THE STELLAR INSURED TAX-FREE BOND FUND
[Logo]
STARFUNDS
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED MARCH 31,
1997
Portfolio of the Star Funds, and Open-End, Management Investment Company
Dated July 11, 1997
A. Please insert the following "Financial Highlights" table for The Stellar
Insured Tax-Free Bond Fund immediately following the section entitled
"Star Capital Appreciation Fund Financial Highlights" on page 11 of the
prospectus.
THE STELLAR INSURED TAX-FREE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1997(A)
(UNAUDITED)
<S> <C>
- ----------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income 0.20
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.01
- ----------------------------------------------------------------------------------------------- -------
Total from investment operations 0.21
- ----------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (0.20)
- ----------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.01
- ----------------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 2.10%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses 0.79%*
- -----------------------------------------------------------------------------------------------
Net investment income 4.73%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.25%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $117,333
- -----------------------------------------------------------------------------------------------
Portfolio turnover 11%
- -----------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 30, 1996 (date of initial
public investments) to 31, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, 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)
B. Please delete the first paragraph of the section entitled "Voting Rights"
on page 44 of the prospectus and replace it with the following:
"Each share of a Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shateholders for vote. All shares of each
Fund or class in the Trust have equal voting rights, except that only
shares of a particular Fund or class are entitiled to vote on matters
affecting only that Fund or class. As a Massachusetts business trust, the
Trust is not required to hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the operation of the
Trust or a Fund and for the election of Trustees under certain
circumstances. As of March 3, 1997, Firstcinco, acting in various
capacities for numerous accounts, was the owner of record of more than 25%
of the outstanding shares of the designated Fund: 8,815,822 shares
(60.52%) of U.S. Government Income Fund; 3,389,872 shares (28.46%) of
Strategic Income Fund; 2,667,461 shares (53.33%) of The Stellar
Fund--Trust Shares; 4,944,632 shares (35.76%) of Relative Value Fund;
4,546,782 shares (59.43%) of Growth Equity Fund; and 4,514,112 shares
(73.37%) of Capital Appreciation Fund, and therefore, may, for certain
purposes, be deemed to control these Funds and be able to affect the
outcome of certain matters presented for a vote of shareholders.
As of June 9, 1997, Firstcinco, acting in various capacities for numerous
accounts, was the owner of record of 10,532,238 shares (89.49%) of the The
Stellar Tax-Free Bond Fund, and therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain
matters presented for a vote of shareholders."
C. Please insert the following "Financial Statements" for The Stellar Insured
Tax-Free Bond Fund immediately following the section entitled "Performance
Information" which begins on page 45 of the prospectus. In addition,
please add the heading "Financial Statements--The Stellar Insured Tax-Free
Bond Fund" to the Table of Contents page after the heading "Performance
Information."
THE STELLAR INSURED TAX-FREE BOND FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--95.4%
- ----------------------------------------------------------------------------------
ALABAMA--7.3%
--------------------------------------------------------------------
$2,500,000 Alabama Water PCA, Revenue Bonds, 5.50% (AMBAC INS), 8/15/2012 AAA/Aaa $ 2,518,625
--------------------------------------------------------------------
1,750,000 Alabama Water PCA, Revenue Bonds, 6.70% (AMBAC INS)/(Original Issue
Yield: 6.75%), 8/15/2006 AAA/Aaa 1,882,423
--------------------------------------------------------------------
2,500,000 Bessemer, AL Water Revenue, Revenue Refunding Bonds, 5.75% (AMBAC
INS)/(Original Issue Yield: 5.922%), 7/1/2016 AAA/Aaa 2,541,875
--------------------------------------------------------------------
1,500,000 Jefferson County, AL, Sewer Refunding Revenue Bonds, 5.65% (MBIA
INS)/(Original Issue Yield: 5.80%),
9/1/2008 AAA/Aaa 1,599,135
-------------------------------------------------------------------- --------------
Total 8,542,058
-------------------------------------------------------------------- --------------
CALIFORNIA--0.9%
--------------------------------------------------------------------
1,000,000 Oakland, CA, Refunding Revenue Bonds, 7.35% (FGIC INS)/(Original
Issue Yield: 7.45%), 8/1/2003 AAA/Aaa 1,053,900
-------------------------------------------------------------------- --------------
COLORADO--1.1%
--------------------------------------------------------------------
1,250,000 Colorado Postsecondary Educational Facilities, Revenue Bonds, 5.75%
(Auraria Foundation Project)/(FSA INS)/ (Original Issue Yield:
5.85%), 9/1/2010 AAA/Aaa 1,286,675
-------------------------------------------------------------------- --------------
FLORIDA--1.7%
--------------------------------------------------------------------
845,000 Cape Coral, FL, Special Obligation Wastewater Revenue Bond, 6.25%
(FSA INS)/(Original Issue Yield: 6.359%),
6/1/2006 AAA/Aaa 912,051
--------------------------------------------------------------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
FLORIDA--CONTINUED
--------------------------------------------------------------------
$1,000,000 St. Petersburg, FL Public Utility, Revenue Refunding Bonds, 6.55%,
10/1/2002 AA-/Aa $ 1,067,770
-------------------------------------------------------------------- --------------
Total 1,979,821
-------------------------------------------------------------------- --------------
ILLINOIS--13.8%
--------------------------------------------------------------------
2,000,000 Chicago, IL Park District, GO UT, 5.60% (MBIA INS)/ (Original Issue
Yield: 5.75%), 1/1/2014 AAA/Aaa 2,000,900
--------------------------------------------------------------------
1,100,000 Chicago, IL, GO UT Refunding Bonds, 5.375% (MBIA INS)/(Original
Issue Yield: 5.60%), 1/1/2013 AAA/Aaa 1,095,347
--------------------------------------------------------------------
1,500,000 Cook County, IL, GO UT, 5.375% (MBIA INS)/(Original Issue Yield:
5.65%), 11/15/2012 AAA/Aaa 1,496,835
--------------------------------------------------------------------
2,500,000 Illinois Health Facilities Authority, Revenue Refunding Bonds, 5.80%
(Advocate Health Care Network)/(MBIA INS)/(Original Issue Yield:
5.90%), 8/15/2016 AAA/Aaa 2,509,525
--------------------------------------------------------------------
1,410,000 Illinois State, GO UT, 5.75% (MBIA INS)/(Original Issue Yield:
6.00%), 5/1/2021 AAA/Aaa 1,413,891
--------------------------------------------------------------------
2,400,000 McHenry County, IL Community Unit School District No. 200, Series A
GO UT, 5.85% (FSA INS)/(Original Issue Yield: 5.848%), 1/1/2016 AAA/Aaa 2,436,768
--------------------------------------------------------------------
2,500,000 Regional Transportation Authority, Series-A Revenue Bonds, 6.00%
(AMBAC INS)/(Original Issue Yield: 6.20%), 6/1/2009 AAA/Aaa 2,629,500
--------------------------------------------------------------------
2,500,000 Will County, IL Forest Preservation District, GO UT Refunding Bonds,
6.00% (AMBAC INS)/(Original Issue Yield: 6.30%), 12/1/2006 AAA/Aaa 2,635,550
-------------------------------------------------------------------- --------------
Total 16,218,316
-------------------------------------------------------------------- --------------
INDIANA--1.7%
--------------------------------------------------------------------
2,000,000 Indiana Transportation Finance Authority, Airport Lease Revenue
Refunding Bonds (Series A), 5.00% (AMBAC INS), 11/1/2007 AAA/Aaa 2,003,940
-------------------------------------------------------------------- --------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
KENTUCKY--0.5%
--------------------------------------------------------------------
$ 500,000 Kentucky Infrastructure Authority, Revenue Bonds, 7.50%, 6/1/2004 A/A $ 536,670
-------------------------------------------------------------------- --------------
MASSACHUSETTS--2.1%
--------------------------------------------------------------------
2,500,000 Massachusetts Water Resources Authority, Revenue Bonds, 5.40% (FGIC
INS)/(Original Issue Yield: 5.50%), 11/1/2011 AAA/Aaa 2,513,650
-------------------------------------------------------------------- --------------
MICHIGAN--7.3%
--------------------------------------------------------------------
1,200,000 Haslett, MI Public School District, GO UT, 5.70% (MBIA
INS)/(Original Issue Yield: 5.75%), 5/1/2016 AAA/Aaa 1,207,608
--------------------------------------------------------------------
1,500,000 Lansing, MI Sewer Disposal System, Revenue Bonds, 6.25% (MBIA
INS)/(Original Issue Yield: 6.795%),
5/1/2007 AAA/Aaa 1,604,220
--------------------------------------------------------------------
2,500,00 Michigan State Comprehensive Transportation Board, Refunding Revenue
Bonds, 5.75%, 5/15/2004 AA-/A1 2,639,775
--------------------------------------------------------------------
1,065,000 Richmond, MI Community School District, GO UT School Improvements,
5.60% (AMBAC INS)/(Original Issue Yield: 5.85%), 5/1/2018 AAA/Aaa 1,062,998
--------------------------------------------------------------------
2,000,000 Ypsilanti, MI School District, GO UT, 5.60% (FGIC INS)/ (Original
Issue Yield: 5.65%), 5/1/2012 AAA/Aaa 2,028,320
-------------------------------------------------------------------- --------------
Total 8,542,921
-------------------------------------------------------------------- --------------
NEBRASKA--0.9%
--------------------------------------------------------------------
1,000,000 Omaha, NE Public Power District, Series-B Electric Revenue Bonds,
6.00%, 2/1/2007 escrowed to maturity -/Aa2 1,081,830
-------------------------------------------------------------------- --------------
NEVADA--6.6%
--------------------------------------------------------------------
2,500,000 Clark County, NV School District, GO UT, 5.75% (FGIC INS), 6/15/2010 AAA/Aaa 2,575,875
--------------------------------------------------------------------
2,500,000 Clark County, NV School District, GO UT, 5.80% (MBIA INS)/(Original
Issue Yield: 5.85%), 6/15/2011 AAA/Aaa 2,569,100
--------------------------------------------------------------------
1,000,000 Clark County, NV, Refunding Revenue Bonds, 5.90% (MBIA
INS)/(Original Issue Yield: 5.95%), 6/1/2009 AAA/Aaa 1,047,150
--------------------------------------------------------------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
NEVADA--CONTINUED
--------------------------------------------------------------------
$1,500,000 Washoe County, NV School District, GO UT, 5.75% (MBIA INS)/(Original
Issue Yield: 5.85%), 6/1/2011 AAA/Aaa $ 1,535,430
-------------------------------------------------------------------- --------------
Total 7,727,555
-------------------------------------------------------------------- --------------
OHIO--21.1%
--------------------------------------------------------------------
2,555,000 Clermont County, OH , GO UT Refunding Bonds, 6.00% (AMBAC INS),
5/15/2007 AAA/Aaa 2,715,786
--------------------------------------------------------------------
2,500,000 Cleveland, OH Waterworks, Refunding & Improvement Revenue Bonds
(Series H), 5.75% (MBIA INS)/(Original Issue Yield: 5.84%), 1/1/2016 AAA/Aaa 2,528,500
--------------------------------------------------------------------
1,000,000 Columbus, OH Sewer System, Revenue Refunding Bonds, 6.25% (Original
Issue Yield: 6.60%), 6/1/2008 AA-/A1 1,073,800
--------------------------------------------------------------------
3,000,000 Columbus, OH Water System, Revenue Refunding Bonds, 6.375%,
11/1/2010 AA-/A1 3,184,650
--------------------------------------------------------------------
3,500,000 Greater Cleveland Regional Transportation Authority, OH, GO UT,
5.65% (FGIC INS)/(Original Issue Yield: 5.73%), 12/1/2016 AAA/Aaa 3,522,050
--------------------------------------------------------------------
1,000,000 Hamilton County, OH Hospital Facilities Authority, Refunding Revenue
Bonds, 5.20% (Children's Hospital Medical Center, Akron)/(FGIC
INS)/(Original Issue Yield: 5.35%), 5/15/2009 AAA/Aaa 1,007,510
--------------------------------------------------------------------
2,000,000 Montgomery County, OH, Water Revenue Bonds, 6.25% (Greater
Moraine-Beaver Creek)/(FGIC INS)/(Original Issue Yield: 6.45%),
11/15/2012 AAA/Aaa 2,127,760
--------------------------------------------------------------------
1,000,000 Ohio State Building Authority, Adult Correctional Facilities Revenue
Bonds, 5.70% (Adult Correctional Facilities)/(MBIA INS)/(Original
Issue Yield: 5.80%),
10/1/2006 AAA/Aaa 1,058,910
--------------------------------------------------------------------
1,000,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State
Facilities-Administration Building)/(MBIA INS)/ (Original Issue
Yield: 6.05%), 10/1/2008 AAA/Aaa 1,069,560
--------------------------------------------------------------------
1,225,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State
Facilities-Administration Building)/(MBIA INS)/ (Original Issue
Yield: 6.10%), 10/1/2009 AAA/Aaa 1,301,783
--------------------------------------------------------------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------------------
$1,000,000 Ohio State Turnpike Commission, Series A, 5.70% (MBIA INS)/(Original
Issue Yield: 5.75%), 2/15/2013 AAA/Aaa $ 1,020,390
--------------------------------------------------------------------
2,000,000 Ohio State Water Development Authority, Pollution Control Revenue
Bonds, 5.25% (MBIA INS)/(Original Issue Yield: 5.35%), 12/1/2009 AAA/Aaa 2,016,260
--------------------------------------------------------------------
1,000,000 Ohio State Water Development Authority, Revenue Bonds, 5.80% (AMBAC
INS)/(Original Issue Yield: 5.90%), 12/1/2011 AAA/Aaa 1,039,300
--------------------------------------------------------------------
1,000,000 Sylvania, OH City School District, GO UT, 5.80% (FGIC INS),
12/1/2015 AAA/Aaa 1,026,660
-------------------------------------------------------------------- --------------
Total 24,692,919
-------------------------------------------------------------------- --------------
PENNSYLVANIA--3.0%
--------------------------------------------------------------------
1,320,000 Pennsylvania Infrastructure Investment Authority, Subseries-A
Revenue Bonds, 6.90%, 9/1/2003 AA+/- 1,417,112
--------------------------------------------------------------------
2,000,000 Somerset County, PA General Authority, Commonwealth Lease Revenue
Bonds, 6.60% (FGIC INS)/(Original Issue Yield: 6.70%), 10/15/2001
(@100) AAA/Aaa 2,161,280
-------------------------------------------------------------------- --------------
Total 3,578,392
-------------------------------------------------------------------- --------------
TEXAS--8.7%
--------------------------------------------------------------------
2,500,000 Harris County, TX HFDC, Revenue Refunding Bonds, 5.75% (Memorial
Hospital System)/(MBIA INS)/(Original Issue Yield: 5.77%), 6/1/2019 AAA/Aaa 2,501,075
--------------------------------------------------------------------
2,500,000 Port Houston Authority, TX Harris County, Revenue Refunding Bonds,
6.50% (MBIA INS)/(Original Issue Yield: 6.59%), 5/1/2005 AAA/Aaa 2,665,000
--------------------------------------------------------------------
2,490,000 Texas State Public Finance Authority, Revenue Bonds, 5.10% (AMBAC
INS)/(Original Issue Yield: 5.15%),
8/1/2009 AAA/Aaa 2,475,334
--------------------------------------------------------------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
TEXAS--CONTINUED
--------------------------------------------------------------------
$2,500,000 Texas Water Development Board, Revenue Bonds, 5.50% (Original Issue
Yield: 5.55%), 7/15/2010 AAA/Aa1 $ 2,547,400
-------------------------------------------------------------------- --------------
Total 10,188,809
-------------------------------------------------------------------- --------------
UTAH--4.4%
--------------------------------------------------------------------
2,500,000 Davis County, UT School District, GO UT, 5.70% (MBIA INS)/(Original
Issue Yield: 5.75%), 6/1/2007 AAA/Aaa 2,612,350
--------------------------------------------------------------------
2,400,000 Jordan, UT School District, GO UT, 5.90%, 6/15/2004 -/Aa3 2,532,480
-------------------------------------------------------------------- --------------
Total 5,144,830
-------------------------------------------------------------------- --------------
VIRGINIA--3.3%
--------------------------------------------------------------------
1,000,000 Chesapeake Bay Bridge & Tunnel District, VA, Revenue Bonds, 5.60%
(FGIC INS)/(Original Issue Yield: 5.75%), 7/ 1/2007 AAA/Aaa 1,049,860
--------------------------------------------------------------------
1,600,000 Virginia State Public Building Authority, Revenue Refunding Bonds
(Series A), 6.00%, 8/1/2003 AA/Aa 1,700,976
--------------------------------------------------------------------
1,000,000 Virginia State Public School Authority, Revenue Refunding Bonds,
6.25% (Original Issue Yield: 6.30%),
1/1/2004 AA/Aa 1,076,170
-------------------------------------------------------------------- --------------
Total 3,827,006
-------------------------------------------------------------------- --------------
WASHINGTON--4.5%
--------------------------------------------------------------------
2,500,000 Seattle, WA Municipal Lighting & Power , Revenue Bonds, 6.10%,
7/1/2005 AA/Aa 2,693,875
--------------------------------------------------------------------
2,500,000 Tacoma, WA Electric System, Revenue Refunding Bonds, 6.15% (AMBAC
INS)/(Original Issue Yield: 6.25%), 1/1/ 2008 AAA/Aaa 2,638,000
-------------------------------------------------------------------- --------------
Total 5,331,875
-------------------------------------------------------------------- --------------
WISCONSIN--6.5%
--------------------------------------------------------------------
1,000,000 Beloit, WI School District, GO UT, 6.125% (MBIA INS)/ (Original
Issue Yield: 6.20%), 10/1/2007 AAA/Aaa 1,040,920
--------------------------------------------------------------------
</TABLE>
THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING* VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- ------------- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
WISCONSIN--CONTINUED
--------------------------------------------------------------------
$2,460,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, 5.60% (Aurora Medical Group)/(FSA INS), 11/15/2016 AAA/Aaa $ 2,398,795
--------------------------------------------------------------------
2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, 6.00% (Meriter Hospital, Inc.)/(MBIA INS)/(Original Issue
Yield: 6.125%), 12/1/2017 AAA/Aaa 2,050,960
--------------------------------------------------------------------
2,095,000 Wisconsin State, GO UT, 5.50% (FGIC INS)/(Original Issue Yield:
5.60%), 5/1/2010 AAA/Aaa 2,137,424
-------------------------------------------------------------------- --------------
Total 7,628,099
-------------------------------------------------------------------- --------------
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $108,971,911) 111,879,266
-------------------------------------------------------------------- --------------
MUTUAL FUND SHARES--3.0%
- ----------------------------------------------------------------------------------
3,561,388 SEI Tax Exempt Trust (AT NET ASSET VALUE) -- 3,561,388
-------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $112,533,299) (A) $ 115,440,654
-------------------------------------------------------------------- --------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $112,533,299.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,907,355 which is comprised of $2,939,691 appreciation and
$32,336 depreciation at May 31, 1997.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($117,332,711) at May 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
GO--General Obligation
HFDC--Health Facility Development Corporation
INS--Insured
MBIA--Municipal Bond Investors Assurance
PCA--Pollution Control Authority
UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $112,533,299) $ 115,440,654
- --------------------------------------------------------------------------------------------------
Income receivable 1,935,930
- -------------------------------------------------------------------------------------------------- --------------
Total assets 117,376,584
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------
Accrued expenses $ 43,873
- --------------------------------------------------------------------------------------- ---------
Total liabilities 43,873
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 11,717,533 shares outstanding $ 117,332,711
- -------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 114,168,693
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,907,355
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 254,176
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 2,487
- -------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 117,332,711
- -------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($117,332,711 / 11,717,533 shares outstanding) $10.01
- -------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/99.55 of $10.01)* $10.06
- -------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds Per Share $10.01
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF OPERATIONS
PERIOD ENDED MAY 31, 1997 (UNAUDITED)*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 2,661,522
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 358,736
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 44,444
- ---------------------------------------------------------------------------------------
Custodian fees 11,958
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,048
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,672
- ---------------------------------------------------------------------------------------
Legal fees 2,128
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 22,554
- ---------------------------------------------------------------------------------------
Shareholder services fee 23,916
- ---------------------------------------------------------------------------------------
Share registration costs 23,266
- ---------------------------------------------------------------------------------------
Printing and postage 2,736
- ---------------------------------------------------------------------------------------
Insurance premiums 1,672
- ---------------------------------------------------------------------------------------
Miscellaneous 1,824
- --------------------------------------------------------------------------------------- -----------
Total expenses 501,954
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (119,579)
- -------------------------------------------------------------------------- -----------
Total waivers (119,579)
- --------------------------------------------------------------------------------------- -----------
Net expenses 382,375
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 2,279,147
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 254,176
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,907,355
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 3,161,531
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 5,440,678
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.
(See Notes which are an integral part of the Financial Statements)
THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
(UNAUDITED)
MAY 31, 1997*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 2,279,147
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($254,176 as computed
for federal tax purposes) 254,176
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation 2,907,355
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations 5,440,678
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------------
Distributions from net investment income (2,276,660)
- ----------------------------------------------------------------------------------------------- -----------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------------------
Proceeds from sale of shares 121,725,282
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 1,858
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (7,558,447)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from share transactions 114,168,693
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 117,332,711
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period 0
- ----------------------------------------------------------------------------------------------- -----------------
End of period (including undistributed net investment income of $2,487) $ 117,332,711
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.
(See Notes which are an integral part of the Financial Statements)
THE STELLAR INSURED TAX-FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Star Funds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act") as an open-end, management investment company. The Trust
consists of nine portfolios. The financial statements included herein are only
those of The Stellar Insured Tax-Free Bond Fund (the "Fund"), a diversified
portfolio. 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
objective of The Stellar Insured Tax-Free Bond Fund is to provide current income
which is exempt from federal income tax.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed
corporate bonds, and unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are
valued at the prices provided by an independent pricing service. However,
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. Investments in other open-end regulated investment
companies are valued at net asset value.
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 the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1997*
<S> <C>
Shares sold 12,475,158
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 187
- -----------------------------------------------------------------------------------------------
Shares redeemed (757,812)
- ----------------------------------------------------------------------------------------------- -----------------
Net change resulting from Share transactions 11,717,533
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.
(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 equal to
0.75% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this waiver
at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
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.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to 0.25% of the average daily net assets of the Fund shares,
annually, to compensate FSC. Currently, the Fund will not accrue or pay any
distribution expenses pursuant to the plan.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to 0.25% of average
daily net assets of the Fund for the period. For the foreseeable future, Star
Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average net
assets of the Fund. The fee is to obtain 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 AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund
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 Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Star Bank N.A. is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average daily net assets for
the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $2,398 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following effective date. For the period ended May
31, 1997, no payments were made pursuant to this agreement.
GENERAL--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
period ended May 31, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES $ 120,391,353
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 11,663,324
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
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
Dawn M. Hornback C. Grant Anderson
Lawrence M. Turner Secretary
William H. Zimmer III
</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
or the the Federal Deposit Insurance Corporation. Investment in mutual funds
involves investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
STAR BANK, N.A.
Investment Adviser
FEDERATED SECURITIES CORP.
Distributor
G00446-03 (7/96)
THE STELLAR INSURED TAX-FREE BOND FUND
(A PORTFOLIO OF THE STAR FUNDS)
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 31, 1997
A. Please add the following section entitled `Portfolio Turnover''
immediately following the section entitled `Municipal Bond Insurers-
Financial Security Assurance Holdings''on page 8 of the Statement of
Additional Information:
`PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the adviser
believes it is appropriate to so do in light of the Fund's investment
objective, without regard to the length of time a particular security
may have been held. For the period from December 24, 1996 (start of
business) to May 31, 1997, the Fund's portfolio turnover rate was 11%.''
B. Please delete the section entitled `Fund Ownership'' on page 14 of the
Statement of Additional Information and replace it with the following:
`FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding
shares.
As of June 9, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Firstcinco, acting in
various capacities for numerous accounts, was the owner of record of
approximately 10,532,238 shares (89.49%).''
C. Please add the following as the second paragraph of the section
entitled `Advisory Fees'' on page 15 of the Statement of Additional
Information:
`For the period from December 24, 1996 (start of business) to May 31,
1997, Star Bank earned advisory fees of $358,736, of which $119,579
were waived.''
D. Please add the following as the last sentence of the second paragraph
of the section entitled `Brokerage Transactions'' on page 15 of the
Statement of Additional Information:
`During the period from December 24, 1996 (start of business) to May
31, 1997, the Fund paid no brokerage commissions on brokerage
transactions.''
E. Please add the following as the last sentence of the paragraph of the
section entitled `Other Services-Fund Administration'' on page 16 of
the Statement of Additional Information:
`For the period from December 24, 1996 (start of business) to May 31,
1997, the Fund incurred costs for administrative services of $44,444.''
F. Please delete the section entitled `Total Return'' on page 20 of the
Statement of Additional Information and replace it with the following:
`TOTAL RETURN
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the net asset value per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales charge, adjusted over the
period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
The Fund's cumulative total return for the period from December 30,
1996 (date of initial public investment) to May 31, 1997 was (2.49%).
Cumulative total return reflects the Fund's total performance over a
specific period of time. The Fund's total return assumes and is reduced
by the payment of the maximum sales charge. The Fund's total return is
representative of approximately 5 months of investment activity since
the Fund's effective date.''
G. Please add the following as the third paragraph of the section entitled
`Yield'' on page 20 of the Statement of Additional Information:
`The Fund's yield for the thirty-day period ended May 31, 1997 was
4.38%.''
H. Please add the following as the second paragraph of the section
entitled `Tax-Equivalent Yield'' on page 20 of the Statement of
Additional Information:
`The Fund's Tax-Equivalent yield for the thirty-day period ended May
31, 1997 was 7.25%.''
July 11, 1997
STAR BANK, N.A.
INVESTMENT ADVISER
FEDERATED SECURITIES CORP.
Distributor
Cusip 854911 85 6
G00446-06 (7/97)
