shareholder services fee 28,862
- ----------------------------------------------------------------------------------------
Share registration costs 14,068
- ----------------------------------------------------------------------------------------
Printing and postage 15,781
- ----------------------------------------------------------------------------------------
Insurance premiums 3,490
- ----------------------------------------------------------------------------------------
Miscellaneous 4,959
- ---------------------------------------------------------------------------------------- ----------
Total expenses 928,221
- ---------------------------------------------------------------------------------------------------- ------------
Net operating loss (167,843)
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (includes $16,134 gain on written options) (659,396)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 6,695,619
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and options 6,036,223
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 5,868,380
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income (operating loss) $ (167,843) $ 119,128
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and options ($657,799 net loss and
$1,426,788 net gain, respectively, as computed for federal tax purposes) (659,396) 1,403,382
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 6,695,619 4,508,753
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from operations 5,868,380 6,031,263
- ----------------------------------------------------------------------------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Distributions from net investment income -- (127,110)
- -----------------------------------------------------------------------------------
Distributions in excess of net investment income -- (20,499)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (1,408,024) (114,139)
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from distributions to shareholders (1,408,024) (261,748)
- ----------------------------------------------------------------------------------- -------------- -------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 31,488,956 26,008,819
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 606,085 122,124
- -----------------------------------------------------------------------------------
Cost of shares redeemed (13,822,232) (5,483,762)
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from share transactions 18,272,809 20,647,181
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets 22,733,165 26,416,696
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 56,429,644 30,012,948
- ----------------------------------------------------------------------------------- -------------- -------------
End of period $ 79,162,809 $ 56,429,644
- ----------------------------------------------------------------------------------- -------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.82 $ 10.15 $ 10.00
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (0.03) 0.03 --
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.05 1.72 0.15
- ------------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 1.02 1.75 0.15
- ------------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------
Distributions from net investment income -- (0.04) --
- -------------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.00)** --
- -------------------------------------------------------------------------------
Distributions from net realized gain on investment (0.29) (0.04) --
- ------------------------------------------------------------------------------- --------- --------- -----------
Total distributions (0.29) (0.08) --
- ------------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.55 $ 11.82 $ 10.15
- ------------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (B) 8.95% 17.35% 1.50 %
- -------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------
Expenses 1.32% 1.47% 1.58 %*
- -------------------------------------------------------------------------------
Net investment income (0.24)% 0.28% 0.08 %*
- -------------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- 0.01% 0.10 %*
- -------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 79,163 $ 56,430 $ 30,013
- -------------------------------------------------------------------------------
Average commission rate paid $ .0703 -- --
- -------------------------------------------------------------------------------
Portfolio Turnover 174% 144% 36 %
- -------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** 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, 1995.
(a) Reflects operations for the period from June 13, 1994 (date of initial
public investment) to November 30, 1995
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--95.5%
- -----------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.3%
---------------------------------------------------------------------------------
10,000 Boeing Co. $ 993,750
---------------------------------------------------------------------------------
10,000 Textron, Inc. 953,750
--------------------------------------------------------------------------------- -------------
Total 1,947,500
--------------------------------------------------------------------------------- -------------
AIRLINES--0.5%
---------------------------------------------------------------------------------
9,000 Comair Holdings, Inc. 223,875
---------------------------------------------------------------------------------
4,000 UAL Corp. 230,000
--------------------------------------------------------------------------------- -------------
Total 453,875
--------------------------------------------------------------------------------- -------------
AUTOMOBILE--0.9%
---------------------------------------------------------------------------------
13,000 General Motors Corp. 749,125
--------------------------------------------------------------------------------- -------------
BANKING--2.4%
---------------------------------------------------------------------------------
10,000 Corestates Financial Corp. 538,750
---------------------------------------------------------------------------------
9,500 J.P. Morgan & Co., Inc. 896,563
---------------------------------------------------------------------------------
20,000 Signet Banking Corp. 605,000
--------------------------------------------------------------------------------- -------------
Total 2,040,313
--------------------------------------------------------------------------------- -------------
BROADCASTING--0.6%
---------------------------------------------------------------------------------
8,000 (a)Clear Channel Communications, Inc. 552,000
--------------------------------------------------------------------------------- -------------
CHEMICALS--2.9%
---------------------------------------------------------------------------------
15,000 Dow Chemical Co. 1,256,250
---------------------------------------------------------------------------------
5,000 Du Pont (E.I.) de Nemours & Co. 471,250
---------------------------------------------------------------------------------
18,095 Monsanto Co. 719,276
--------------------------------------------------------------------------------- -------------
Total 2,446,776
--------------------------------------------------------------------------------- -------------
COMPUTER SERVICES--7.4%
---------------------------------------------------------------------------------
35,000 (a)(c)Cisco Systems, Inc. 2,375,625
---------------------------------------------------------------------------------
25,140 (c)Hewlett-Packard Co. 1,354,418
---------------------------------------------------------------------------------
7,000 (a)Microsoft Corp. 1,098,125
---------------------------------------------------------------------------------
30,000 Oracle Corp. 1,470,000
--------------------------------------------------------------------------------- -------------
Total 6,298,168
--------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--1.1%
---------------------------------------------------------------------------------
20,000 American Brands, Inc. 955,000
--------------------------------------------------------------------------------- -------------
DRUGS--9.3%
---------------------------------------------------------------------------------
10,000 Abbott Laboratories 557,500
---------------------------------------------------------------------------------
30,000 Amgen, Inc. 1,826,250
---------------------------------------------------------------------------------
29,849 Merck & Co., Inc. 2,477,467
---------------------------------------------------------------------------------
35,000 Schering Plough Corp. 2,493,750
---------------------------------------------------------------------------------
15,000 Watson Pharmaceuticals, Inc. 585,000
--------------------------------------------------------------------------------- -------------
Total 7,939,967
--------------------------------------------------------------------------------- -------------
</TABLE>
STAR GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.2%
---------------------------------------------------------------------------------
10,000 General Electric Co. $ 1,040,000
--------------------------------------------------------------------------------- -------------
ELECTRONIC TECHNOLOGY--5.5%
---------------------------------------------------------------------------------
40,000 Atmel Corp. 1,315,000
---------------------------------------------------------------------------------
20,170 Intel Corp. 2,559,069
---------------------------------------------------------------------------------
7,500 Lockheed Martin Corp. 679,688
---------------------------------------------------------------------------------
2,153 Lucent Technologies, Inc. 110,341
--------------------------------------------------------------------------------- -------------
Total 4,664,098
--------------------------------------------------------------------------------- -------------
ENERGY MINERALS--1.1%
---------------------------------------------------------------------------------
40,000 Occidental Petroleum Corp. 960,000
--------------------------------------------------------------------------------- -------------
ENTERTAINMENT--1.4%
---------------------------------------------------------------------------------
40,000 Callaway Golf Co. 1,215,000
--------------------------------------------------------------------------------- -------------
FINANCE--1.0%
---------------------------------------------------------------------------------
7,000 Merrill Lynch & Co., Inc. 561,750
---------------------------------------------------------------------------------
20,000 Olympic Financial Ltd. 277,500
--------------------------------------------------------------------------------- -------------
Total 839,250
--------------------------------------------------------------------------------- -------------
FOOD & BEVERAGE--4.1%
---------------------------------------------------------------------------------
42,000 PepsiCo, Inc. 1,254,750
---------------------------------------------------------------------------------
41,526 Premark International, Inc. 1,007,006
---------------------------------------------------------------------------------
32,000 Sara Lee Corp. 1,256,000
--------------------------------------------------------------------------------- -------------
Total 3,517,756
--------------------------------------------------------------------------------- -------------
GOVERNMENT AGENCY--1.9%
---------------------------------------------------------------------------------
40,000 Federal National Mortgage Association 1,650,000
--------------------------------------------------------------------------------- -------------
HEALTH SERVICES--1.2%
---------------------------------------------------------------------------------
19,500 Columbia/HCA Healthcare Corp. 780,000
---------------------------------------------------------------------------------
10,000 Manor Care, Inc. 252,500
--------------------------------------------------------------------------------- -------------
Total 1,032,500
--------------------------------------------------------------------------------- -------------
HEALTH TECHNOLOGY--2.3%
---------------------------------------------------------------------------------
30,000 American Home Products Corp. 1,927,500
--------------------------------------------------------------------------------- -------------
HOSPITAL SUPPLIES--1.3%
---------------------------------------------------------------------------------
20,770 Johnson & Johnson 1,103,406
--------------------------------------------------------------------------------- -------------
HOUSEHOLD PRODUCTS--7.6%
---------------------------------------------------------------------------------
22,000 Clorox Co. 2,293,500
---------------------------------------------------------------------------------
24,908 Gillette Co. 1,836,965
---------------------------------------------------------------------------------
13,829 Procter & Gamble Co. 1,503,904
---------------------------------------------------------------------------------
16,526 Tupperware Corp. 875,878
--------------------------------------------------------------------------------- -------------
Total 6,510,247
--------------------------------------------------------------------------------- -------------
INSURANCE--6.6%
---------------------------------------------------------------------------------
20,000 Allstate Corp. 1,205,000
---------------------------------------------------------------------------------
19,000 American Bankers Insurance Group, Inc. 925,656
---------------------------------------------------------------------------------
</TABLE>
STAR GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ --------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------------------
INSURANCE--CONTINUED
---------------------------------------------------------------------------------
10,561 American International Group, Inc. $ 1,214,515
---------------------------------------------------------------------------------
50,667 Travelers Group, Inc. 2,280,000
--------------------------------------------------------------------------------- -------------
Total 5,625,171
--------------------------------------------------------------------------------- -------------
MANUFACTURING--2.5%
---------------------------------------------------------------------------------
26,000 Eastman Kodak Co. 2,106,000
--------------------------------------------------------------------------------- -------------
MULTI-INDUSTRY--0.9%
---------------------------------------------------------------------------------
10,529 Allied-Signal, Inc. 771,249
--------------------------------------------------------------------------------- -------------
OIL-DOMESTIC--5.4%
---------------------------------------------------------------------------------
11,000 Ashland, Inc. 528,000
---------------------------------------------------------------------------------
25,000 Chevron Corp. 1,675,000
---------------------------------------------------------------------------------
24,000 Texaco, Inc. 2,379,000
--------------------------------------------------------------------------------- -------------
Total 4,582,000
--------------------------------------------------------------------------------- -------------
OIL-FOREIGN--0.8%
---------------------------------------------------------------------------------
5,500 Mobil Corp. 665,500
--------------------------------------------------------------------------------- -------------
PRINTING & PUBLISHING--0.9%
---------------------------------------------------------------------------------
10,000 Gannett Co., Inc. 785,000
--------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--2.9%
---------------------------------------------------------------------------------
10,000 Case Corp. 525,000
---------------------------------------------------------------------------------
25,000 Caterpillar, Inc. 1,978,125
--------------------------------------------------------------------------------- -------------
Total 2,503,125
--------------------------------------------------------------------------------- -------------
RAILROADS--0.7%
---------------------------------------------------------------------------------
7,000 Burlington Northern Santa Fe 629,125
--------------------------------------------------------------------------------- -------------
REAL ESTATE--1.5%
---------------------------------------------------------------------------------
14,000 Camden Property Trust 386,750
---------------------------------------------------------------------------------
13,000 Highwoods Properties, Inc. 399,750
---------------------------------------------------------------------------------
12,000 Meditrust, REIT 448,500
--------------------------------------------------------------------------------- -------------
Total 1,235,000
--------------------------------------------------------------------------------- -------------
RETAIL TRADE--3.1%
---------------------------------------------------------------------------------
24,000 Kohl's Corp. 957,000
---------------------------------------------------------------------------------
30,000 (a)Safeway, Inc. 1,218,750
---------------------------------------------------------------------------------
10,000 Sears, Roebuck & Co. 497,500
--------------------------------------------------------------------------------- -------------
Total 2,673,250
--------------------------------------------------------------------------------- -------------
STEEL--0.4%
---------------------------------------------------------------------------------
10,000 AK Steel Holding Corp. 381,250
--------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS--3.2%
---------------------------------------------------------------------------------
6,644 AT&T Corp. 260,777
---------------------------------------------------------------------------------
25,000 BellSouth Corp. 1,009,375
---------------------------------------------------------------------------------
25,000 Ericsson LM, Class B 771,875
---------------------------------------------------------------------------------
</TABLE>
STAR GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------------------------- -------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--CONTINUED
---------------------------------------------------------------------------------
15,000 NYNEX Corp. $ 695,625
--------------------------------------------------------------------------------- -------------
Total 2,737,652
--------------------------------------------------------------------------------- -------------
TOBACCO--0.6%
---------------------------------------------------------------------------------
5,000 Philip Morris Cos., Inc. 515,625
--------------------------------------------------------------------------------- -------------
UTILITIES--10.0%
---------------------------------------------------------------------------------
50,000 Cinergy Corp. 1,675,000
---------------------------------------------------------------------------------
43,650 Coastal Corp. 2,100,656
---------------------------------------------------------------------------------
25,000 Enron Corp. 1,143,750
---------------------------------------------------------------------------------
44,000 GPU, Inc. 1,479,500
---------------------------------------------------------------------------------
48,000 GTE Corp. 2,154,000
--------------------------------------------------------------------------------- -------------
Total 8,552,906
--------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $66,317,208) 81,605,334
--------------------------------------------------------------------------------- -------------
OPTIONS PURCHASED--0.0%
- -----------------------------------------------------------------------------------------------
200 Put Option on Standard & Poors 100, expires 12/21/1996, Strike @57.5 625
---------------------------------------------------------------------------------
15 Put Option on Phillip Morris, expires 1/17/1998, Strike @70 1,687
---------------------------------------------------------------------------------
10 Put Option on Phillip Morris, expires 1/17/1998, Strike @70 1,125
--------------------------------------------------------------------------------- -------------
TOTAL OPTIONS (IDENTIFIED COST $24,367) 3,437
--------------------------------------------------------------------------------- -------------
COMMERCIAL PAPER--1.9%
- -----------------------------------------------------------------------------------------------
FINANCE--1.9%
---------------------------------------------------------------------------------
$ 1,577,000 Merrill Lynch Government Securities, Inc., 5.85%, 12/2/1996
(at amortized cost) 1,576,743
--------------------------------------------------------------------------------- -------------
MUTUAL FUNDS--2.9%
- -----------------------------------------------------------------------------------------------
2,482,387 U.S. Government Money Market Fund (at net asset value) 2,482,387
--------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $70,400,705)(B) $ 85,667,901
--------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing security.
(b) The cost of investments for federal tax purposes amounts to $70,465,144. The
net unrealized appreciation of investments on a federal tax basis amounts to
$15,202,757 which is comprised of $15,699,948 appreciation and $497,191
depreciation at November 30, 1996.
(c) Includes securities held in a segregated account to cover written option
transactions.
Note: The categories of investments are shown as a percentage of net assets
($85,311,390) at November 30, 1996.
The following acronym is used throughout this portfolio:
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
STAR GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified cost $70,400,705, and tax cost $70,465,144) $ 85,667,901
- ---------------------------------------------------------------------------------------------------
Cash 3,553
- ---------------------------------------------------------------------------------------------------
Income receivable 162,993
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 255,909
- ---------------------------------------------------------------------------------------------------
Deferred expenses 20,121
- --------------------------------------------------------------------------------------------------- -------------
Total assets 86,110,477
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------
Payable for investments purchased $ 413,296
- ---------------------------------------------------------------------------------------
Payable for shares redeemed 4,076
- ---------------------------------------------------------------------------------------
Options written, at value (Premium Received 212,765) 321,091
- ---------------------------------------------------------------------------------------
Accrued expenses 60,624
- --------------------------------------------------------------------------------------- ----------
Total liabilities 799,087
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 5,625,443 shares outstanding $ 85,311,390
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 64,210,637
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and options 15,158,870
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and options 5,752,819
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 189,064
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 85,311,390
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE AND OFFERING PRICE:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($85,311,390 / 5,625,443 shares outstanding) $15.17
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (95.00/100 of $15.17)* $14.41
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STAR GROWTH EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends $ 1,341,410
- ---------------------------------------------------------------------------------------------------
Interest 178,676
- --------------------------------------------------------------------------------------------------- -------------
Total income 1,520,086
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 455,889
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 60,748
- ---------------------------------------------------------------------------------------
Custodian fees 15,196
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 50,423
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,684
- ---------------------------------------------------------------------------------------
Auditing fees 12,784
- ---------------------------------------------------------------------------------------
Legal fees 3,864
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 56,267
- ---------------------------------------------------------------------------------------
Shareholder services fee 25,248
- ---------------------------------------------------------------------------------------
Share registration costs 11,068
- ---------------------------------------------------------------------------------------
Printing and postage 20,894
- ---------------------------------------------------------------------------------------
Insurance premiums 3,304
- ---------------------------------------------------------------------------------------
Miscellaneous 6,050
- --------------------------------------------------------------------------------------- ----------
Total expenses 725,419
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 794,667
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (includes $182,391 net loss on written options) 5,752,898
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and options 9,454,543
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments and options 15,207,441
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 16,002,108
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 794,667 $ 692,986
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and options ($5,807,183 and $2,544,290, net
gains respectively, as computed for federal tax purposes) 5,752,898 2,544,290
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 9,454,543 5,704,327
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from operations 16,002,108 8,941,603
- ----------------------------------------------------------------------------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Distributions from net investment income (700,531) (598,058)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (2,544,369) --
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from distributions to shareholders (3,244,900) (598,058)
- ----------------------------------------------------------------------------------- -------------- -------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 34,897,506 47,289,797
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 2,488,056 473,063
- -----------------------------------------------------------------------------------
Cost of shares redeemed (13,530,374) (7,407,411)
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from share transactions 23,855,188 40,355,449
- ----------------------------------------------------------------------------------- -------------- -------------
Change in net assets 36,612,396 48,698,994
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 48,698,994 --
- ----------------------------------------------------------------------------------- -------------- -------------
End of period (including undistributed net investment income of $189,064 and
$94,928, respectively) $ 85,311,390 $ 48,698,994
- ----------------------------------------------------------------------------------- -------------- -------------
</TABLE>
*For the period from December 12, 1994 (date of initial public investment) to
November 30, 1995.
(See Notes which are an integral part of the Financial Statements)
STAR GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.70 $ 10.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.17 0.24
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.12 2.67
- --------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 3.29 2.91
- --------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Distributions from net investment income (0.16) (0.21)
- ---------------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.66) --
- --------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.82) (0.21)
- --------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.17 $ 12.70
- --------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 27.34% 29.44%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.19% 1.17%*
- ---------------------------------------------------------------------------------------------
Net investment income 1.31% 2.00%*
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- 0.03%*
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 85,311 $ 48,699
- ---------------------------------------------------------------------------------------------
Average commission rate paid $0.0007 --
- ---------------------------------------------------------------------------------------------
Portfolio turnover 96% 171%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 12, 1994 (date of initial
public investment) to November 30, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR RELATIVE VALUE FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--95.2%
- -------------------------------------------------------------------------------------------------
AEROSPACE--5.3%
-----------------------------------------------------------------------------------
80,000 Lockheed Martin Corp. $ 7,250,000
-----------------------------------------------------------------------------------
81,000 Raytheon Co. 4,141,125
----------------------------------------------------------------------------------- --------------
Total 11,391,125
----------------------------------------------------------------------------------- --------------
AUTOMOBILE--1.5%
-----------------------------------------------------------------------------------
55,000 General Motors Corp. 3,169,375
----------------------------------------------------------------------------------- --------------
AUTOMOTIVE & RELATED--3.9%
-----------------------------------------------------------------------------------
105,000 Goodyear Tire & Rubber Co. 5,092,500
-----------------------------------------------------------------------------------
44,000 Johnson Controls, Inc. 3,410,000
----------------------------------------------------------------------------------- --------------
Total 8,502,500
----------------------------------------------------------------------------------- --------------
BANKS & SAVINGS INSTITUTIONS--7.7%
-----------------------------------------------------------------------------------
20,000 Citicorp 2,185,000
-----------------------------------------------------------------------------------
25,000 Mellon Bank Corp. 1,806,250
-----------------------------------------------------------------------------------
20,000 National Australia Bank, Ltd., Melbourne, ADR 1,242,500
-----------------------------------------------------------------------------------
45,000 NationsBank Corp. 4,663,125
-----------------------------------------------------------------------------------
115,000 Signet Banking Corp. 3,478,750
-----------------------------------------------------------------------------------
55,000 Corestates Financial Corp. 2,963,125
-----------------------------------------------------------------------------------
10,000 First Financial Bancorp 305,000
----------------------------------------------------------------------------------- --------------
Total 16,643,750
----------------------------------------------------------------------------------- --------------
CHEMICAL & FERTILIZERS--2.9%
-----------------------------------------------------------------------------------
75,000 Dow Chemical Co. 6,281,250
----------------------------------------------------------------------------------- --------------
DIVERSIFIED--3.4%
-----------------------------------------------------------------------------------
100,000 Allied-Signal, Inc. 7,325,000
----------------------------------------------------------------------------------- --------------
DRUGS--13.0%
-----------------------------------------------------------------------------------
20,000 American Home Products Corp. 1,285,000
-----------------------------------------------------------------------------------
80,000 Bristol-Myers Squibb Co. 9,100,000
-----------------------------------------------------------------------------------
110,000 Merck & Co., Inc. 9,130,000
-----------------------------------------------------------------------------------
125,000 Smithkline Beecham Corp., ADR 8,609,375
----------------------------------------------------------------------------------- --------------
Total 28,124,375
----------------------------------------------------------------------------------- --------------
UTILITIES-ELECTRIC--2.5%
-----------------------------------------------------------------------------------
160,000 GPU, Inc. 5,380,000
----------------------------------------------------------------------------------- --------------
ELECTRICAL EQUIPMENT--2.5%
-----------------------------------------------------------------------------------
52,000 General Electric Co. 5,408,000
----------------------------------------------------------------------------------- --------------
ELECTRONICS--7.3%
-----------------------------------------------------------------------------------
100,000 Intel Corp. 12,687,500
-----------------------------------------------------------------------------------
55,000 Motorola, Inc. 3,045,625
----------------------------------------------------------------------------------- --------------
Total 15,733,125
----------------------------------------------------------------------------------- --------------
</TABLE>
STAR RELATIVE VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--8.6%
-----------------------------------------------------------------------------------
76,000 Gillette Co. $ 5,605,000
-----------------------------------------------------------------------------------
90,000 Procter & Gamble Co. 9,787,500
-----------------------------------------------------------------------------------
60,000 Tupperware Corp. 3,180,000
----------------------------------------------------------------------------------- --------------
Total 18,572,500
----------------------------------------------------------------------------------- --------------
INDUSTRIAL--0.8%
-----------------------------------------------------------------------------------
40,000 International Paper Co. 1,700,000
----------------------------------------------------------------------------------- --------------
INSURANCE--5.1%
-----------------------------------------------------------------------------------
50,000 American Bankers Insurance Group, Inc. 2,435,938
-----------------------------------------------------------------------------------
40,000 Cincinnati Financial Corp. 2,410,000
-----------------------------------------------------------------------------------
75,000 Ohio Casualty Corp. 2,550,000
-----------------------------------------------------------------------------------
80,000 Travelers Group, Inc. 3,600,000
----------------------------------------------------------------------------------- --------------
Total 10,995,938
----------------------------------------------------------------------------------- --------------
INTERNATIONAL OIL--9.0%
-----------------------------------------------------------------------------------
65,000 Mobil Corp. 7,865,000
-----------------------------------------------------------------------------------
30,000 Royal Dutch Petroleum Co., ADR 5,096,250
-----------------------------------------------------------------------------------
65,000 Texaco, Inc. 6,443,125
----------------------------------------------------------------------------------- --------------
Total 19,404,375
----------------------------------------------------------------------------------- --------------
MANUFACTURING--1.6%
-----------------------------------------------------------------------------------
40,000 American Brands, Inc. 1,910,000
-----------------------------------------------------------------------------------
29,167 Lucent Technologies, Inc. 1,494,809
----------------------------------------------------------------------------------- --------------
Total 3,404,809
----------------------------------------------------------------------------------- --------------
MISC FINANCIAL SERVICES--1.5%
-----------------------------------------------------------------------------------
60,000 American Express Co. 3,135,000
----------------------------------------------------------------------------------- --------------
NATURAL GAS & COAL--1.1%
-----------------------------------------------------------------------------------
66,000 NICOR, Inc. 2,433,750
----------------------------------------------------------------------------------- --------------
OFFICE & BUSINESS EQUIPMENT--4.4%
-----------------------------------------------------------------------------------
60,000 International Business Machines Corp. 9,562,500
----------------------------------------------------------------------------------- --------------
RAILROADS--1.4%
-----------------------------------------------------------------------------------
20,000 Burlington Northern Santa Fe 1,797,500
-----------------------------------------------------------------------------------
12,248 Consolidated Rail Corp. 1,191,118
----------------------------------------------------------------------------------- --------------
Total 2,988,618
----------------------------------------------------------------------------------- --------------
RETAILING & APPAREL--2.2%
-----------------------------------------------------------------------------------
90,000 Penney (J.C.) Co., Inc. 4,837,500
----------------------------------------------------------------------------------- --------------
TELECOMMUNICATIONS--5.2%
-----------------------------------------------------------------------------------
90,000 AT&T Corp. 3,532,500
-----------------------------------------------------------------------------------
60,000 Cable & Wireless, ADR 1,447,500
-----------------------------------------------------------------------------------
</TABLE>
STAR RELATIVE VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
VALUE VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--CONTINUED
-----------------------------------------------------------------------------------
103,000 GTE Corp. $ 4,622,125
-----------------------------------------------------------------------------------
35,000 Vodafone Group PLC, ADR 1,513,750
----------------------------------------------------------------------------------- --------------
Total 11,115,875
----------------------------------------------------------------------------------- --------------
TOBACCO--4.3%
-----------------------------------------------------------------------------------
90,000 Philip Morris Cos., Inc. 9,281,250
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $135,711,890) 205,390,615
----------------------------------------------------------------------------------- --------------
COMMERCIAL PAPER--4.3%
- -------------------------------------------------------------------------------------------------
FINANCE--4.3%
-----------------------------------------------------------------------------------
$ 9,300,000 Merril Lynch & Company, Inc. 5.85%, 12/2/1996 (AT AMORTIZED COST) 9,298,488
----------------------------------------------------------------------------------- --------------
MUTUAL FUNDS--0.3%
- -------------------------------------------------------------------------------------------------
MUTUAL FUNDS--0.3%
-----------------------------------------------------------------------------------
728,267 Government Money Market Fund (AT NET ASSET VALUE) 728,267
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $145,738,645)(A) $ 215,417,370
----------------------------------------------------------------------------------- --------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $145,738,645.
The net unrealized appreciation of investments on a federal tax basis
amounts to $69,678,725 which is comprised of $69,766,890 appreciation and
$88,165 depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($215,843,243) at November 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STAR RELATIVE VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified and tax cost $145,738,645) $ 215,417,370
- -------------------------------------------------------------------------------------------------
Cash 596
- -------------------------------------------------------------------------------------------------
Income receivable 478,777
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 168,542
- ------------------------------------------------------------------------------------------------- --------------
Total assets 216,065,285
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 164,932
- -------------------------------------------------------------------------------------
Accrued expenses 57,110
- ------------------------------------------------------------------------------------- ----------
Total liabilities 222,042
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 11,340,828 shares outstanding $ 215,843,243
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 141,231,363
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 69,678,725
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 4,395,183
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 537,972
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 215,843,243
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
($215,843,243 / 11,340,828 shares outstanding) $19.03
- ------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/95.50 of $19.03)* $19.93
- ------------------------------------------------------------------------------------------------- --------------
</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
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends $ 4,275,580
- ---------------------------------------------------------------------------------------------------
Interest 301,662
- --------------------------------------------------------------------------------------------------- -------------
Total income 4,577,242
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 1,249,213
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 166,585
- -------------------------------------------------------------------------------------
Custodian fees 39,686
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 74,785
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 5,012
- -------------------------------------------------------------------------------------
Auditing fees 16,648
- -------------------------------------------------------------------------------------
Legal fees 4,425
- -------------------------------------------------------------------------------------
Portfolio accounting fees 54,518
- -------------------------------------------------------------------------------------
Shareholder services fee 68,753
- -------------------------------------------------------------------------------------
Share registration costs 19,021
- -------------------------------------------------------------------------------------
Printing and postage 17,899
- -------------------------------------------------------------------------------------
Insurance premiums 4,161
- -------------------------------------------------------------------------------------
Miscellaneous 6,728
- ------------------------------------------------------------------------------------- ------------
Total expenses 1,727,434
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 2,849,808
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments 4,395,132
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 38,173,415
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments 42,568,547
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 45,418,355
- --------------------------------------------------------------------------------------------------- -------------
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 2,849,808 $ 2,210,020
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($4,395,132 and $813,382 net gains,
respectively, as computed for federal tax purposes) 4,395,132 813,382
- -------------------------------------------------------------------------------
Net change in unrealized appreciation 38,173,415 27,231,330
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 45,418,355 30,254,732
- ------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (2,646,694) (2,082,202)
- -------------------------------------------------------------------------------
Distributions from net realized gains (82,169) --
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (2,728,863) (2,082,202)
- ------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 57,530,540 42,825,305
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 961,791 528,705
- -------------------------------------------------------------------------------
Cost of shares redeemed (17,317,728) (13,641,288)
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 41,174,603 29,712,722
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets 83,864,095 57,885,252
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 131,979,148 74,093,896
- ------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $537,972 and
$334,859, respectively) $ 215,843,243 $ 131,979,148
- ------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(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,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.02 $ 11.36 $ 11.80 $ 10.52 $ 9.43 $ 10.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.27 0.29 0.23 0.20 0.30 0.22
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments 4.01 3.65 (0.40) 1.30 1.12 (0.66)
- --------------------------------------------- --------- --------- --------- --------- --------- -----------
Total from investment operations 4.28 3.94 (0.17) 1.50 1.42 (0.44)
- --------------------------------------------- --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.26) (0.28) (0.23) (0.22) (0.33) (0.13)
- ---------------------------------------------
Distributions from net realized gain on
investments (0.01) -- (0.04) -- -- --
- --------------------------------------------- --------- --------- --------- --------- --------- -----------
Total distributions (0.27) (0.28) (0.27) (0.22) (0.33) (0.13)
- --------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 19.03 $ 15.02 $ 11.36 $ 11.80 $ 10.52 $ 9.43
- --------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 28.86% 35.10% (1.54%) 14.47% 15.39% (4.31%)
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 1.04% 1.06% 1.15% 1.19% 0.47% 0.40%*
- ---------------------------------------------
Net investment income 1.71% 2.17% 2.02% 1.79% 3.01% 4.75%*
- ---------------------------------------------
Expense waiver/reimbursement (c) -- -- -- 0.31% 1.00% 0.93%*
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period
(000 omitted) $215,843 $131,979 $ 74,094 $ 49,701 $ 38,154 $ 33,015
- ---------------------------------------------
Average commission rate paid $ 0.0905 -- -- -- -- --
- ---------------------------------------------
Portfolio turnover 16% 24% 30% 59% 45% 38 %
- ---------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 5, 1991 (date of initial
public investment) to November 30, 1991. For the period from January 31,
1989 (start of business) to June 4, 1991, all income was distributed to the
Administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
THE STELLAR FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
U.S. EQUITIES--20.7%
- ------------------------------------------------------------------------------------------------
BASIC INDUSTRY--1.1%
- ------------------------------------------------------------------------------------------------
CHEMICALS--0.2%
----------------------------------------------------------------------------------
3,000 Dow Chemical Co. $ 251,250
---------------------------------------------------------------------------------- --------------
METALS & MINING--0.4%
----------------------------------------------------------------------------------
7,800 AGCO Corp. 217,425
----------------------------------------------------------------------------------
3,500 Caterpillar Inc. 276,937
---------------------------------------------------------------------------------- --------------
Total 494,362
---------------------------------------------------------------------------------- --------------
PAPER--0.3%
----------------------------------------------------------------------------------
7,000 International Paper Co. 297,500
---------------------------------------------------------------------------------- --------------
STEEL--0.2%
----------------------------------------------------------------------------------
5,600 AK Steel Holding Corp. 213,500
---------------------------------------------------------------------------------- --------------
TOTAL BASIC INDUSTRY 1,256,612
---------------------------------------------------------------------------------- --------------
CAPITAL GOODS--3.5%
- ------------------------------------------------------------------------------------------------
AEROSPACE--0.4%
----------------------------------------------------------------------------------
2,500 Boeing Co. 248,437
----------------------------------------------------------------------------------
4,300 Raytheon Co. 219,837
---------------------------------------------------------------------------------- --------------
Total 468,274
---------------------------------------------------------------------------------- --------------
ELECTRONICS--1.9%
----------------------------------------------------------------------------------
8,500 (a)Atmel 279,437
----------------------------------------------------------------------------------
2,700 Emerson Electric Co. 264,937
----------------------------------------------------------------------------------
13,000 Intel Corp. 1,649,375
---------------------------------------------------------------------------------- --------------
Total 2,193,749
---------------------------------------------------------------------------------- --------------
OFFICE & BUSINESS EQUIPMENT--1.2%
----------------------------------------------------------------------------------
17,600 (a)Cisco Systems 1,194,600
----------------------------------------------------------------------------------
5,300 Hewlett Packard Co. 285,537
---------------------------------------------------------------------------------- --------------
Total 1,480,137
---------------------------------------------------------------------------------- --------------
TOTAL CAPITAL GOODS 4,142,160
---------------------------------------------------------------------------------- --------------
CONSUMER CYCLICAL--2.8%
- ------------------------------------------------------------------------------------------------
AUTOMOTIVE & RELATED--0.5%
----------------------------------------------------------------------------------
7,000 Johnson Controls, Inc. 542,500
---------------------------------------------------------------------------------- --------------
ENTERTAINMENT & LEISURE--0.3%
----------------------------------------------------------------------------------
12,000 Callaway Golf Co. 364,500
---------------------------------------------------------------------------------- --------------
RETAILING--1.3%
----------------------------------------------------------------------------------
20,000 (a)General Nutrition Co. 345,000
----------------------------------------------------------------------------------
6,800 (a)Kohls Corp. 271,150
----------------------------------------------------------------------------------
5,000 Nordstrom, Inc. 217,500
----------------------------------------------------------------------------------
5,000 (a)Safeway, Inc. 203,125
----------------------------------------------------------------------------------
8,400 Wal-Mart Stores, Inc. 214,200
----------------------------------------------------------------------------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
U.S. EQUITIES--CONTINUED
<CAPTION>
- ------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL--CONTINUED
- ------------------------------------------------------------------------------------------------
RETAILING--CONTINUED
----------------------------------------------------------------------------------
5,700 (a)Vons Companies Inc. $ 299,962
---------------------------------------------------------------------------------- --------------
Total 1,550,937
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--0.7%
----------------------------------------------------------------------------------
2,500 (a)AMR Corp. 228,125
----------------------------------------------------------------------------------
15,000 Comair Holdings, Inc. 373,125
----------------------------------------------------------------------------------
8,000 (a)Genesee & Wyoming, Inc., Class A 281,000
---------------------------------------------------------------------------------- --------------
Total 882,250
---------------------------------------------------------------------------------- --------------
TOTAL CONSUMER CYCLICAL 3,340,187
---------------------------------------------------------------------------------- --------------
CONSUMER STAPLES--2.6%
- ------------------------------------------------------------------------------------------------
HOUSEHOLD--1.3%
----------------------------------------------------------------------------------
1,500 Gillette Co. 110,625
----------------------------------------------------------------------------------
5,000 Tupperware Corp. 265,000
----------------------------------------------------------------------------------
10,000 Procter & Gamble Co. 1,087,500
---------------------------------------------------------------------------------- --------------
Total 1,463,125
---------------------------------------------------------------------------------- --------------
FOOD & BEVERAGE--0.4%
----------------------------------------------------------------------------------
7,500 IBP Inc. 185,625
----------------------------------------------------------------------------------
9,000 Sysco Corp. 307,125
---------------------------------------------------------------------------------- --------------
Total 492,750
---------------------------------------------------------------------------------- --------------
TOBACCO--0.9%
----------------------------------------------------------------------------------
10,400 Philip Morris Companies Inc. 1,072,500
---------------------------------------------------------------------------------- --------------
TOTAL CONSUMER STAPLES 3,028,375
---------------------------------------------------------------------------------- --------------
ENERGY--2.5%
- ------------------------------------------------------------------------------------------------
DOMESTIC OIL--0.3%
----------------------------------------------------------------------------------
3,500 Texaco Inc. 346,938
---------------------------------------------------------------------------------- --------------
ENERGY EXPLORATION--0.2%
----------------------------------------------------------------------------------
5,000 Noble Affililiates, Inc. 235,625
---------------------------------------------------------------------------------- --------------
INTERNATIONAL OIL--1.5%
----------------------------------------------------------------------------------
14,000 Mobil Corp. 1,694,000
---------------------------------------------------------------------------------- --------------
NATURAL GAS--0.5%
----------------------------------------------------------------------------------
13,000 Coastal Corp. 625,625
---------------------------------------------------------------------------------- --------------
TOTAL ENERGY 2,902,188
---------------------------------------------------------------------------------- --------------
EQUITY MUTUAL FUNDS--1.3%
- ------------------------------------------------------------------------------------------------
100,000 (a)Gateway Trust 1,558,000
---------------------------------------------------------------------------------- --------------
TOTAL EQUITY MUTUAL FUNDS 1,558,000
---------------------------------------------------------------------------------- --------------
FINANCE--2.4%
- ------------------------------------------------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS--0.8%
----------------------------------------------------------------------------------
8,958 Citicorp 978,662
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
U.S. EQUITIES--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
- ------------------------------------------------------------------------------------------------
INSURANCE--0.8%
----------------------------------------------------------------------------------
8,000 American International Group, Inc. $ 920,000
---------------------------------------------------------------------------------- --------------
OTHER FINANCE--0.8%
----------------------------------------------------------------------------------
8,700 Dean Witter Discover & Co. 594,863
----------------------------------------------------------------------------------
4,000 Merrill Lynch & Co., Inc. 321,000
---------------------------------------------------------------------------------- --------------
Total 915,863
---------------------------------------------------------------------------------- --------------
TOTAL FINANCE 2,814,525
---------------------------------------------------------------------------------- --------------
HEALTH CARE--3.2%
- ------------------------------------------------------------------------------------------------
BIOPHARMACEUTICALS--0.2%
----------------------------------------------------------------------------------
3,500 (a)Amgen Inc. 213,062
---------------------------------------------------------------------------------- --------------
HOSPITAL MANAGEMENT--0.9%
----------------------------------------------------------------------------------
27,000 Columbia HCA Healthcare Corp. 1,080,000
---------------------------------------------------------------------------------- --------------
HOSPITAL SUPPLIES--0.7%
----------------------------------------------------------------------------------
16,000 Johnson & Johnson 850,000
---------------------------------------------------------------------------------- --------------
PHARMACEUTICALS-1.4%
----------------------------------------------------------------------------------
3,900 American Home Products Corp. 250,575
----------------------------------------------------------------------------------
3,000 Bristol-Meyers Squibb Co. 341,250
----------------------------------------------------------------------------------
10,000 Merck & Co. 830,000
----------------------------------------------------------------------------------
5,600 (a)Watson Pharmaceutical Inc. 218,400
---------------------------------------------------------------------------------- --------------
Total 1,640,225
---------------------------------------------------------------------------------- --------------
TOTAL HEALTH CARE 3,783,287
---------------------------------------------------------------------------------- --------------
UTILITIES--1.3%
- ------------------------------------------------------------------------------------------------
ELECTRIC--1.1%
----------------------------------------------------------------------------------
15,000 Duke Power Co. 695,625
----------------------------------------------------------------------------------
25,000 Southern Co. 556,250
---------------------------------------------------------------------------------- --------------
Total 1,251,875
---------------------------------------------------------------------------------- --------------
TELECOMMUNICATIONS--0.2%
----------------------------------------------------------------------------------
5,000 GTE Corp 224,375
---------------------------------------------------------------------------------- --------------
TOTAL UTILITIES 1,476,250
---------------------------------------------------------------------------------- --------------
TOTAL U.S. EQUITIES (IDENTIFIED COST, $17,262,694) 24,301,584
---------------------------------------------------------------------------------- --------------
INTERNATIONAL SECURITIES--23.2%
- ------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITIES--21.5%
- ------------------------------------------------------------------------------------------------
AUSTRALIA--1.9%
----------------------------------------------------------------------------------
20,000 National Australia Bank Ltd. 1,242,500
----------------------------------------------------------------------------------
40,000 News Corp. Ltd. 850,000
----------------------------------------------------------------------------------
10,000 (b)News Corp. Ltd. 172,500
---------------------------------------------------------------------------------- --------------
TOTAL AUSTRALIA 2,265,000
---------------------------------------------------------------------------------- --------------
CANADA--3.1%
----------------------------------------------------------------------------------
30,000 Alcan Aluminum Ltd. 1,057,500
----------------------------------------------------------------------------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
INTERNATIONAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITIES--CONTINUED
- ------------------------------------------------------------------------------------------------
CANADA--CONTINUED
----------------------------------------------------------------------------------
45,000 Canadian Pacific Ltd. $ 1,237,500
----------------------------------------------------------------------------------
32,500 Seagram Ltd. 1,328,437
---------------------------------------------------------------------------------- --------------
TOTAL CANADA 3,623,437
---------------------------------------------------------------------------------- --------------
DENMARK--1.6%
----------------------------------------------------------------------------------
40,000 Novo Nordisk AS 1,845,000
---------------------------------------------------------------------------------- --------------
FRANCE--0.9%
----------------------------------------------------------------------------------
35,000 Thomson CSF 1,093,750
---------------------------------------------------------------------------------- --------------
GERMANY--0.9%
----------------------------------------------------------------------------------
15,000 Daimler Benz A.G. 984,375
---------------------------------------------------------------------------------- --------------
GREAT BRITAIN--4.7%
----------------------------------------------------------------------------------
12,000 British Petroleum PLC 1,665,000
----------------------------------------------------------------------------------
60,000 Cable & Wireless Ltd. 1,447,500
----------------------------------------------------------------------------------
2,000 Reuters Holdings PLC 145,250
----------------------------------------------------------------------------------
20,000 SmithKline Beecham PLC 1,377,500
----------------------------------------------------------------------------------
20,000 (b)Vodaphone Group PLC 865,000
---------------------------------------------------------------------------------- --------------
TOTAL GREAT BRITAIN 5,500,250
---------------------------------------------------------------------------------- --------------
HOLLAND--2.2%
----------------------------------------------------------------------------------
20,000 Philips Electronics N.V. 810,000
----------------------------------------------------------------------------------
10,500 Royal Dutch Petroleum Co. 1,783,688
---------------------------------------------------------------------------------- --------------
TOTAL HOLLAND 2,593,688
---------------------------------------------------------------------------------- --------------
ITALY--0.5%
----------------------------------------------------------------------------------
10,000 Luxottica Group SPA 627,500
---------------------------------------------------------------------------------- --------------
JAPAN--1.8%
----------------------------------------------------------------------------------
11,000 Hitachi Ltd. 1,040,875
----------------------------------------------------------------------------------
50,000 Pioneer Electric Corp. 1,112,500
---------------------------------------------------------------------------------- --------------
TOTAL JAPAN 2,153,375
---------------------------------------------------------------------------------- --------------
NORWAY--1.3%
----------------------------------------------------------------------------------
30,000 Norsk Hydro AS 1,507,500
---------------------------------------------------------------------------------- --------------
SPAIN--1.6%
----------------------------------------------------------------------------------
50,000 Repsol SA 1,831,250
---------------------------------------------------------------------------------- --------------
SWEDEN--1.0%
----------------------------------------------------------------------------------
50,000 Volvo Aktiebolaget 1,087,500
----------------------------------------------------------------------------------
3,000 (a)Swedish Match AB, ADR 99,000
---------------------------------------------------------------------------------- --------------
TOTAL SWEDEN 1,186,500
---------------------------------------------------------------------------------- --------------
TOTAL INTERNATIONAL EQUITIES 25,211,625
---------------------------------------------------------------------------------- --------------
CLOSED-END INVESTMENT COMPANIES--1.7%
- ------------------------------------------------------------------------------------------------
30,000 Chile Fund, Inc. 671,250
----------------------------------------------------------------------------------
38,010 Mexico Fund, Inc. 574,901
----------------------------------------------------------------------------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
INTERNATIONAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES--CONTINUED
- ------------------------------------------------------------------------------------------------
34,000 Swiss Helvetia Fund, Inc. $ 714,000
---------------------------------------------------------------------------------- --------------
TOTAL CLOSED-END INVESTMENT COMPANIES 1,960,151
---------------------------------------------------------------------------------- --------------
TOTAL INTERNATIONAL SECURITIES (IDENTIFIED COST, $20,447,825) 27,171,776
---------------------------------------------------------------------------------- --------------
REAL ESTATE INVESTMENT TRUSTS--19.4%
- ------------------------------------------------------------------------------------------------
1,251 (a)Arden Realty Group, Inc. 30,180
----------------------------------------------------------------------------------
38,000 Avalon Properties, Inc. 973,750
----------------------------------------------------------------------------------
20,000 Bay Apartment Communities, Inc. 650,000
----------------------------------------------------------------------------------
20,000 Cali Realty Group 565,000
----------------------------------------------------------------------------------
30,500 Camden Property Trust 842,563
----------------------------------------------------------------------------------
31,300 Centerpoint Properties Corp. 849,013
----------------------------------------------------------------------------------
75,000 Equity Inns, Inc. 890,625
----------------------------------------------------------------------------------
34,400 Federal Realty Investment Trust 894,400
----------------------------------------------------------------------------------
14,000 Glimcher Realty Trust 273,000
----------------------------------------------------------------------------------
26,400 Highwoods Properties, Inc. 811,800
----------------------------------------------------------------------------------
5,657 (a)Homestead Village, Inc. 86,262
----------------------------------------------------------------------------------
3,795 (a)Homestead Village, Inc., Warrants 22,768
----------------------------------------------------------------------------------
35,250 Kimco Realty Corp. 1,026,656
----------------------------------------------------------------------------------
26,600 Liberty Property 618,450
----------------------------------------------------------------------------------
51,500 LTC Properties 881,938
----------------------------------------------------------------------------------
50,000 Manufactured Home Communities, Inc. 1,000,000
----------------------------------------------------------------------------------
15,000 Meditrust 560,625
----------------------------------------------------------------------------------
12,000 New Plan Realty Trust 276,000
----------------------------------------------------------------------------------
32,100 Omega Healthcare Investors 1,039,238
----------------------------------------------------------------------------------
25,000 Post Properties, Inc. 965,625
----------------------------------------------------------------------------------
40,000 RFS Hotel Investors, Inc. 670,000
----------------------------------------------------------------------------------
45,000 Security Capital Pacific Trust 922,500
----------------------------------------------------------------------------------
25,080 Simon Property Group, Inc. 686,565
----------------------------------------------------------------------------------
71,500 Sizeler Property Investments, Inc. 661,375
----------------------------------------------------------------------------------
25,000 Starwood Lodging Trust 1,193,750
----------------------------------------------------------------------------------
19,840 Storage USA, Inc. 748,960
----------------------------------------------------------------------------------
40,000 Storage Trust Realty 960,000
----------------------------------------------------------------------------------
31,800 Summit Properties, Inc. 620,100
----------------------------------------------------------------------------------
37,000 Sun Communities, Inc. 1,179,375
----------------------------------------------------------------------------------
22,500 Weingarten Realty Investment 880,313
----------------------------------------------------------------------------------
76,800 Winston Hotels 969,600
---------------------------------------------------------------------------------- --------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (IDENTIFIED COST, $17,064,427) 22,750,431
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
FIXED INCOME OBLIGATIONS--24.3%
- ------------------------------------------------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES--1.0%
----------------------------------------------------------------------------------
$ 50,000 First Commonwealth Fund Inc. $ 618,750
----------------------------------------------------------------------------------
62,500 Kleinwort Benson Australian Income Fund 578,125
---------------------------------------------------------------------------------- --------------
Total 1,196,875
---------------------------------------------------------------------------------- --------------
ENERGY--2.0%
----------------------------------------------------------------------------------
250,000 Ashland Oil, Inc., 7.90%, 8/5/2006 270,768
----------------------------------------------------------------------------------
2,000,000 Occidental Petroleum Corp., 9.50%, 8/15/1997 2,053,400
---------------------------------------------------------------------------------- --------------
Total 2,324,168
---------------------------------------------------------------------------------- --------------
FINANCE--2.7%
----------------------------------------------------------------------------------
500,000 Citicorp, 8.625%, 12/01/2002 554,100
----------------------------------------------------------------------------------
250,000 International Lease Finance Corp., 6.25%, 10/15/2000 250,525
----------------------------------------------------------------------------------
250,000 International Lease Finance Corp., 8.375%, 12/15/2004 279,903
----------------------------------------------------------------------------------
2,000,000 Lehman Brothers, Inc., Deb., 9.50%, 6/15/1997 2,039,580
---------------------------------------------------------------------------------- --------------
Total 3,124,108
---------------------------------------------------------------------------------- --------------
FOREIGN--0.4%
----------------------------------------------------------------------------------
500,000 Alcan Aluminum Ltd., 9.20%, 3/15/2001 520,710
---------------------------------------------------------------------------------- --------------
HEALTHCARE--0.7%
----------------------------------------------------------------------------------
250,000 Columbia HCA Healthcare Corp., 6.125%, 12/15/2000 250,045
----------------------------------------------------------------------------------
500,000 Columbia HCA Healthcare Corp., 6.910%, 6/15/2005 512,155
---------------------------------------------------------------------------------- --------------
Total 762,200
---------------------------------------------------------------------------------- --------------
INDUSTRIAL--0.7%
----------------------------------------------------------------------------------
232,040 Dow Chemical Co., 7.60%, 1/2/2002 240,904
----------------------------------------------------------------------------------
500,000 News America Holdings, Inc., Sr. Note, 9.125%, 10/15/1999 536,955
---------------------------------------------------------------------------------- --------------
Total 777,859
---------------------------------------------------------------------------------- --------------
PAPER--0.0%
----------------------------------------------------------------------------------
30,000 International Paper Co., 7.625%, 1/15/2007 32,063
---------------------------------------------------------------------------------- --------------
U.S. GOVERNMENT AGENCIES--6.7%
----------------------------------------------------------------------------------
80,300 Federal Home Loan Mortgage Corp., 6.00%, 12/15/1997 80,232
----------------------------------------------------------------------------------
1,167,602 Federal Home Loan Mortgage Corp., 6.00%, 6/15/2011 1,166,364
----------------------------------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., 6.50%, 2/15/2023 1,495,455
----------------------------------------------------------------------------------
69,467 Federal Home Loan Mortgage Corp., 7.00%, 5/15/2019 69,434
----------------------------------------------------------------------------------
743,765 Federal Home Loan Mortgage Corp., 7.00%, 9/17/2031 736,787
----------------------------------------------------------------------------------
151,519 Federal Home Loan Mortgage Corp., 8.25%, 3/15/2022 151,972
----------------------------------------------------------------------------------
1,275,000 Federal National Mortgage Association, 5.36%, 2/16/2001 1,249,551
----------------------------------------------------------------------------------
500,000 Federal National Mortgage Association, 6.14%, 11/25/2005 493,715
----------------------------------------------------------------------------------
225,000 Federal National Mortgage Association, 6.54%, 10/3/2005 228,139
----------------------------------------------------------------------------------
281,170 Federal National Mortgage Association, 7.25%, 1/25/2019 283,118
----------------------------------------------------------------------------------
1,351,000 Federal National Mortgage Association, 7.25%, 1/17/2021 1,400,028
----------------------------------------------------------------------------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ------------ ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
FIXED INCOME OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES--CONTINUED
----------------------------------------------------------------------------------
$ 500,000 Federal National Mortgage Association, 9.50%, 6/25/2020 $ 539,210
---------------------------------------------------------------------------------- --------------
Total 7,894,005
---------------------------------------------------------------------------------- --------------
U.S. TREASURY SECURITIES--9.2%
----------------------------------------------------------------------------------
250,000 U.S. Treasury Bonds, 6.25%,8/15/2023 242,640
----------------------------------------------------------------------------------
1,500,000 U.S. Treasury Bonds, 6.75%, 8/15/2026 1,565,580
----------------------------------------------------------------------------------
250,000 U.S. Treasury Bonds, 7.25%, 5/15/2004 268,970
----------------------------------------------------------------------------------
900,000 U.S. Treasury Bonds, 7.50%, 11/15/2016 1,005,804
----------------------------------------------------------------------------------
600,000 U.S. Treasury Bonds, 7.625%, 2/15/2025 690,288
----------------------------------------------------------------------------------
250,000 U.S. Treasury Bonds, 8.125%, 8/15/2019 298,495
----------------------------------------------------------------------------------
750,000 U.S. Treasury Notes, 5.625%, 11/30/2000 746,040
----------------------------------------------------------------------------------
500,000 U.S. Treasury Notes, 5.875%, 4/30/1998 502,585
----------------------------------------------------------------------------------
3,000,000 U.S. Treasury Notes, 6.25%, 7/31/1998 3,033,570
----------------------------------------------------------------------------------
1,600,000 U.S. Treasury Notes, 6.75%, 5/31/1999 1,640,576
----------------------------------------------------------------------------------
750,000 U.S. Treasury Notes, 7.75%, 11/30/1999 791,798
---------------------------------------------------------------------------------- --------------
Total 10,786,346
---------------------------------------------------------------------------------- --------------
UTILITY--0.9%
----------------------------------------------------------------------------------
500,000 Cincinnati Gas & Electric Co., 8.95%, 12/15/2021 532,515
----------------------------------------------------------------------------------
500,000 Georgia Power Co., 6.625%, 4/1/2003 499,360
---------------------------------------------------------------------------------- --------------
Total 1,031,875
---------------------------------------------------------------------------------- --------------
TOTAL FIXED INCOME OBLIGATIONS (IDENTIFIED COST, $28,155,533) 28,450,209
---------------------------------------------------------------------------------- --------------
(C) NOTES--VARIABLE--0.9%
- ------------------------------------------------------------------------------------------------
FINANCE
----------------------------------------------------------------------------------
1,000,000 General Electric Capital Corp. 5.41%, 8/11/1997
(IDENTIFIED COST, $999,500) 1,000,660
---------------------------------------------------------------------------------- --------------
SHORT-TERM SECURITIES--5.1%
- ------------------------------------------------------------------------------------------------
CASH EQUIVALENTS--5.1%
----------------------------------------------------------------------------------
6,000,000 Student Loan Marketing Association, Floating Rates Notes 5.35%-5.84%,
4/21/1997-11/10/1998 (IDENTIFIED COST, $5,980,863) 6,007,630
---------------------------------------------------------------------------------- --------------
MUTUAL FUND SHARES--4.7%
- ------------------------------------------------------------------------------------------------
5,500,000 Government Money Market Fund (AT NET ASSET VALUE) 5,500,000
---------------------------------------------------------------------------------- --------------
(D) COMMERCIAL PAPER--1.4%
- ------------------------------------------------------------------------------------------------
FINANCE
----------------------------------------------------------------------------------
1,621,000 Merrill Lynch & Company, Inc. 5.85%, 12/2/1996 (AT AMORTIZED COST) 1,620,735
---------------------------------------------------------------------------------- --------------
PURCHASED OPTIONS--0.0%
- ------------------------------------------------------------------------------------------------
30 Student Loan Marketing Association, expiration 1/17/1997, strike @ $65 (IDENTIFIED
COST, $1,734) 375
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $97,033,311) (E) $ 116,803,400
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STELLAR FUND
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipts.
(c) Current rate and next reset date shown.
(d) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(e) The cost of investments for federal tax purposes amounts to $97,202,171.
The net unrealized appreciation of investments on a federal tax basis
amounts to $19,601,229, which is comprised of $20,251,792 appreciation and
$650,563 depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($117,141,915) at November 30, 1996.
The following abbreviations are used in this portfolio:
LTD--Limited
PLC--Public Limited Company
PO--Principal Only
SA--Support Agreement
STRIP--Separate Trading of Registered Interest & Principal of Securities
(See Notes which are an integral part of the Financial Statements)
THE STELLAR FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified cost $97,033,311 and tax cost $97,202,171) $ 116,803,400
- -------------------------------------------------------------------------------------------------
Cash 371
- -------------------------------------------------------------------------------------------------
Income receivable 678,005
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 522,512
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 65,555
- ------------------------------------------------------------------------------------------------- --------------
Total assets 118,069,843
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 813,104
- -------------------------------------------------------------------------------------
Accrued expenses 114,824
- ------------------------------------------------------------------------------------- ----------
Total liabilities 927,928
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 8,620,512 shares outstanding $ 117,141,915
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 92,783,731
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and options 19,770,090
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and options 4,370,358
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 217,736
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 117,141,915
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
Trust Shares ($67,047,005 / 4,934,041 shares outstanding) $13.59
- ------------------------------------------------------------------------------------------------- --------------
Investment Shares ($50,094,910 / 3,686,471 shares outstanding) $13.59
- ------------------------------------------------------------------------------------------------- --------------
OFFERING PRICE PER SHARES:
- -------------------------------------------------------------------------------------------------
Trust Shares $13.59
- ------------------------------------------------------------------------------------------------- --------------
Investment Shares (100/95.50 of $13.59) $14.23*
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STELLAR FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends $ 2,217,323
- ---------------------------------------------------------------------------------------------------
Interest 2,683,309
- --------------------------------------------------------------------------------------------------- -------------
Total income 4,900,632
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 1,078,738
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 113,861
- -------------------------------------------------------------------------------------
Custodian fees 29,426
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 157,795
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,562
- -------------------------------------------------------------------------------------
Auditing fees 17,396
- -------------------------------------------------------------------------------------
Legal fees 4,927
- -------------------------------------------------------------------------------------
Portfolio accounting fees 67,741
- -------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 121,479
- -------------------------------------------------------------------------------------
Shareholder services fee--Trust Shares 26,289
- -------------------------------------------------------------------------------------
Shareholder services fee--Investment Shares 19,649
- -------------------------------------------------------------------------------------
Share registration costs 17,117
- -------------------------------------------------------------------------------------
Printing and postage 34,880
- -------------------------------------------------------------------------------------
Insurance premiums 5,568
- -------------------------------------------------------------------------------------
Taxes 243
- -------------------------------------------------------------------------------------
Miscellaneous 8,880
- ------------------------------------------------------------------------------------- ------------
Total expenses 1,707,551
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 3,193,081
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (includes $107,759 gain on written options) 4,345,528
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and options 10,205,542
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments and options 14,551,070
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 17,744,151
- --------------------------------------------------------------------------------------------------- -------------
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 3,193,081 $ 3,563,878
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and options ($4,329,998 and $1,866,344,
net gains, respectively, as computed for federal tax purposes) 4,345,528 1,796,991
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 10,205,542 11,343,033
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 17,744,151 16,703,902
- ------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------------
Trust Shares (1,925,727) (2,114,360)
- -------------------------------------------------------------------------------
Investment Shares (1,310,474) (1,523,578)
- -------------------------------------------------------------------------------
Distributions from net realized gains
- -------------------------------------------------------------------------------
Trust Shares (1,066,240) (127,314)
- -------------------------------------------------------------------------------
Investment Shares (800,304) (421,368)
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (5,102,745) (4,186,620)
- ------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 19,396,895 19,312,791
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 4,345,134 3,556,086
- -------------------------------------------------------------------------------
Cost of shares redeemed (32,897,560) (33,200,109)
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (9,155,531) (10,331,232)
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets 3,485,875 2,186,050
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 113,656,040 111,469,990
- ------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $217,736 and
$260,856, respectively) $ 117,141,915 $ 113,656,040
- ------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STELLAR FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.17 $ 10.90 $ 11.34
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income 0.37 0.38 0.21
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.62 1.32 (0.48)
- ------------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 1.99 1.70 (0.27)
- ------------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Distributions from net investment income (0.37) (0.38) (0.17)
- ------------------------------------------------------------------------------------
Distributions from net realized gain on investments (0.20) (0.05) --
- ------------------------------------------------------------------------------------ --------- --------- -----------
Total distributions (0.57) (0.43) (0.17)
- ------------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.59 $ 12.17 $ 10.90
- ------------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (B) 16.94% 15.97% (1.81%)
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 1.39% 1.40% 1.43%*
- ------------------------------------------------------------------------------------
Net investment income 2.85% 3.23% 3.57%*
- ------------------------------------------------------------------------------------
Expense waiver/reimbursement -- -- --
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 67,047 $ 64,754 $ 60,822
- ------------------------------------------------------------------------------------
Portfolio turnover 65% 104% 79%
- ------------------------------------------------------------------------------------
Average commission rate paid $ 0.0671 -- --
- ------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 11, 1994 (date of initial
public investment) to November 30, 1994. For the period from April 5, 1994
(start of business) to April 10, 1994, all income was distributed to the
administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(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,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.17 $ 10.90 $ 11.34 $ 10.52 $ 9.80 $ 10.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.34 0.34 0.29 0.24 0.29 0.05
- ------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 1.62 1.33 (0.41) 0.99 0.74 (0.25)
- ------------------------------------------------------ --------- --------- --------- --------- --------- -----------
Total from investment operations 1.96 1.67 (0.12) 1.23 1.03 (0.20)
- ------------------------------------------------------ --------- --------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.34) (0.35) (0.24) (0.28) (0.31) --
- ------------------------------------------------------
Distributions in excess of net investment income -- -- -- (0.03)** -- --
- ------------------------------------------------------
Distributions from net realized gain on investments (0.20) (0.05) (0.08) (0.10) -- --
- ------------------------------------------------------ --------- --------- --------- --------- --------- -----------
Total distributions (0.54) (0.40) (0.32) (0.41) (0.31) --
- ------------------------------------------------------ --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.59 $ 12.17 $ 10.90 $ 11.34 $ 10.52 $ 9.80
- ------------------------------------------------------ --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 16.64% 15.67% (1.22%) 11.99% 10.68% (2.00%)
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 1.66% 1.65% 1.55% 1.45% 1.53% 1.44%*
- ------------------------------------------------------
Net investment income 2.76% 2.98% 2.32% 1.87% 3.03% 5.32%*
- ------------------------------------------------------
Expense waiver/reimbursement (c) -- -- 0.12% 0.25% 0.33% 0.29%*
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $50,094 $48,902 $50,648 $73,197 $35,544 $13,942
- ------------------------------------------------------
Portfolio turnover 65% 104% 79% 87% 98% 18%
- ------------------------------------------------------
Average commission rate paid $0.0671 -- -- -- -- --
- ------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting policies. These distributions
did not represent a retuurn of capital for federal income tax purpose for
the year ended November 30, 1995.
(a) Reflects operations for the period from October 18, 1991 (date of initial
public investment) to November 30, 1991. For the period from July 30, 1991
(start of business) to October 17, 1991, all income was distributed to the
administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCK--5.2%
- -------------------------------------------------------------------------------------------------
CHEMICAL & FERTILIZERS--0.8%
-----------------------------------------------------------------------------------
40,000 Lyondell Petrochemical Co. $ 900,000
----------------------------------------------------------------------------------- --------------
FINANCE--0.1%
-----------------------------------------------------------------------------------
1,500 Providian Corp. 80,250
----------------------------------------------------------------------------------- --------------
INSURANCE--0.1%
-----------------------------------------------------------------------------------
2,500 Ohio Casualty Corp. 85,000
----------------------------------------------------------------------------------- --------------
INTERNATIONAL OIL--1.3%
-----------------------------------------------------------------------------------
15,000 Texaco, Inc. 1,486,875
----------------------------------------------------------------------------------- --------------
MANUFACTURING--1.4%
-----------------------------------------------------------------------------------
19,000 Eastman Kodak Co. 1,539,000
----------------------------------------------------------------------------------- --------------
OIL--1.3%
-----------------------------------------------------------------------------------
32,000 Enron Corp. 1,464,000
----------------------------------------------------------------------------------- --------------
UTILITIES--0.2%
-----------------------------------------------------------------------------------
5,500 Duke Power Co. 255,062
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCK (IDENTIFIED COST $5,990,381) 5,810,187
----------------------------------------------------------------------------------- --------------
PREFERRED STOCK--7.0%
- -------------------------------------------------------------------------------------------------
ENERGY--2.5%
-----------------------------------------------------------------------------------
20,000 Enron Capital Resources Corp., $2.25, Cumulative Pfd., Series A 515,000
-----------------------------------------------------------------------------------
50,000 Enron Capital Trust, $2.08, Pfd. 1,262,500
-----------------------------------------------------------------------------------
40,000 Texaco Capital, Inc., $1.72, Pfd., Series A, MIPS 930,000
----------------------------------------------------------------------------------- --------------
Total 2,707,500
----------------------------------------------------------------------------------- --------------
FINANCE--0.9%
-----------------------------------------------------------------------------------
40,400 Providian Corp., $2.22, Cumulative MIPS 1,035,250
----------------------------------------------------------------------------------- --------------
INSURANCE--1.1%
-----------------------------------------------------------------------------------
50,000 Travelers P & C Capital I, $2.02, Pfd. 1,262,500
----------------------------------------------------------------------------------- --------------
INTERNATIONAL OIL--0.6%
-----------------------------------------------------------------------------------
25,000 Transcanada Pipelines Ltd., $2.13, Pfd. 643,750
----------------------------------------------------------------------------------- --------------
OIL--1.9%
-----------------------------------------------------------------------------------
92,000 Atlantic Richfield Co., $2.23, Conv. Pfd. 2,070,000
----------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCK (IDENTIFIED COST $7,993,962) 7,719,000
----------------------------------------------------------------------------------- --------------
REAL ESTATE INVESTMENT TRUSTS--17.7%
- -------------------------------------------------------------------------------------------------
30,300 Avalon Properties, Inc. 776,438
-----------------------------------------------------------------------------------
45,900 Camden Property Trust 1,267,987
-----------------------------------------------------------------------------------
40,000 Glimcher Realty Trust 780,000
-----------------------------------------------------------------------------------
40,000 Highwoods Properties, Inc. 1,230,000
-----------------------------------------------------------------------------------
40,000 Hospitality Properties Trust 1,080,000
-----------------------------------------------------------------------------------
42,100 Kimco Realty Corp., $2.13, Cumulative Pfd. 1,068,288
-----------------------------------------------------------------------------------
69,000 LTC Properties, Inc. 1,181,625
-----------------------------------------------------------------------------------
</TABLE>
STAR STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS--CONTINUED
- -------------------------------------------------------------------------------------------------
21,800 Liberty Property Trust $ 506,850
-----------------------------------------------------------------------------------
50,000 Manufactured Home Communities, Inc. 1,000,000
-----------------------------------------------------------------------------------
53,200 Meditrust 1,988,350
-----------------------------------------------------------------------------------
40,000 Merry Land and Investment Co. 800,000
-----------------------------------------------------------------------------------
82,100 Omega Healthcare Investors 2,657,988
-----------------------------------------------------------------------------------
45,000 Public Storage, Inc., $2.44, Pfd., Series F 1,231,875
-----------------------------------------------------------------------------------
6,000 Sizeler Property Investment, Inc. 55,500
-----------------------------------------------------------------------------------
49,500 Summit Properties, Inc. 965,250
-----------------------------------------------------------------------------------
31,500 Weingarten Realty Investors 1,232,438
-----------------------------------------------------------------------------------
140,000 Winston Hotels, Inc. 1,767,500
----------------------------------------------------------------------------------- --------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (IDENTIFIED COST $17,926,050) 19,590,089
----------------------------------------------------------------------------------- --------------
CASH EQUIVALENTS--1.0%
- -------------------------------------------------------------------------------------------------
FINANCE--1.0%
-----------------------------------------------------------------------------------
$ 1,065,000 Merrill Lynch & Co., Inc., 5.85%, 12/2/1996 (IDENTIFIED COST $1,064,827) 1,064,827
----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--40.9%
- -------------------------------------------------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS--3.6%
-----------------------------------------------------------------------------------
1,350,000 J.P. Morgan & Co., Inc., 8.00%, 5/30/2005 1,386,194
-----------------------------------------------------------------------------------
500,000 NationsBank Corp., 7.625%, 4/15/2005 531,030
-----------------------------------------------------------------------------------
2,000,000 NationsBank Corp., Medium Term Note, 6.375%, 2/21/2006 1,972,480
----------------------------------------------------------------------------------- --------------
Total 3,889,704
----------------------------------------------------------------------------------- --------------
CHEMICAL & FERTILIZERS--0.4%
-----------------------------------------------------------------------------------
458,000 Dow Chemical Co., 9.35%, 3/15/2002 498,693
----------------------------------------------------------------------------------- --------------
DIVERSIFIED ENERGY--1.9%
-----------------------------------------------------------------------------------
2,000,000 Occidental Petroleum Corp., 8.75%, 2/14/2003 2,063,380
----------------------------------------------------------------------------------- --------------
ENERGY--0.9%
-----------------------------------------------------------------------------------
1,000,000 (c)Chevron Capital USA, Inc., 7.45%, 8/15/2004 1,050,490
----------------------------------------------------------------------------------- --------------
FINANCE--5.2%
-----------------------------------------------------------------------------------
1,000,000 Associates Corp. of North America, 5.77%, 2/15/1999 998,013
-----------------------------------------------------------------------------------
1,000,000 Associates Corp. of North America, Medium Term Note, 7.25%,
5/22/2006 1,042,690
-----------------------------------------------------------------------------------
1,500,000 (c)International Lease Finance Corp., 8.375%, 12/15/2004 1,679,415
-----------------------------------------------------------------------------------
2,000,000 Lehman Brothers, Inc., 7.125%, 7/15/2002 2,042,820
----------------------------------------------------------------------------------- --------------
Total 5,762,938
----------------------------------------------------------------------------------- --------------
FOREST PRODUCTS & PAPER--0.3%
-----------------------------------------------------------------------------------
360,000 Kimberly-Clark Corp., 7.875%, 2/1/2023 380,707
----------------------------------------------------------------------------------- --------------
HOSPITAL MANAGEMENT--2.2%
-----------------------------------------------------------------------------------
2,050,000 Columbia/HCA Healthcare Corp., Medium Term Note, 8.70%,
2/10/2010 2,419,902
----------------------------------------------------------------------------------- --------------
</TABLE>
STAR STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.8%
-----------------------------------------------------------------------------------
$ 2,000,000 (c)Procter & Gamble Co., 7.375%, 3/1/2023 $ 2,046,820
----------------------------------------------------------------------------------- --------------
INDUSTRIAL--9.2%
-----------------------------------------------------------------------------------
1,500,000 Ashland, Inc., 7.78%, 9/19/2016 1,598,370
-----------------------------------------------------------------------------------
750,000 Ashland, Inc., Series F, 7.90%, 8/5/2006 812,302
-----------------------------------------------------------------------------------
2,500,000 Circus Circus Enterprises, Inc., 6.75%, 7/15/2003 2,521,750
-----------------------------------------------------------------------------------
1,000,000 Lockheed Corp., 7.875%, 3/15/2023 1,046,280
-----------------------------------------------------------------------------------
2,000,000 Manor Care, Inc., 7.50%, 6/15/2006 2,115,960
-----------------------------------------------------------------------------------
1,000,000 Safeway, Inc., Medium Term Note, 8.27%, 3/29/2000 1,053,890
-----------------------------------------------------------------------------------
1,000,000 Safeway, Inc., Medium Term Note, 8.57%, 4/1/2003 1,099,410
----------------------------------------------------------------------------------- --------------
Total 10,247,962
----------------------------------------------------------------------------------- --------------
INSURANCE--1.5%
-----------------------------------------------------------------------------------
1,500,000 (c)Ohio National Life Insurance Company, 8.875%, 7/15/2004 1,646,340
----------------------------------------------------------------------------------- --------------
INTERNATIONAL--1.6%
-----------------------------------------------------------------------------------
500,000 Philips Electronics N.V., 6.75%, 8/15/2003 505,760
-----------------------------------------------------------------------------------
1,100,000 Philips Electronics N.V., 8.375%, 9/15/2006 1,219,845
----------------------------------------------------------------------------------- --------------
Total 1,725,605
----------------------------------------------------------------------------------- --------------
MANUFACTURING--0.2%
-----------------------------------------------------------------------------------
250,000 Eastman Kodak Co., 9.875%, 11/1/2004 268,320
----------------------------------------------------------------------------------- --------------
RETAILING & APPAREL--1.9%
-----------------------------------------------------------------------------------
1,125,000 Penney (J.C.) Co., Inc., 9.45%, 7/15/2002 1,236,240
-----------------------------------------------------------------------------------
725,000 Sears, Roebuck & Co., 8.66%, 10/2/2006 833,873
----------------------------------------------------------------------------------- --------------
Total 2,070,113
----------------------------------------------------------------------------------- --------------
TELECOMMUNICATIONS--1.4%
-----------------------------------------------------------------------------------
1,550,000 GTE Corp., 7.83%, 5/1/2023 1,604,886
----------------------------------------------------------------------------------- --------------
TOBACCO--1.5%
-----------------------------------------------------------------------------------
500,000 Philip Morris Cos., Inc., 6.00%, 11/15/1999 495,645
-----------------------------------------------------------------------------------
1,117,000 Philip Morris Cos., Inc., 7.125%, 8/15/2002 1,142,490
----------------------------------------------------------------------------------- --------------
Total 1,638,135
----------------------------------------------------------------------------------- --------------
UTILITIES--7.3%
-----------------------------------------------------------------------------------
500,000 Cincinnati Gas and Electric Co., 8.95%, 12/15/2021 532,515
-----------------------------------------------------------------------------------
1,000,000 Detroit Edison Co., 6.40%, 10/1/1998 1,008,920
-----------------------------------------------------------------------------------
389,000 Duke Power Co., 7.875%, 5/1/2024 408,419
-----------------------------------------------------------------------------------
2,000,000 Northern Illinois Gas, 6.45%, 8/1/2001 2,028,500
-----------------------------------------------------------------------------------
2,000,000 (c)Northern Illinois Gas, 7.26%, 10/15/2025 1,951,720
-----------------------------------------------------------------------------------
1,000,000 Pacific Bell, 7.25%, 2/1/2008 1,009,950
-----------------------------------------------------------------------------------
1,000,000 Pacific Bell, 8.50%, 8/15/2031 1,090,250
----------------------------------------------------------------------------------- --------------
Total 8,030,274
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BOND (IDENTIFIED COST $44,107,800) 45,344,269
----------------------------------------------------------------------------------- --------------
</TABLE>
STAR STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
INTERNATIONAL BONDS--5.6%
- -------------------------------------------------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES--2.6%
-----------------------------------------------------------------------------------
$ 120,000 First Commonwealth Fund, Inc. $ 1,485,000
-----------------------------------------------------------------------------------
145,000 Kleinwort Benson Australian Income Fund 1,341,250
----------------------------------------------------------------------------------- --------------
Total 2,826,250
----------------------------------------------------------------------------------- --------------
INDUSTRIAL--1.6%
-----------------------------------------------------------------------------------
1,775,000 News America Holdings, Inc., 7.60%, 10/11/2015 1,776,118
----------------------------------------------------------------------------------- --------------
METALS & MINING--1.4%
-----------------------------------------------------------------------------------
1,500,000 Alcan Aluminum, Ltd., 9.20%, 3/15/2001 1,562,130
----------------------------------------------------------------------------------- --------------
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $6,024,868) 6,164,498
----------------------------------------------------------------------------------- --------------
GOVERNMENT AGENCIES--20.9%
- -------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--5.6%
-----------------------------------------------------------------------------------
281,618 11.00%, 4/1/2003 300,185
-----------------------------------------------------------------------------------
2,224,962 8.50%, 7/1/2024 2,342,440
-----------------------------------------------------------------------------------
906 8.75%, 10/1/2014 948
-----------------------------------------------------------------------------------
1,025,152 9.00%, 5/1/2021 1,093,694
-----------------------------------------------------------------------------------
500,000 8.00%, REMIC, 7/15/2020 512,280
-----------------------------------------------------------------------------------
670,000 10.00%, REMIC, 12/15/2020 754,252
-----------------------------------------------------------------------------------
1,000,000 10.00%, REMIC, 1/15/2021 1,132,240
----------------------------------------------------------------------------------- --------------
Total 6,136,039
----------------------------------------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--9.6%
-----------------------------------------------------------------------------------
272,920 9.00%, 4/1/2016 291,167
-----------------------------------------------------------------------------------
500,000 8.40%, REMIC, 8/25/2019 526,145
-----------------------------------------------------------------------------------
217,937 10.00%, REMIC, 12/25/2018 227,714
-----------------------------------------------------------------------------------
1,000,000 9.00%, REMIC, 11/25/2019 1,076,010
-----------------------------------------------------------------------------------
470,396 9.40%, REMIC, 6/25/2019 491,088
-----------------------------------------------------------------------------------
1,100,000 9.50%, REMIC, 6/25/2020 1,186,262
-----------------------------------------------------------------------------------
327,319 8.20%, REMIC, 4/25/2006 329,427
-----------------------------------------------------------------------------------
2,200,000 7.50%, REMIC, 5/25/2020 2,259,598
-----------------------------------------------------------------------------------
2,000,000 7.75%, REMIC, 5/25/2021 2,059,600
-----------------------------------------------------------------------------------
925,000 7.25%, REMIC, 2/25/2017 935,906
-----------------------------------------------------------------------------------
383,806 4.75%, REMIC, 12/25/2011 381,242
-----------------------------------------------------------------------------------
1,000,000 4.00%, REMIC, 6/25/2020 875,850
----------------------------------------------------------------------------------- --------------
Total 10,640,009
----------------------------------------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--5.7%
-----------------------------------------------------------------------------------
1,250,000 (b)7.50%, 12/15/2026 1,266,797
-----------------------------------------------------------------------------------
3,955,311 8.00%, 8/20/2026 4,054,154
-----------------------------------------------------------------------------------
677,241 9.00%, 1/15/2022 724,214
-----------------------------------------------------------------------------------
</TABLE>
STAR STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------------------------- --------------
<C> <S> <C>
GOVERNMENT AGENCIES--CONTINUED
- -------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--CONTINUED
-----------------------------------------------------------------------------------
$ 277,311 9.00%, 7/15/2016 $ 298,885
----------------------------------------------------------------------------------- --------------
Total 6,344,050
----------------------------------------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $22,792,963) 23,120,098
----------------------------------------------------------------------------------- --------------
INTERNATIONAL MUTUAL FUND--0.5%
- -------------------------------------------------------------------------------------------------
42,088 Benham European Government Bond Fund (IDENTIFIED COST $500,000) 512,205
----------------------------------------------------------------------------------- --------------
OPTIONS PURCHASED--0.0%
- -------------------------------------------------------------------------------------------------
70 Put Option on Sallie Mae, expires 1/18/1997, strike @ 65 875
-----------------------------------------------------------------------------------
125 Put Option on J.C. Penney Co., expires 2/22/1997, strike @ 45 1,563
-----------------------------------------------------------------------------------
50 Call Option on Conrail, expires 12/21/1996, strike @ 90 39,375
-----------------------------------------------------------------------------------
100 Put Option on Texaco, expires 1/18/1997, strike @ 85 2,813
----------------------------------------------------------------------------------- --------------
TOTAL OPTIONS (IDENTIFIED COST $50,681) 44,626
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $106,451,532)(A) $ 109,369,799
----------------------------------------------------------------------------------- --------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $106,293,532.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,076,267 which is comprised of $3,624,605 appreciation and
$548,338 depreciation at November 30, 1996.
(b) When-issued security.
(c) Includes securities held in a segregated account to cover written option
transactions.
Note: The categories of investments are shown as a percentage of net assets
($110,774,815) at November 30, 1996.
The following acronyms are used throughout this portfolio:
MIPS--Monthly Income Preferred Securities
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
STAR STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified cost $106,451,532 and $106,293,532 tax cost) $ 109,369,799
- -------------------------------------------------------------------------------------------------
Cash 65
- -------------------------------------------------------------------------------------------------
Income receivable 1,491,422
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 8,009,171
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 797,543
- -------------------------------------------------------------------------------------------------
Deferred expenses 19,175
- ------------------------------------------------------------------------------------------------- --------------
Total assets 119,687,175
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------
Payable for investments purchased $ 8,770,190
- -----------------------------------------------------------------------------------
Payable for shares redeemed 12,909
- -----------------------------------------------------------------------------------
Options written, at value (premium received $67,863) 74,094
- -----------------------------------------------------------------------------------
Accrued expenses 55,167
- ----------------------------------------------------------------------------------- ------------
Total liabilities 8,912,360
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 10,546,598 shares outstanding $ 110,774,815
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 108,852,276
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and written options 2,912,036
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and options (1,275,409)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 285,912
- ------------------------------------------------------------------------------------------------- --------------
TOTAL NET ASSETS $ 110,774,815
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE AND OFFERING PRICE PER SHARE:
($110,774,815 / 10,546,598 shares outstanding) $10.50
- ------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds Per Share: (95/100 of $10.50)* $9.98
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STAR STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends $ 2,599,149
- ---------------------------------------------------------------------------------------------------
Interest 3,661,597
- --------------------------------------------------------------------------------------------------- -------------
Total income 6,260,746
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 689,394
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 72,413
- ---------------------------------------------------------------------------------------
Custodian fees 18,142
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 58,689
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,290
- ---------------------------------------------------------------------------------------
Auditing fees 11,627
- ---------------------------------------------------------------------------------------
Legal fees 1,645
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 61,222
- ---------------------------------------------------------------------------------------
Shareholder services fee 30,489
- ---------------------------------------------------------------------------------------
Share registration costs 21,330
- ---------------------------------------------------------------------------------------
Printing and postage 19,646
- ---------------------------------------------------------------------------------------
Insurance premiums 655
- ---------------------------------------------------------------------------------------
Miscellaneous 2,125
- --------------------------------------------------------------------------------------- ----------
Total expenses 988,667
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 5,272,079
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized loss on investments (includes $95,317 net gain on written options) (1,275,409)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and options 2,107,201
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments and options 831,792
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 6,103,871
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 5,272,079 $ 1,942,006
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments and options ($1,254,679 net loss and
$76,916 net gain, respectively, as computed for federal tax purposes) (1,275,409) 76,916
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and options 2,107,201 804,835
- --------------------------------------------------------------------------------- --------------- -------------
Change in net assets resulting from operations 6,103,871 2,823,757
- --------------------------------------------------------------------------------- --------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------
Distributions from net investment income (5,063,250) (1,856,897)
- ---------------------------------------------------------------------------------
Distributions from net realized gains -- (76,916)
- ---------------------------------------------------------------------------------
Distributions in excess of net realized gains -- (8,026)
- --------------------------------------------------------------------------------- --------------- -------------
Change in net assets resulting from distributions to shareholders (5,063,250) (1,941,839)
- --------------------------------------------------------------------------------- --------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------------
Proceeds from sale of shares 72,076,625 48,423,382
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 1,844,849 756,172
- ---------------------------------------------------------------------------------
Cost of shares redeemed (11,699,941) (2,548,811)
- --------------------------------------------------------------------------------- --------------- -------------
Change in net assets resulting from share transactions 62,221,533 46,630,743
- --------------------------------------------------------------------------------- --------------- -------------
Change in net assets 63,262,154 47,512,661
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 47,512,661 --
- --------------------------------------------------------------------------------- --------------- -------------
End of period (including undistributed net investment income of $285,912 and
$85,109, respectively) $ 110,774,815 $ 47,512,661
- --------------------------------------------------------------------------------- --------------- -------------
</TABLE>
*For the period from December 12, 1994 (date of initial public investment) to
November 30, 1995.
(See Notes which are an integral part of the Financial Statements)
STAR STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.53 $ 10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.73 0.69
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.04) 0.55
- ---------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.69 1.24
- ---------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Distributions from net investment income (0.72) (0.67)
- ----------------------------------------------------------------------------------------
Distributions from net realized gain on investments -- (0.04)
- ----------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments -- (0.00)**
- ---------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.72) (0.71)
- ---------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.50 $ 10.53
- ---------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 6.99% 12.71%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 1.36% 1.47%*
- ----------------------------------------------------------------------------------------
Net investment income 7.26% 7.41%*
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) -- 0.10%*
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $110,775 $ 47,513
- ----------------------------------------------------------------------------------------
Average commission rate paid $0.0043 --
- ----------------------------------------------------------------------------------------
Portfolio turnover 201% 258 %
- ----------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
** 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, 1995.
(a) Reflects operations for the period from December 12, 1994 (date of initial
public investment) to November 30, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS--21.0%
- -------------------------------------------------------------------------------------------------
BANKING--2.2%
----------------------------------------------------------------------------------
$ 1,500,000 Citicorp, 8.625%, 12/1/2002 $ 1,662,300
----------------------------------------------------------------------------------
1,250,000 Nationsbank Corp., 7.625%, 4/15/2005 1,327,575
---------------------------------------------------------------------------------- --------------
Total 2,989,875
---------------------------------------------------------------------------------- --------------
BEVERAGE & TOBACCO--0.8%
----------------------------------------------------------------------------------
1,029,000 Philip Morris Cos, Inc., 8.625%, 3/1/1999 1,082,230
---------------------------------------------------------------------------------- --------------
CHEMICALS--1.2%
----------------------------------------------------------------------------------
1,624,280 Dow Chemical Co., 7.60%, 1/2/2002 1,686,327
---------------------------------------------------------------------------------- --------------
FINANCE--4.8%
----------------------------------------------------------------------------------
2,500,000 Associates Corp., 7.25%, 5/22/2006 2,606,725
----------------------------------------------------------------------------------
250,000 International Lease Financing Co., 8.375%, 12/15/2004 279,903
----------------------------------------------------------------------------------
3,750,000 International Lease Financing Co., 6.25%, 10/15/2000 3,757,875
---------------------------------------------------------------------------------- --------------
Total 6,644,503
---------------------------------------------------------------------------------- --------------
FOOD & BEVERAGE--0.4%
----------------------------------------------------------------------------------
500,000 McDonald's Corp., 8.375%, 10/29/1999 533,775
---------------------------------------------------------------------------------- --------------
HEALTHCARE--1.9%
----------------------------------------------------------------------------------
1,500,000 Columbia HCA Healthcare Co., 6.91%, 6/15/2005 1,536,465
----------------------------------------------------------------------------------
250,000 Columbia HCA Healthcare Co., 8.70%, 12/10/2010 295,110
----------------------------------------------------------------------------------
765,000 Columbia Healthcare Corp., 6.125%, 12/15/2000 765,138
---------------------------------------------------------------------------------- --------------
Total 2,596,713
---------------------------------------------------------------------------------- --------------
HOUSEHOLD PRODUCTS--0.7%
----------------------------------------------------------------------------------
1,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 1,023,410
---------------------------------------------------------------------------------- --------------
INTERNATIONAL--3.2%
----------------------------------------------------------------------------------
1,000,000 Alcan Aluminum Corp., 7.25%, 12/15/1999 1,032,460
----------------------------------------------------------------------------------
400,000 Alcan Aluminum Ltd., 9.20%, 3/15/2001 416,568
----------------------------------------------------------------------------------
1,500,000 News America Holdings, Inc., 9.125%, 10/15/1999 1,610,865
----------------------------------------------------------------------------------
1,500,000 Philips Electric, 6.75%, 8/15/2003 1,517,280
---------------------------------------------------------------------------------- --------------
Total 4,577,173
---------------------------------------------------------------------------------- --------------
OIL--1.2%
----------------------------------------------------------------------------------
1,000,000 Ashland Oil, Inc., 7.90%, 8/5/2006 1,083,070
----------------------------------------------------------------------------------
600,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 630,294
---------------------------------------------------------------------------------- --------------
Total 1,713,364
---------------------------------------------------------------------------------- --------------
TELEPHONE--0.4%
----------------------------------------------------------------------------------
500,000 GTE Corp., 7.83%, 5/1/2023 517,705
---------------------------------------------------------------------------------- --------------
UTILITIES-ELECTRIC--4.2%
----------------------------------------------------------------------------------
100,000 Alabama Power Co., 8.75%, 12/1/2021 105,661
----------------------------------------------------------------------------------
4,250,000 Georgia Power Co., 6.625%, 4/1/2003 4,244,560
----------------------------------------------------------------------------------
</TABLE>
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
UTILITIES-ELECTRIC--CONTINUED
----------------------------------------------------------------------------------
$ 500,000 Northern Illinois Gas Co., 7.26%, 10/15/2025 $ 487,930
----------------------------------------------------------------------------------
1,000,000 Northern Illinois Gas Co., 6.45%, 8/1/2001 1,014,250
---------------------------------------------------------------------------------- --------------
Total 5,852,401
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $28,467,693) 29,217,476
---------------------------------------------------------------------------------- --------------
GOVERNMENT AGENCIES--24.8%
- -------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK--0.3%
----------------------------------------------------------------------------------
410,683 6.00%, 8/1/2013 399,898
---------------------------------------------------------------------------------- --------------
FEDERAL HOME LOAN MORTGAGE CORP.--9.3%
----------------------------------------------------------------------------------
4,214,668 7.00%, 9/17/2031 4,175,130
----------------------------------------------------------------------------------
2,000,000 7.585%, 9/19/2006 2,094,840
----------------------------------------------------------------------------------
6,500,000 PC Gtd., 6.50%, 2/15/2023 6,480,305
----------------------------------------------------------------------------------
138,934 PC Gtd., 7.00%, 5/15/2019 138,867
---------------------------------------------------------------------------------- --------------
Total 12,889,142
---------------------------------------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--14.5%
----------------------------------------------------------------------------------
1,500,000 5.36%, 2/16/2001 1,470,060
----------------------------------------------------------------------------------
5,500,000 6.14%, 11/25/2005 5,430,865
----------------------------------------------------------------------------------
2,500,000 6.54%, 10/3/2005 2,534,875
----------------------------------------------------------------------------------
1,000,000 6.82%, 8/23/2005 1,032,900
----------------------------------------------------------------------------------
2,000,000 7.25%, 2/25/2017, REMIC 2,023,580
----------------------------------------------------------------------------------
843,510 7.25%, 1/25/2019, REMIC 849,356
----------------------------------------------------------------------------------
6,542,000 7.25%, 1/17/2021, REMIC 6,779,409
---------------------------------------------------------------------------------- --------------
Total 20,121,045
---------------------------------------------------------------------------------- --------------
STUDENT LOAN MARKETING ASSOCIATION--0.7%
----------------------------------------------------------------------------------
1,000,000 5.38%, 8/2/1999 999,280
---------------------------------------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $33,498,601) 34,409,365
---------------------------------------------------------------------------------- --------------
U.S. TREASURY--51.7%
- -------------------------------------------------------------------------------------------------
TREASURY BONDS--17.7%
----------------------------------------------------------------------------------
1,000,000 6.25%, 8/15/2023 970,560
----------------------------------------------------------------------------------
2,000,000 6.75%, 8/15/2026 2,087,440
----------------------------------------------------------------------------------
2,300,000 7.50%, 11/15/2016 2,570,388
----------------------------------------------------------------------------------
7,000,000 7.50%, 11/15/2024 7,928,480
----------------------------------------------------------------------------------
4,950,000 7.625%, 2/15/2025 5,694,876
----------------------------------------------------------------------------------
2,000,000 8.125%, 8/15/2019 2,387,960
----------------------------------------------------------------------------------
2,300,000 8.75%, 8/15/2020 2,926,359
---------------------------------------------------------------------------------- --------------
Total 24,566,063
---------------------------------------------------------------------------------- --------------
</TABLE>
STAR U.S. GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ---------------------------------------------------------------------------------- --------------
<C> <S> <C>
U.S. TREASURY--CONTINUED
- -------------------------------------------------------------------------------------------------
TREASURY NOTES--34.0%
----------------------------------------------------------------------------------
$ 2,750,000 5.50%, 2/28/1999 $ 2,743,400
----------------------------------------------------------------------------------
2,500,000 5.625%, 11/30/2000 2,486,800
----------------------------------------------------------------------------------
7,750,000 5.875%, 4/30/1998 7,790,068
----------------------------------------------------------------------------------
15,000,000 6.25%, 7/31/1998 15,167,850
----------------------------------------------------------------------------------
9,400,000 6.75%, 5/31/1999 9,638,384
----------------------------------------------------------------------------------
1,250,000 7.25%, 5/15/2004 1,344,850
----------------------------------------------------------------------------------
7,650,000 7.75%, 11/30/1999 8,076,334
---------------------------------------------------------------------------------- --------------
Total 47,247,686
---------------------------------------------------------------------------------- --------------
TOTAL U.S. TREASURY (IDENTIFIED COST, $70,075,224) 71,813,749
---------------------------------------------------------------------------------- --------------
SHORT-TERM INVESTMENTS--1.0%
- -------------------------------------------------------------------------------------------------
1,378,000 Merrill Lynch & Co., Inc., 5.85%, 12/2/1996 (at amortized cost) 1,377,776
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $133,419,294)(A) $ 136,818,366
---------------------------------------------------------------------------------- --------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $133,574,956.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,243,410, which is comprised of $3,392,112 appreciation and
$148,702 depreciation at November 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($138,873,581) at November 30, 1996.
The following acronyms are used throughout this portfolio:
GTD--Guaranty
PC--Participation Certificate
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at value
(identified cost $133,419,294 and tax cost $133,574,956) $ 136,818,366
- -------------------------------------------------------------------------------------------------
Cash 548
- -------------------------------------------------------------------------------------------------
Income receivable 2,204,613
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 54,688
- -------------------------------------------------------------------------------------------------
Deferred expenses 9,626
- ------------------------------------------------------------------------------------------------- --------------
Total assets 139,087,841
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------
Payable for shares redeemed $ 54,982
- -------------------------------------------------------------------------------------
Income distribution payable 106,766
- -------------------------------------------------------------------------------------
Accrued expenses 52,512
- ------------------------------------------------------------------------------------- ----------
Total liabilities 214,260
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 14,131,815 shares outstanding $ 138,873,581
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 138,152,508
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,399,072
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,706,782)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 28,783
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 138,873,581
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($138,873,581 / 14,131,815 shares outstanding) $9.83
- ------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/96.50 of $9.83)* $10.19
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 7,962,183
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 702,550
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 117,252
- ---------------------------------------------------------------------------------------
Custodian fees 28,690
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 46,302
- ---------------------------------------------------------------------------------------
Directors 4,283
- ---------------------------------------------------------------------------------------
Auditing fees 17,008
- ---------------------------------------------------------------------------------------
Legal fees 2,114
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 56,151
- ---------------------------------------------------------------------------------------
Shareholder services fee 47,895
- ---------------------------------------------------------------------------------------
Share registration costs 17,497
- ---------------------------------------------------------------------------------------
Printing and postage 20,046
- ---------------------------------------------------------------------------------------
Insurance premiums 5,230
- ---------------------------------------------------------------------------------------
Miscellaneous 11,775
- --------------------------------------------------------------------------------------- ----------
Total expenses 1,076,793
- --------------------------------------------------------------------------------------------------- -------------
Net investment income 6,885,390
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized loss on investments (1,134,865)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 293,860
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized loss on investments (841,005)
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 6,044,385
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STAR U.S. GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 6,885,390 $ 6,170,428
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($1,143,487 net loss and $173,123 net
gain, respectively, as computed for federal tax purposes) (1,134,865) 48,883
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 293,860 7,371,857
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 6,044,385 13,591,168
- ------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (6,869,461) (6,170,428)
- ------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 63,105,408 46,528,164
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 3,057,540 2,992,672
- -------------------------------------------------------------------------------
Cost of shares redeemed (36,130,736) (35,199,263)
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 30,032,212 14,321,573
- ------------------------------------------------------------------------------- -------------- --------------
Change in net assets 29,207,136 21,742,313
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 109,666,445 87,924,132
- ------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $28,783 and $0,
respectively) $ 138,873,581 $ 109,666,445
- ------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(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,
1996 1995 1994 1993(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 9.24 $ 10.25 $ 10.00
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.57 0.60 0.55 0.51
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.15) 0.74 (0.90) 0.25
- -------------------------------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.42 1.34 (0.35) 0.76
- -------------------------------------------------------------------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.57) (0.60) (0.55) (0.51)
- --------------------------------------------------------------------
Distributions from net realized gain on investments -- -- (0.11) --
- -------------------------------------------------------------------- --------- --------- --------- -----------
Total distributions (0.57) (0.60) (0.66) (0.51)
- -------------------------------------------------------------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.98 $ 9.24 $ 10.25
- -------------------------------------------------------------------- --------- --------- --------- -----------
TOTAL RETURN (B) 4.46% 14.90% (3.53)% 7.63%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 0.92% 0.92% 0.97% 1.12%*
- --------------------------------------------------------------------
Net investment income 5.88% 6.23% 5.87% 5.55%*
- --------------------------------------------------------------------
Expense waiver/reimbursement (c) -- -- 0.03% 0.30%*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $138,874 $109,666 $87,924 $44,187
- --------------------------------------------------------------------
Portfolio turnover 158% 236% 148% 105%
- --------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 5, 1993 (date of initial
public investment) to November 30, 1993. For the period from November 23,
1992 (start of business) to January 4, 1993, all income was distributed to
the Administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
STAR FUNDS
COMBINED NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
(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 eight, diversified portfolios. The following portfolios
comprise the Trust:
PORTFOLIO NAME
Star Capital Appreciation Fund ("Capital Appreciation Fund")
Star Growth Equity Fund ("Growth Equity Fund")
Star Relative Value Fund ("Relative Value Fund")
The Stellar Fund ("Stellar Fund")
Star Strategic Income Fund ("Strategic Income Fund")
Star Tax-Free Money Market Fund ("Tax-Free Money Market Fund")
Star Treasury Fund ("Treasury Fund")
Star U.S. Government Income Fund ("U.S. Government Income Fund")
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein:
PORTFOLIO NAME
Capital Appreciation Fund
Growth Equity Fund
Relative Value Fund
Stellar Fund
Strategic Income Fund
U.S. Government Income Fund
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The investment objectives of the
portfolios are as follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
<S> <C>
Capital Appreciation Fund Maximize capital appreciation
Growth Equity Fund Maximize capital appreciation
Relative Value Fund Maximize total return, a combination of income and capital appreciation
Stellar Fund Maximize total return, a combination of dividend income and capital
appreciation
Strategic Income Fund Generate high current income
U.S. Government Income Fund Provide current income
</TABLE>
The Funds, except Stellar Fund, are offered without class designation. Shares of
Stellar Fund are offered in two classes: Investment shares and Trust shares.
(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.
INVESTMENT VALUATIONS--Equity securities traded on a securities exchange
and securities traded in the over-the-counter market are valued at the last
reported sales price on the day of evaluation; other securities for which
no sale was reported on that date, are valued at the last quoted bid price.
Corporate and municipal bonds, asset backed securities and U.S. government
securities are valued using the last quoted bid price as furnished by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
STAR FUNDS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--It is the policy of the Funds to require a 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 under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on
a daily basis, the market value of each repurchase agreement's collateral
to ensure that the value of collateral at least equals the repurchase price
to be paid under the repurchase agreement transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"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.
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").
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to net operating losses,
and market discount. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
PAID-IN NET REALIZED UNDISTRIBUTED NET
FUND NAME CAPITAL GAIN/LOSS INVESTMENT INCOME
<S> <C> <C> <C>
Capital Appreciation Fund $ (167,843) $ (20,499) $ 188,342
Strategic Income Fund -- 8,026 (8,026)
U.S. Government Income Fund -- (12,854) 12,854
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by these reclassifications.
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 income. Accordingly, no
provisions for federal taxes are necessary.
At November 30, 1996, Star Capital Appreciation Fund, Strategic Income Fund
and U.S. Government Income Fund for federal tax purposes, had capital loss
carryforwards, as noted below, which will reduce the Funds' taxable income
arising from future net realized gains on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Funds of any liability for federal tax.
<TABLE>
<CAPTION>
FUND TOTAL TAX-LOSS CARRYFORWARD
<S> <C>
Capital Appreciation Fund $ 657,799
Strategic Income Fund 1,254,579
U.S. Government Income Fund 2,551,119
</TABLE>
Pursuant to the Code, such capital loss carryforwards will expire as
follows:
<TABLE>
<CAPTION>
STAR CAPITAL APPRECIATION FUND STRATEGIC INCOME FUND
EXPIRATION YEAR EXPIRATION AMOUNT EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C> <C> <C>
2004 $657,799 2004 $1,254,579
</TABLE>
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $1,407,632
2004 $1,143,487
</TABLE>
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.
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 its shares, have been deferred and are being
amortized over a period not to exceed five years from each Fund's
commencement date.
OPTION CONTRACTS WRITTEN--The Capital Appreciation Fund, Growth Equity
Fund, Stellar Fund, Strategic Income Fund and U.S. Government Income Fund
may write "covered" call option contracts. All of the preceding Funds,
except U.S. Government Income Fund may also write "covered" put options. A
written option obligates the Funds to deliver (a call), or to receive (a
put), the contract amount upon exercise by the holder of the option. The
principal reason for writing call or put options is to obtain, through
receipt of premiums, a greater current return than would be realized on
underlying securities alone. By writing call options, the Funds' may forego
potential gains on the underlying security. By writing a put option, the
Fund risks becoming obligated to purchase the underlying security for more
than its current market price upon exercise. Premiums received from writing
options are recorded as a liability and an unrealized gain or loss is
measured by the difference between the current value and the premium
received. For the fiscal year ended November 30, 1996, Capital Appreciation
Fund, Growth Equity Fund, Stellar Fund, and Strategic Income Fund had
realized gain (loss) on options contracts of $16,134, ($182,391), $107,759,
and $95,317, respectively.
At November 30, 1996, Capital Appreciation Fund, The Stellar Fund, Relative
Value and U.S. Government Income Fund had no outstanding options.
At November 30, 1996, Growth Equity Fund, and Strategic Income Fund had the
following outstanding options:
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
NUMBER UNREALIZED
EXPIRATION EXERCISE OF APPRECIATION MARKET
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
<S> <C> <C> <C> <C> <C> <C>
CISCO Systems Call 1/17/97 $ 55.00 200 $ 113,305 $ 277,500
- ----------------------------
Hewlett Packard Call 1/17/97 50.00 50 13,950 25,000
- ----------------------------
Conrail Put 1/17/97 85.00 25 (4,743) 2,187
- ----------------------------
Conrail Put 1/17/97 80.00 25 (11,149) 1,250
- ----------------------------
Texaco Put 1/17/97 95.00 50 825 7,187
- ----------------------------
Citicorp Put 1/17/97 100.00 25 (4,586) 2,500
- ----------------------------
Citicorp Put 1/17/97 105.00 25 724 5,467
- ---------------------------- ----------------- ----------
Total $ 108,326 $ 321,091
- ---------------------------- ----------------- ----------
</TABLE>
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
NUMBER UNREALIZED
EXPIRATION EXERCISE OF APPRECIATION MARKET
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
<S> <C> <C> <C> <C> <C> <C>
Eastman Kodak Put 1/1/98 $ 70.00 50 $(2,338) $ 14,063
- -------------------------
Merrill Lynch Put 1/1/97 75.00 50 2,350 6,875
- -------------------------
Dow Chemical Put 3/1/97 80.00 25 (231 ) 4,531
- -------------------------
FNMA Put 1/1/97 37.50 50 2,377 1,875
- -------------------------
Mellon Bank Put 3/1/97 65.00 20 2,315 2,375
- -------------------------
Texaco Call 12/21/96 100.00 150 (4,878 ) 27,187
- -------------------------
Texaco Put 1/1/97 100.00 50 (5,826 ) 17,188
- ------------------------- -------- -----------
Total $(6,231 ) $ 74,094
- ------------------------- -------- -----------
</TABLE>
The following is a summary of the Capital Appreciation Fund, Growth Equity
Fund, Relative Value Fund, Stellar Fund, and Strategic Income Fund written
options activity:
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION FUND
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at December 1, 1995 90 $ 14,827
- -----------------------------------------------------------------------------
Contracts opened 110 16,134
- -----------------------------------------------------------------------------
Contracts expired (110) (16,134)
- -----------------------------------------------------------------------------
Contracts exercised (90) (14,827)
- -----------------------------------------------------------------------------
Contracts closed 0 0
- ----------------------------------------------------------------------------- ------- ------------
Outstanding at November 30, 1996 0 $ 0
- ----------------------------------------------------------------------------- ------- ------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at December 1, 1995 0 $ 0
- -----------------------------------------------------------------------------
Contracts opened 850 353,935
- -----------------------------------------------------------------------------
Contracts expired (100) (9,675)
- -----------------------------------------------------------------------------
Contracts exercised 0 0
- -----------------------------------------------------------------------------
Contracts closed (350) (131,495)
- ----------------------------------------------------------------------------- ------- ------------
Outstanding at November 30, 1996 400 $ 212,765
- ----------------------------------------------------------------------------- ------- ------------
</TABLE>
<TABLE>
<CAPTION>
STELLAR FUND
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at December 1, 1995 0 $ 0
- -----------------------------------------------------------------------------
Contracts opened 835 122,555
- -----------------------------------------------------------------------------
Contracts expired (755) (100,126)
- -----------------------------------------------------------------------------
Contracts exercised (50) (11,675)
- -----------------------------------------------------------------------------
Contracts closed (30) (10,754)
- ----------------------------------------------------------------------------- ------- ------------
Outstanding at November 30, 1996 0 $ 0
- ----------------------------------------------------------------------------- ------- ------------
</TABLE>
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at December 1, 1995 390 $ 33,236
- -----------------------------------------------------------------------------
Contracts opened 5,004 789,091
- -----------------------------------------------------------------------------
Contracts expired (335) (27,524)
- -----------------------------------------------------------------------------
Contracts exercised (725) (117,756)
- -----------------------------------------------------------------------------
Contracts closed (3,939) (609,184)
- ----------------------------------------------------------------------------- ------- ------------
Outstanding at November 30, 1996 395 $ 67,863
- ----------------------------------------------------------------------------- ------- ------------
</TABLE>
*Represents premium received less commissions paid.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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>
CAPITAL
APPRECIATION FUND
YEAR ENDED
NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 2,651,433 2,294,518
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 54,406 11,825
- --------------------------------------------------------------------------------------
Shares redeemed (1,172,964) (490,433)
- -------------------------------------------------------------------------------------- ----------- ----------
Net change resulting from Fund share transactions 1,532,875 1,815,910
- -------------------------------------------------------------------------------------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
YEAR ENDED
NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 2,614,772 4,433,979
- --------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 201,504 41,831
- --------------------------------------------------------------------------------------
Shares redeemed (1,025,812) (640,831)
- -------------------------------------------------------------------------------------- ----------- ----------
Net change resulting from Fund share transactions 1,790,464 3,834,979
- -------------------------------------------------------------------------------------- ----------- ----------
</TABLE>
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RELATIVE VALUE FUND
YEAR ENDED
NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 3,556,654 3,270,703
- -------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 59,691 40,596
- -------------------------------------------------------------------------------------
Shares redeemed (1,062,532) (1,044,452)
- ------------------------------------------------------------------------------------- ----------- -----------
Net change resulting from Fund share transactions 2,553,813 2,266,847
- ------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
STELLAR FUND
YEAR ENDED NOVEMBER 30,
1996 1995
INVESTMENT SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------------------- --------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 288,055 $ 3,589,181 316,665 $ 3,633,111
- ---------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 168,747 2,069,667 151,838 1,724,929
- ---------------------------------------------------------
Shares redeemed (788,848) (9,876,152) (1,097,558) (12,603,176)
- --------------------------------------------------------- --------- ------------- ----------- --------------
Net change resulting from Investment Share
transactions (332,046) ($ 4,217,304) (629,055) ($ 7,245,136)
- --------------------------------------------------------- --------- ------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
STELLAR FUND
YEAR ENDED NOVEMBER 30,
1996 1995
TRUST SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 1,265,521 $ 15,807,714 1,362,547 $ 15,679,680
- ------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 185,421 2,275,467 161,056 1,831,157
- ------------------------------------------------------
Shares redeemed (1,837,574) (23,021,408) (1,783,611) (20,596,933)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from Trust Share
transactions (386,632) ($ 4,938,227) (260,008) ($ 3,086,096)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
Net change resulting from Fund share
transactions (718,678) ($ 9,155,531) (889,063) ($ 10,331,232)
- ------------------------------------------------------ ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC INCOME
YEAR ENDED
NOVEMBER 30,
1996 1995*
<S> <C> <C>
Shares sold 6,987,337 4,687,046
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 178,887 72,542
- ----------------------------------------------------------------------------------------
Shares redeemed (1,133,224) (245,990)
- ---------------------------------------------------------------------------------------- ----------- ----------
Net change resulting from Fund share transactions 6,033,000 4,513,598
- ---------------------------------------------------------------------------------------- ----------- ----------
*For the period from December 12, 1994 (date of initial public investment) to November 30, 1995.
</TABLE>
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
INCOME FUND
YEAR ENDED
NOVEMBER 30,
1996 1995
<S> <C> <C>
Shares sold 6,580,878 4,813,482
- -------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 316,007 310,088
- -------------------------------------------------------------------------------------
Shares redeemed (3,751,557) (3,651,974)
- ------------------------------------------------------------------------------------- ----------- -----------
Net change resulting from Fund share transactions 3,145,328 1,471,596
- ------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Star Bank, N.A., the Trust'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).
<TABLE>
<CAPTION>
FUND ANNUAL RATE
<S> <C>
Capital Appreciation Fund 0.95%
Growth Equity Fund 0.75%
Relative Value Fund 0.75%
Stellar Fund 0.95%
Strategic Income Fund 0.95%
U.S. Government Income Fund 0.60%
</TABLE>
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides each Fund
with certain administrative personnel and services for which it receives a fee.
The FAS fee is based on the level of average aggregate net assets of the Trust
for the period.
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
Funds will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Funds to finance activities intended to
result in the sale of the Funds' investment shares. The Plan provides that the
Funds may incur distribution expenses up to 0.25% of the average daily net
assets of the investment shares annually, to compensate FSC. Currently, only the
Stellar Fund is accruing and paying 12b-1 fees. The other Star Funds will not
accrue or pay any distribution expenses pursuant to the Plan until a second
class of shares has been registered with the Securities and Exchange Commission.
SHAREHOLDER SERVICES FEE--Under the terms of the Shareholder Services Agreement
with Star Bank, N.A., each Fund will pay Star Bank, N.A. up to 0.25% of average
daily net assets for the period. For the foreseeable future, Star Bank N.A.
plans to limit the Shareholder Servicing fee to 0.05% of average daily net
assets. This fee is to obtain certain services for shareholder and to maintain
shareholder accounts. Star Bank N.A. can modify or terminate this limitation at
any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Funds for
which it receives a fee. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Funds' accounting records
for which it receives a fee. The fee is based on the level of each Fund's
average net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Star Bank, N.A., is the Funds' custodian for which it receives a
fee. 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 were initially borne by FAS.
The Funds have agreed to reimburse FAS for the organizational expenses during
the five year period following each Funds' effective date.
STAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXPENSES OF AMOUNTS REIMBURSED TO
ORGANIZING FAS FOR THE YEAR ENDED
EFFECTIVE DATE THE FUND NOVEMBER 30, 1996
<S> <C> <C> <C>
Capital Appreciation Fund May 16, 1994 $ 30,000 4,256
Growth Equity Fund November 14, 1994 30,000 4,702
Stellar Fund July 31, 1991 23,641 3,323
Strategic Income Fund November 14, 1994 30,000 4,132
U.S. Government Income Fund November 23, 1992 25,000 8,779
</TABLE>
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
year ended November 30, 1996, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Capital Appreciation Fund $ 131,839,272 $ 115,781,437
Growth Equity Fund 80,766,513 56,152,576
Relative Value Fund 64,771,001 25,446,769
Stellar Fund 70,407,953 65,803,463
Strategic Income Fund 200,760,028 140,910,036
U.S. Government Income Fund 213,723,918 178,697,585
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
The Stellar Fund and Strategic Income Fund invest in equity and fixed income
securities of non-U.S. issuers. Although, these funds maintain a diversified
investment portfolio, the political or economic developments within a particular
country or region may have an adverse effect on the ability of domiciled issuers
to meet their obligations. Additionally, political or economic developments may
have an effect on the liquidity and volatility of portfolio securities and
currency holdings.
At November 30, 1996, the International Securities held in the Stellar Fund
Portfolio and Strategic Income Fund Portfolio were diversified within the
following industries:
<TABLE>
<CAPTION>
STELLAR FUND STRATEGIC INCOME FUND
<S> <C> <C>
Basic industry 0.90% 1.60%
Capital goods 5.88% --
Closed-end investment companies 1.67% 2.60%
Consumer cyclicals 2.55% --
Consumer staples 1.13% --
Energy 4.51% --
Finance 1.06% --
Health care 1.18% --
Miscellaneous 2.34% 1.60%
Mutual Funds -- 0.50%
Oil -- 1.90%
Utilities 1.97% --
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
STAR FUNDS
(Star Capital Appreciation Fund, Star Growth Equity Fund, Star Relative Value
Fund, The Stellar Fund, Star Strategic Income Fund and Star U.S. Government
Income Fund):
We have audited the accompanying statements of assets and liabilities of Star
Capital Appreciation Fund, Star Growth Equity Fund, Star Relative Value Fund,
The Stellar Fund, Star Strategic Income Fund and Star U.S. Government Income
Fund (investment portfolios of Star Funds, a Massachusetts business trust),
including the schedules of portfolio investments, as of November 30, 1996, the
related statements of operations for the year then ended, and the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of Star
Capital Appreciation Fund, Star Growth Equity Fund, Star Relative Value Fund,
The Stellar Fund, Star Strategic Income Fund and Star U.S. Government Income
Fund (investment portfolios of Star Funds) as of November 30, 1996, and the
results of their operations for the year then ended, and the changes in their
net assets and their financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
January 10, 1997
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Thomas L. Conlan, Jr. Edward C. Gonzales
Edward C. Gonzales President and Treasurer
Dr. Alfred Gottschalk Joseph S. Machi
Dr. Robert J. Hill Vice President and Assistant Treasurer
William H. Zimmer III C. Grant Anderson
Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risks,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
- ---------------------------------
STAR BANK, N.A.
INVESTMENT ADVISER
- ---------------------------------
FEDERATED SECURITIES CORP.
DISTRIBUTOR
- ---------------------------------
CUSIP 854911500
CUSIP 854911880
CUSIP 854911708
CUSIP 854911609
CUSIP 854911401
CUSIP 854911864
CUSIP 854911807
G00446-02 (1/97)
4806TR
STAR FUNDS
APPENDICIES
A. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. S&P Midcap 400 Index is
represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical investment of
$10,000 in the Fund and in S&P Midcap 400 Index for period from June13,
1994 (start of performance) to November 30, 1996. The "y" axis reflects
the cost of investment. The "x" axis reflects computation periods in
yearly increments from June13, 1994 (start of performance) to November
30, 1996. The right margin of the chart reflects the ending value of
the hypothetical investment in the Fund as compared to S&P Midcap 400
Index. The ending values are $12,393 and $15,664, respectively.
B. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. S&P 500 Index is represented by
a dotted line. The line graph is a visual representation of a comparison
of change in value of a hypothetical investment of $10,000 in the Fund
and in S&P 500 Index for period from December 12, 1994 (start of
performance) to November 30, 1996. The "y" axis reflects the cost of
investment. The "x" axis reflects computation periods in yearly
increments from December 12, 1994 (start of performance) to November 30,
1996. The right margin of the chart reflects the ending value of the
hypothetical investment in the Fund as compared to S&P 500 Index. The
ending values are $16,049 and $17,516, respectively.
C. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. S&P 500 Index is represented by
a dotted line. The line graph is a visual representation of a comparison
of change in value of a hypothetical investment of $10,000 in the Fund
and in S&P 500 Index for period from June 4, 1991 (start of performance)
to November 30, 1996. The "y" axis reflects the cost of investment.
The "x" axis reflects computation periods in yearly increments from June
4, 1991 (start of performance) to November 30, 1996. The right margin
of the chart reflects the ending value of the hypothetical investment in
the Fund as compared to S&P 500 Index. The ending values are $20,688
and $22,561, respectively.
D. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. S&P 500 /Lehman Government
Corporate Total Index is represented by a dotted line. The line graph is
a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the Fund and . S&P 500 /Lehman
Government Corporate Total Index for period from April 6, 1994 (start of
performance) to November 30, 1996. The "y" axis reflects the cost of
investment. The "x" axis reflects computation periods in yearly
increments from April 6, 1994 (start of performance) to November 30,
1996. The right margin of the chart reflects the ending value of the
hypothetical investment in the Fund as compared to . S&P 500 /Lehman
Government Corporate Total Index. The ending values are $13,316 and
$15,027, respectively.
E. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. S&P 500 /Lehman Government
Corporate Total Index is represented by a dotted line. The line graph is
a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the Fund and . S&P 500 /Lehman
Government Corporate Total Index for period from October 18, 1991 (start
of performance) to November 30, 1996. The "y" axis reflects the cost of
investment. The "x" axis reflects computation periods in yearly
increments from October 18, 1991 (start of performance) to November 30,
1996. The right margin of the chart reflects the ending value of the
hypothetical investment in the Fund as compared to S&P 500 /Lehman
Government Corporate Total Index. The ending values are $15,461 and
$18,473, respectively.
F. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. Lehman Government/Corporate
Total Index is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Fund and Lehman Government/Corporate Total
Index for period from December 12,1994 (start of performance) to
November 30, 1996. The "y" axis reflects the cost of investment. The
"x" axis reflects computation periods in yearly increments from December
12,1994 (start of performance) to November 30, 1996. The right margin
of the chart reflects the ending value of the hypothetical investment in
the Fund as compared Lehman Government/Corporate Total Index. The
ending values are $11,600 and $12,490, respectively.
G. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Fund is represented by a solid line. Lehman Government/Corporate
Total Index is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Fund and Lehman Government/Corporate Total
Index for period from January 5, 1993 (start of performance) to November
30, 1996. The "y" axis reflects the cost of investment. The "x" axis
reflects computation periods in yearly increments from January 5, 1993
(start of performance) to November 30, 1996. The right margin of the
chart reflects the ending value of the hypothetical investment in the
Fund as compared Lehman Government/Corporate Total Index. The ending
values are $12,038 and $13,297, respectively.
