[LOGO] STARFUNDS BOND FUNDS
COMBINED
ANNUAL
REPORT
Dated November 30, 1997
Portfolios of Star Funds
The Stellar Insured Tax-Free Bond Fund
Star U.S. Government Income Fund
Star Strategic Income Fund
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PRESIDENT'S MESSAGE
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Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the Star Bond
Funds. The Report covers the 12-month fiscal year period from December 1, 1996
through November 30, 1997. It includes a discussion with each fund's portfolio
manager, which covers economic and market conditions and their impact on fund
performance and strategy. Next are graphs showing each fund's long-term
performance, followed by a complete list of each fund's holdings and the
financial statements.
Fund-by fund highlights for the 12-month reporting period, which saw an improved
environment for bonds, are as follows:
STELLAR INSURED TAX-FREE BOND FUND
The newest bond fund to be added to the Star Funds, this fund began operation on
December 30, 1996. It is managed to provide income free of federal income tax
through a portfolio of municipal bonds.* The fund paid tax-free dividends
totaling $0.43 per share. The fund's net asset value rose from $10.00 to $10.25.
Through dividends and the rise in net asset value, the fund's total return on
November 30, 1997 was 6.91%, or 2.11% adjusted for the sales charge.** By the
end of the reporting period, the fund's net assets totaled $128.5 million.
STAR U.S. GOVERNMENT INCOME FUND
The fund provided shareholders with dividends totaling $0.57 per share through a
portfolio that consisted of U.S. Treasury securities (36% of net assets),
government agency securities (30.4% of net assets) and corporate bonds (31.8% of
net assets) at the end of the reporting period. During the reporting period, the
fund's net asset value rose slightly from $9.83 to $9.87. Through income and the
rise in net asset value, the fund achieved a total return on November 30, 1997
of 6.46%, or 2.70% adjusted for the sales charge.** The fund's net assets
totaled $137.4 million at the end of the reporting period.
STAR STRATEGIC INCOME FUND
The fund is managed to provide income through a diversified portfolio of
investments that, at the end of the reporting period, included corporate bonds
(41.6%), U.S. government and agency bonds (21.0%), real estate investment trusts
(18.5%) common and preferred stocks (7.8%), and international securities (8.8%),
as a percentage of net assets. The fund paid dividends totaling $0.74 per share.
During the reporting period, the fund's net asset value rose from $10.50 to
$10.67. Through income and the rise in net asset value, the fund's total return
on November 30, 1997 was 9.02%, or 3.60% adjusted for the sales charge.** At the
end of the reporting period, fund assets totaled $179.4 million.
Thank you for pursuing your income-oriented goals through the Star Bond Funds.
We will continue to keep you up-to-date on the details of your investment on a
regular basis, through the highest level of service possible.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
January 15, 1998
* Income may be subject to federal alternative minimum tax and state and local
taxes.
** Performance quoted represents 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.
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INVESTMENT REVIEWS
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Stellar Insured Tax-Free Bond Fund
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Q The newest bond fund to be added to the Star Funds, the Stellar Insured
Tax-Free Bond Fund is managed to provide income free of federal taxes.* What
is the typical percentage of insured bonds in the portfolio, and what
is their advantage to investors?
A The Stellar Insured Tax-Free Bond Fund is required to invest at least 65% of
total assets in insured bonds which are guaranteed as to timely payment of
interest and principal at maturity by insurance companies. This feature
is intended to reduce financial risk due to downgrade or default in exchange for
a slightly lower yield. It is important to note that insurance does not protect
the fund or its shareholders from changes in market valuation caused by
variations in general interest rate levels. As the insurance companies have
become more competitive over the past few years, the insurance costs have
declined substantially. Because the cost of insurance can be as low as 5 basis
points, we increased the holdings of insured bonds in the portfolio. As of
November 30, 1997, insured securities represented 82% of the portfolio.
Q What are the quality perimeters of the fund?
A The municipal securities in which the fund invests must be rated investment
grade (AAA to BBB) as an absolute minimum. Our policy has been to avoid any
credits rated below A. If a security is unrated, the issuers financial
situation must be of comparable quality as illustrated above. We can also
purchase securities guaranteed at the time of purchase by the U.S. government or
fully collateralized by an escrow of these securities. Since at least 65% of the
fund must be insured, we focus only on insurance companies which are rated in
the top rating category (AAA).
Q Low inflation, stable demand and a constrained supply have helped create a
favorable environment for municipal bonds. How did the fund perform in terms
of dividends, net asset value increase and total return?
A Dividends remained fairly steady throughout the period and totaled $0.43 per
share at period end. Thanks to favorable bond market conditions, returns were
excellent last year. The tax-equivalent yield for the 30-day
period ended November 30, 1997 was 6.47% and the fund's total return for the
fiscal year ended November 30, 1997 based on net asset value was 6.91%.**
Q As we begin a new year, what type of environment do you see ahead for the
municipal bond market?
A Our 1998 economic outlook calls for slower growth and contained inflationary
pressures. As a result of the Asia crisis, we expect U.S. Gross Domestic
Product growth to slow slightly towards a 2% to 2.5% rate.
The best news for next year will likely be the lack of inflation. Imported goods
from Asia are expected to show noticeable price declines. In 1997 alone, Asian
imported goods prices were down 4%. With growth slowing, inflation remaining
well behaved, and the potential for further international crisis, we believe the
Federal Reserve Board will leave the Federal funds rate unchanged for the
foreseeable future at 5.50%.
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 +3 (-13 signals higher yield 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 2%, real bond yields of 4.0% 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.
* Income may be subject to federal alternative minimum tax and state and local
taxes.
** Performance quoted represents 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. The fund's total return based on offering price for the period
was 2.11%. Yield will vary.
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Star U.S. Government Income Fund
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Q The U.S. bond market turned positive in the second half of the fund's fiscal
year as interest rates fell and the foreign currency and stock market crisis
created a "flight to quality." What is your overview of the
reporting period?
A Bond yields peaked in mid-April 1997 on fears of a strong U.S. economy and a
more vigilant Federal Reserve Board (the "Fed") following the March interest
rate increase. However, that all changed by late summer when
problems in Asia began to surface. International stock markets saw heavy
declines in share prices along with increased volatility as their economic
outlooks became more uncertain. For instance, Japan's major stock index, the
Nikkei, fell nearly 20% from its June 16, 1997 peak. The "flight to quality" is
simply international and domestic investors seeking a lower-risk investment
until these situations become more certain.
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 remained fairly steady through 1997. As yields peaked, we made
adjustments to the portfolio to "lock-in" higher yields. Thus, income levels
and performance improved somewhat. Total return based on net asset
value for the year ended November 30, 1997 was 6.46%, compared to 6.57% for the
Lipper U.S. Government bond fund average.*
Q How did the specific mix of U.S. Treasury, mortgage-backed, agency, and
corporate bonds contribute to the fund's performance?
A At the beginning of 1997, our sector allocation was 50% Treasury, 15%
mortgage-backed, 10% agency, and 25% corporate bonds. The strongest
performance over the fiscal year came from mortgage-backed securities.
Agency bonds performed in-line with the benchmark Treasury group. Lastly,
Corporate bond returns suffered during the recent market turbulence and trailed
Treasury securities for the year by about 25 basis points. As the Asian crisis
became more acute, we were able to increase our allocation towards agency and
corporate bond sectors at attractive levels. Outside of a few lagging corporate
bonds, the portfolio mix helped to lower portfolio volatility and improve
investment performance.
Q As we leave what has been a relatively good year for bonds, what is your
outlook for 1998?
A Our 1998 economic outlook calls for slower growth and contained inflationary
pressures. As a result of the Asia crisis, we expect U.S. Gross Domestic
Product growth to slow slightly towards a 2% to 2.5% rate.
The best news for next year will likely be the lack of inflation. Imported goods
from Asia are expected to show noticeable price declines. In 1997 alone, Asian
imported goods prices were down 4%. With growth slowing, inflation remaining
well behaved, and the potential for further international crisis, we believe the
Fed will leave the Federal funds rate unchanged for the foreseeable future at
5.50%.
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 +3 (-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 2%, real bond yields of
4.0% 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 will lower the
yield range to 5.5% to 6.5% over the next year.
* Performance quoted represents 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. The fund's total return based on offering price for the period
was 2.70%. 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. Lipper figures do not
reflect sales charges.
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Star Strategic Income Fund
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Q The bond market improved considerably as the fund's fiscal year progressed,
particularly late in the reporting period. What is your analysis?
A Bond yields peaked in mid-April, 1997 on fears of a strong U.S. economy and a
more vigilant Fed following the March interest rate increase. However, that
all changed by late summer when problems in Asia began to surface.
International stock markets saw heavy declines in share prices along with
increased volatility as their economic outlooks became uncertain. For instance,
Japan's major stock index, the Nikkei, fell nearly 20% from its June 16, 1997
peak. The foreign currency and stock market crisis created a "flight to quality"
which is simply international and domestic investors seeking a lower-risk
investment until the investment environment becomes more certain. During the
reporting period, fund managers that followed a disciplined approach towards the
market were rewarded for not stretching for yield in the non-investment grade or
emerging market fixed income segments. The fund invests only in established
markets and investment grade bonds.
Q In this environment, how did the Star Strategic Income Fund perform for
shareholders on an income and total return basis?
A Income levels remained fairly steady throughout the 1997 fiscal year. Due
to lower yields in the marketplace and strong fund sales growth, we had to
temporarily reduce the dividend in October and November. Hopefully,
December's healthy dividend payment of $0.10 helped compensate for the earlier
reduction. For 1998, we anticipate a slightly lower monthly dividend of $0.058
per share compared to the $0.06 level that presided during most of 1997. This
yield is consistent with current market income levels and should result in a
more steady payout next year. Depending on market conditions, however, next
December's dividend could include another "special" increase.
In terms of total return, we are very pleased with the fund's returns in view of
market turbulence and dislocations in the emerging markets. The Star Strategic
Income Fund posted a one-year total return based on net asset value of 9.03% as
of November 30, 1997. This compared well to the Lipper "A" rated Corporate Bond
Average which returned 7.07% during the period.*
Q Did you make any adjustments to the fund's allocation among the fixed income
sectors?
A Yes, two relatively minor changes were made to the allocation of the fund's
fixed income sectors. First, was moving away from cyclical industries into
more finance related bonds. Our view has been that economic growth would
moderate later this year and next. Therefore, reducing our exposure to the
business cycle was consistent with the overall view. Second, was to focus on
better structured bonds from a call-risk perspective. We had long thought that
interest rates would head lower and wanted to protect income levels from early
redemption.
Q Against the current economic backdrop of low inflation and moderate growth,
what do you see ahead for fixed income securities as we enter 1998?
A Our 1998 economic outlook calls for slower growth and contained inflationary
pressures. As a result of the Asia crisis, we expect U.S. Gross Domestic
Product growth to slow slightly towards a 2% to 2.5% rate.
The best news for the next year will likely be the lack of inflation. Imported
goods from Asia are expected to show noticeable price declines. In 1997 alone,
Asian imported goods prices were down 4%. With growth slowing, inflation
remaining well behaved, and the potential for further international crisis, we
believe the Fed will leave the Federal funds rate unchanged for the foreseeable
future at 5.50%.
* Performance quoted represents 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. The fund's total return based on offering price for the period
was 3.60%. 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. Lipper figures do not
reflect sales charges.
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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 +3 (-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 2%, real bond yields of
4.0% 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. As the market
vacillates between these positive and negative forces, bond yields should remain
within a lower range. We think the positive fundamentals should lower the yield
range to 5.5% to 6.5% over the next year.
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STELLAR INSURED TAX-FREE BOND FUND
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GROWTH OF $10,000 INVESTED IN STELLAR INSURED TAX-FREE BOND FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STELLAR INSURED TAX-FREE BOND FUND (THE "FUND") FROM DECEMBER 30, 1996 (START OF
PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE LEHMAN BROTHERS TEN YEAR
INSURED BOND INDEX+ AND THE LIPPER MUNICIPAL BOND FUND AVERAGE.
[GRAPH APPEARS HERE-SEE APPENDIX]
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 Lehman Brothers Ten Year Insured Bond Index and the
Lipper Municipal Bond Fund Average have been adjusted to reflect reinvestment
of dividends on securities in the index and average. The index is unmanaged.
** Total return quoted reflects all applicable sales charges.
+ The Lehman Brothers Ten Year Insured Bond 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 Lipper Municipal Bond Fund Average represents the average of all the
total returns reported by all of the mutual funds designated by Lipper
Analytical Services, Inc. as falling into the respective category and is not
adjusted to reflect any sales charges. However, these total returns are
reported net of expenses or other fees that the SEC requires to be reflected
in the Fund's performance.
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STAR U.S. GOVERNMENT INCOME FUND
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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 INCOME FUND (THE "FUND") FROM JANUARY 5, 1993 (START OF
PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE TOTAL INDEX+ AND THE LIPPER U.S. GOVERNMENT FUND AVERAGE.
[GRAPH APPEARS HERE-SEE APPENDIX]
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 Brothers Government/Corporate Total Index and
Lipper U.S. Government Fund Average have been adjusted to reflect
reinvestment of dividends on securities in the index and average. The index
is unmanaged.
** Total return quoted reflects all applicable sales charges.
+ The Lehman Brothers 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 Lipper U.S. Government Fund Average represents the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective category and is not adjusted to
reflect any sales charges. However, these total returns are reported net of
expenses or other fees that the SEC requires to be reflected in the Fund's
performance.
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Star Strategic Income Fund
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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, 1997 COMPARED TO THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE TOTAL INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 2.00% contingent deferred sales charge on any
redemption less than four years from the purchase date. The maximum
contingent deferred sales charge is 5.00% 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 Brothers 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 contingent deferred sales
charges.
+ The Lehman Brothers 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.
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PORTFOLIOS OF INVESTMENTS
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---------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND November 30, 1997
<TABLE>
<CAPTION>
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CREDIT
PRINCIPAL AMOUNT RATING* VALUE
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<C> <S> <C> <C>
LONG-TERM MUNICIPALS - 99.4%
- ------------------------------------------------------------
ALABAMA - 6.8%
$2,500,000 Alabama Water PCA,
Revenue Bonds,
5.50% (AMBAC
INS), 8/15/2012 AAA / Aaa $2,581,875
1,750,000 Alabama Water PCA,
Revenue Bonds,
6.70% (AMBAC INS)/ (Original Issue Yield:
6.75%), 8/15/2006 AAA / Aaa 1,892,607
2,500,000 Bessemer, AL Water
Revenue, Revenue
Refunding Bonds,
5.75% (AMBAC
INS)/ (Original
Issue Yield:
5.922%), 7/1/2016 AAA / Aaa 2,619,075
1,500,000 Jefferson County,
AL, Sewer
Refunding Revenue
Bonds, 5.65%
(MBIA INS)/
(Original Issue
Yield: 5.80%),
9/1/2008 AAA / Aaa 1,618,575
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Total 8,712,132
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ARIZONA - 1.6%
2,000,000 Mesa, AZ, Revenue
Bonds, 5.375%
(FGIC
INS)/(Original
Issue Yield:
5.55%),
7/1/2015 AAA / Aaa 2,044,080
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CALIFORNIA - 0.8%
1,000,000 Oakland, CA,
Refunding Revenue
Bonds, 7.35%
(FGIC INS)/
(Original Issue
Yield: 7.45%),
8/1/2003 AAA / Aaa 1,041,930
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COLORADO - 1.0%
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 1,316,963
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FLORIDA - 3.8%
845,000 Cape Coral, FL,
Special
Obligation
Wastewater
Revenue Bond,
6.25% (FSA
INS)/(Original
Issue Yield:
6.359%),
6/1/2006 AAA / Aaa 921,819
1,280,000 Florida State
Department of
Transportation,
Revenue Bonds,
5.125% (FGIC
INS)/ (Original
Issue Yield:
5.15%), 7/1/2013 AAA / Aaa 1,287,744
$1,500,000 Orlando & Orange
County Expressway
Authority, FL,
Revenue Refunding
Bonds, 5.375%
(AMBAC INS)/
(Original Issue
Yield: 5.53%),
7/1/2008 AAA / Aaa $1,563,960
1,000,000 St. Petersburg, FL
Public Utility,
Revenue Refunding
Bonds, 6.55%,
10/1/2002 AA- / Aa 1,063,090
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Total 4,836,613
- ------------------------------------------------------------
ILLINOIS - 15.6%
2,000,000 Chicago, IL Park District, GO UT, 5.60% (MBIA INS)/ (Original
Issue Yield: 5.75%),
1/1/2014 AAA / Aaa 2,066,680
1,100,000 Chicago, IL, GO UT
Refunding Bonds,
5.375% (MBIA
INS)/ (Original
Issue Yield:
5.60%), 1/1/2013 AAA / Aaa 1,136,795
1,500,000 Cook County, IL, GO
UT, 5.375% (MBIA
INS)/ (Original
Issue Yield:
5.65%),
11/15/2012 AAA / Aaa 1,532,595
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 2,615,825
1,410,000 Illinois State, GO UT, 5.75% (MBIA INS)/ (Original Issue
Yield:
6.00%), 5/1/2021 AAA / Aaa 1,468,289
2,225,000 Illinois State, GO
UT, 6.10% (MBIA INS)/ (Original Issue Yield:
6.15%), 2/1/2017 AAA / Aaa 2,375,811
2,400,000 Mc Henry 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 2,523,480
1,000,000 Northern Illinois
University,
Revenue Bonds,
5.70% (FGIC
LOC)/(Original
Issue Yield:
5.85%),
4/1/2016 NR / Aaa 1,034,460
2,500,000 Regional
Transportation
Authority,
Series-A Revenue
Bonds, 6.00%
(AMBAC INS)/
(Original Issue
Yield: 6.20%),
6/1/2009 AAA / Aaa 2,696,875
$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 $2,669,950
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Total 20,120,760
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INDIANA - 1.6%
2,000,000 Indiana
Transportation
Finance
Authority,
Airport Lease
Revenue Refunding
Bonds (Series A),
5.00% (AMBAC
INS), 11/1/2007 AAA / Aaa 2,053,480
- ------------------------------------------------------------
KENTUCKY - 2.4%
2,500,000 Jefferson County,
KY HFDA, Revenue
Bonds, 5.50%
(University
Medical Center,
Inc.)/(MBIA
INS)/(Original
Issue Yield:
5.65%),
7/1/2017 AAA / Aaa 2,558,000
500,000 Kentucky
Infrastructure
Authority,
Revenue Bonds,
7.50%,
6/1/2004 A / A 534,520
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Total 3,092,520
- ------------------------------------------------------------
MASSACHUSETTS - 2.0%
2,500,000 Massachusetts Water
Resources
Authority,
Revenue Bonds,
5.40% (FGIC INS)/
(Original Issue
Yield: 5.50%),
11/1/2011 AAA / Aaa 2,598,225
- ------------------------------------------------------------
MICHIGAN - 8.8%
2,450,000 Dearborn, MI
Economic
Development
Corp., Revenue
Bonds, 5.75%
(Oakwood
Obligated Group)/
(FGIC
INS)/(Original
Issue Yield:
5.90%),
11/15/2015 AAA / Aaa 2,563,386
1,200,000 Haslett, MI Public
School District,
GO UT, 5.70%
(MBIA
INS)/(Original
Issue Yield:
5.75%),
5/1/2016 AAA / Aaa 1,246,200
1,500,000 Lansing, MI Sewer
Disposal System,
Revenue Bonds,
6.25% (MBIA INS)/
(Original Issue
Yield: 6.795%),
5/1/2007 AAA / Aaa 1,613,115
$2,500,000 Michigan State
Comprehensive
Transportation
Board, Refunding
Revenue Bonds,
5.75%,
5/15/2004 AA- / A1 $2,677,625
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 1,089,346
2,000,000 Ypsilanti, MI
School District,
GO UT, 5.60%
(FGIC INS)/
(Original Issue
Yield: 5.65%),
5/1/2012 AAA / Aaa 2,083,120
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Total 11,272,792
- ------------------------------------------------------------
NEBRASKA - 0.9%
1,000,000 Omaha, NE Public
Power District,
Series-B Electric
Revenue Bonds,
6.00%, 2/1/2007 NR / Aa2 1,104,930
- ------------------------------------------------------------
NEVADA - 6.2%
2,500,000 Clark County, NV School District, GO UT, 5.75% (FGIC INS),
6/15/2010 AAA / Aaa 2,646,725
2,500,000 Clark County, NV
School District,
GO UT, 5.80%
(MBIA INS)/
(Original Issue
Yield: 5.85%),
6/15/2011 AAA / Aaa 2,635,525
1,000,000 Clark County, NV,
Refunding Revenue
Bonds, 5.90%
(MBIA
INS)/(Original
Issue Yield:
5.95%),
6/1/2009 AAA / Aaa 1,068,780
1,500,000 Washoe County, NV
School District,
GO UT, 5.75%
(MBIA
INS)/(Original
Issue Yield:
5.85%),
6/1/2011 AAA / Aaa 1,571,010
- ------------------------------------------------------------
Total 7,922,040
- ------------------------------------------------------------
OHIO - 21.6%
2,555,000 Clermont County,
OH,
GO UT Refunding
Bonds, 6.00%
(AMBAC INS),
5/15/2007 AAA / Aaa 2,756,973
$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 $2,618,775
1,000,000 Columbus, OH Sewer
System, Refunding
Revenue Bonds,
6.25% (Original
Issue Yield:
6.60%),
6/1/2008 AA- / Aa3 1,087,910
3,000,000 Columbus, OH Water
System, Revenue
Refunding Bonds,
6.375%, 11/1/2010 AA- / Aa3 3,221,340
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 3,634,295
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 1,041,200
2,500,000 Hamilton County, OH
Hospital
Facilities
Authority, Series
B Revenue Bonds
Weekly VRDNs
(Health Alliance
of Greater
Cincinnati)/
(MBIA INS) AAA / Aaa 2,500,000
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 2,183,380
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 1,083,440
$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 $1,091,020 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 1,331,232
1,000,000 Ohio State Turnpike
Commission,
Series A, 5.70%
(MBIA
INS)/(Original
Issue Yield:
5.75%),
2/15/2013 AAA / Aaa 1,049,660
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 2,066,520
1,000,000 Ohio State Water
Development
Authority,
Revenue Bonds,
5.80% (AMBAC
INS)/ (Original
Issue Yield:
5.90%), 12/1/2011 AAA / Aaa 1,064,620
1,000,000 Sylvania, OH City
School District,
GO UT, 5.80%
(FGIC INS),
12/1/2015 AAA / Aaa 1,050,640
- ------------------------------------------------------------
Total 27,781,005
- ------------------------------------------------------------
PENNSYLVANIA - 2.8%
1,320,000 Pennsylvania
Infrastructure
Investment
Authority,
Subseries-A
Revenue Bonds,
6.90%,
9/1/2003 AA+ / NR 1,408,770
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 2,169,000
- ------------------------------------------------------------
Total 3,577,770
- ------------------------------------------------------------
TEXAS - 6.1%
$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 $2,611,325
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 2,696,400
2,500,000 Texas Water
Development
Board, Revenue
Bonds, 5.50%
(Original Issue
Yield: 5.55%),
7/15/2010 AAA / Aa1 2,609,750
- ------------------------------------------------------------
Total 7,917,475
- ------------------------------------------------------------
UTAH - 4.1%
2,500,000 Davis County, UT
School District,
GO UT, 5.70%
(MBIA
INS)/(Original
Issue Yield:
5.75%),
6/1/2007 AAA / Aaa 2,657,000
2,400,000 Jordan, UT School
District, GO UT,
5.90%, 6/15/2004 NR / Aa3 2,573,736
- ------------------------------------------------------------
Total 5,230,736
- ------------------------------------------------------------
VIRGINIA - 3.0%
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 1,074,400
1,600,000 Virginia State
Public Building
Authority,
Revenue Refunding
Bonds (Series A),
6.00%, 8/1/2003 AA / Aa 1,705,968
1,000,000 Virginia State
Public School
Authority,
Revenue Refunding
Bonds, 6.25%
(Original Issue
Yield: 6.30%),
1/1/2004 AA / Aa 1,082,530
- ------------------------------------------------------------
Total 3,862,898
- ------------------------------------------------------------
WASHINGTON - 4.2%
$2,500,000 Seattle, WA
Municipal
Lighting & Power,
Revenue Bonds,
6.10%, 7/1/2005 AA / Aa $2,750,650
2,500,000 Tacoma, WA Electric
System, Revenue
Refunding Bonds,
6.15% (AMBAC
INS)/ (Original
Issue Yield:
6.25%), 1/1/2008 AAA / Aaa 2,692,200
- ------------------------------------------------------------
Total 5,442,850
- ------------------------------------------------------------
WISCONSIN - 6.1%
1,000,000 Beloit, WI School District, GO UT, 6.125% (MBIA INS)/
(Original Issue Yield:
6.20%), 10/1/2007 AAA / Aaa 1,067,030
2,460,000 Wisconsin Health
and Educational
Facilities
Authority,
Revenue Bonds,
5.60% (Aurora
Medical
Group)/(FSA INS),
11/15/2016 AAA / Aaa 2,518,228
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 2,131,100
2,095,000 Wisconsin State, GO
UT, 5.50% (FGIC INS)/ (Original Issue Yield:
5.60%), 5/1/2010 AAA / Aaa 2,190,511
- ------------------------------------------------------------
Total 7,906,869
- ------------------------------------------------------------
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $122,270,743) 127,836,068
- ------------------------------------------------------------
MUTUAL FUND SHARES - 1.0%
- ------------------------------------------------------------
1,339,610 SEI Tax Exempt
Trust (AT NET
ASSET VALUE) 1,339,610
- ------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$123,610,353) $129,175,678
- ------------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
------------------------------------------------
STAR U.S. GOVERNMENT INCOME FUND November 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 31.8%
- -----------------------------------------------------------
BANKING - 1.2%
$1,500,000 Citicorp, 8.625%, 12/1/2002 $1,643,505
- -----------------------------------------------------------
CHEMICALS - 1.0%
1,387,136 Dow Chemical Co., 7.60%,
1/2/2002 1,429,853
- -----------------------------------------------------------
CONSUMER NON-DURABLES - 3.8%
5,000,000 Campbell Soup Co., 6.90%,
10/15/2006 5,183,650
- -----------------------------------------------------------
FINANCE - 6.6%
3,000,000 Associates Corp. of North
America, 6.68%, 9/17/1999 3,030,420
2,000,000 Associates Corp. of North
America, 7.25%, 5/22/2006 2,085,180
3,750,000 International Lease Finance
Corp., 6.25%, 10/15/2000 3,758,700
250,000 International Lease Finance
Corp., 8.375%, 12/15/2004 277,857
- -----------------------------------------------------------
Total 9,152,157
- -----------------------------------------------------------
FOOD & BEVERAGE - 0.6%
750,000 McDonald's Corp., 8.375%,
10/29/1999 781,567
- -----------------------------------------------------------
HEALTHCARE - 1.6%
765,000 Columbia HCA Healthcare
Corp., 6.125%, 12/15/2000 743,358
1,500,000 Columbia HCA Healthcare
Corp., 6.91%, 6/15/2005 1,442,085
- -----------------------------------------------------------
Total 2,185,443
- -----------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.8%
1,000,000 Procter & Gamble Co.,
7.375%,
3/1/2023 1,046,650
- -----------------------------------------------------------
INTERNATIONAL - 4.2%
1,000,000 Alcan Aluminum Corp., 7.25%,
12/15/1999 1,021,270
400,000 Alcan Aluminum, Ltd., 9.20%,
3/15/2001 403,964
1,500,000 Philips Electronics N.V.,
6.75%,
8/15/2003 1,518,450
430,000 TransCanada PipeLines Ltd.,
8.625%, 5/15/2012 505,448
2,000,000 TransCanada PipeLines Ltd.,
9.125%, 4/20/2006 2,324,020
- -----------------------------------------------------------
Total 5,773,152
- -----------------------------------------------------------
OIL - 3.6%
1,000,000 Ashland, Inc., 7.90%,
8/5/2006 1,086,180
600,000 Chevron Capital USA, Inc.,
7.45%,
8/15/2004 625,734
3,000,000 Occidental Petroleum Corp.,
8.50%, 11/9/2001 3,218,070
- -----------------------------------------------------------
Total 4,929,984
- -----------------------------------------------------------
REAL ESTATE - 3.8%
1,000,000 Highwoods Forsyth LP, 7.19%,
6/15/2004 1,017,910
2,000,000 Meditrust Corp., 7.82%,
9/10/2026 2,097,160
1,000,000 Post Apartment Homes LP,
7.30%, 4/1/2004 1,042,290
1,000,000 United Dominion Realty
Trust, Inc., 7.95%,
7/12/2006 1,083,540
- -----------------------------------------------------------
Total 5,240,900
- -----------------------------------------------------------
TELEPHONE - 1.1%
$1,500,000 GTE Corp., 7.83%, 5/1/2023 $1,527,990
- -----------------------------------------------------------
UTILITIES-ELECTRIC - 3.5%
100,000 Alabama Power Co., 8.75%,
12/1/2021 101,117
4,250,000 Georgia Power Co., 6.625%,
4/1/2003 4,240,820
500,000 Northern Illinois Gas,
7.26%,
10/15/2025 523,440
- -----------------------------------------------------------
Total 4,865,377
- -----------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$42,752,148) 43,760,228
- -----------------------------------------------------------
GOVERNMENT AGENCIES - 30.4%
- -----------------------------------------------------------
FEDERAL HOME LOAN BANK - 0.3%
386,431 6.00%, 8/1/2013 379,560
- -----------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.5%
3,500,000 6.17%, 11/9/2000 3,492,230
7,500,000 6.50%, 2/15/2023, REMIC
(Series 1669-G) 7,529,550
2,000,000 7.585%, 9/19/2006 2,085,580
- -----------------------------------------------------------
Total 13,107,360
- -----------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.6%
1,500,000 5.36%, 2/16/2001 1,474,665
5,000,000 6.00%, 2/25/2011, REMIC
(Series 1996-21-PK) 4,850,500
3,000,000 6.03%, 7/7/1999 3,009,780
5,500,000 6.14%, 11/25/2005 5,509,075
1,250,000 6.50%, 11/25/2007, REMIC
(Series 1993-118-H) 1,264,313
4,250,000 6.50%, 4/25/2023, REMIC
(Series 1993-210-PL) 4,277,370
2,000,000 6.85%, 8/22/2005 2,088,960
4,042,000 7.25%, 1/17/2021, REMIC
(Series G94-6-PE) 4,147,456
346,695 7.25%, 1/25/2019, REMIC
(Series 1992-69-G) 347,025
1,306,071 7.25%, 2/25/2017, REMIC
(Series 1992-36-PG) 1,309,192
- -----------------------------------------------------------
Total 28,278,336
- -----------------------------------------------------------
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $40,733,898) 41,765,256
- -----------------------------------------------------------
U.S. TREASURY - 36.0%
- -----------------------------------------------------------
TREASURY BONDS - 15.6%
100,000 United States Treasury Bond,
12.75%, 11/15/2010 142,205
7,750,000 United States Treasury Bond,
6.75%, 8/15/2026 8,420,220
7,400,000 United States Treasury Bond,
7.125%, 2/15/2023 8,330,402
600,000 United States Treasury Bond,
7.50%, 11/15/2016 691,650
1,500,000 United States Treasury Bond,
8.125%, 8/15/2019 1,854,345
1,500,000 United States Treasury Bond,
8.875%, 8/15/2017 1,967,685
- -----------------------------------------------------------
Total 21,406,507
- -----------------------------------------------------------
TREASURY NOTES - 20.4%
$13,750,000 United States Treasury Note,
5.875%, 3/31/1999 $13,776,125
6,250,000 United States Treasury Note,
6.75%, 5/31/1999 6,337,875
7,650,000 United States Treasury Note,
7.75%, 11/30/1999 7,932,821
- -----------------------------------------------------------
Total 28,046,821
- -----------------------------------------------------------
TOTAL U.S. TREASURY (IDENTIFIED COST
$48,017,909) 49,453,328
- -----------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------
<C> <S> <C>
MUTUAL FUNDS - 0.2%
- -----------------------------------------------------------
252,874 Flex Funds (AT NET ASSET
VALUE) $252,874
- -----------------------------------------------------------
(A) REPURCHASE AGREEMENTS - 0.2%
- -----------------------------------------------------------
$245,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
5.70%, dated
11/28/1997, due 12/1/1997
(AT AMORTIZED COST) 245,000
- -----------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$132,001,829) $135,476,686
- -----------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
STAR STRATEGIC INCOME FUND November 30, 1997
- -------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 4.5%
- -------------------------------------------------------
AUTOMOBILE - 0.2%
10,000 Ford Motor Co. $430,000
- -------------------------------------------------------
CHEMICALS - 1.0%
67,155 (b)Lyondell Petrochemical Co. 1,708,255
- -------------------------------------------------------
FINANCE - 0.3%
10,000 NationsBank Corp. 600,625
- -------------------------------------------------------
OIL - 0.4%
10,000 (b)Chevron Corp. 801,875
- -------------------------------------------------------
RETAIL - 0.3%
10,000 Sears, Roebuck & Co. 458,125
- -------------------------------------------------------
TOBACCO - 1.1%
45,000 Philip Morris Cos., Inc. 1,957,500
- -------------------------------------------------------
UTILITIES - 1.2%
25,000 Central & SouthWest Corp. 625,000
4,500 (b)Cinergy Corp. 160,313
22,000 (b)DTE Energy Co. 721,875
20,000 Kansas City Power And Light Co. 575,000
- -------------------------------------------------------
Total 2,082,188
- -------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$7,841,781) 8,038,568
- -------------------------------------------------------
PREFERRED STOCKS - 3.3%
- -------------------------------------------------------
ENERGY - 1.0%
70,000 Enron Capital Trust, Pfd., $2.08 1,828,750
- -------------------------------------------------------
FINANCE - 0.3%
17,800 PLC Capital Trust I, Pfd.,
Series B, $2.06 469,475
- -------------------------------------------------------
GOVERNMENT AGENCY - 0.1%
10,000 Tennessee Valley Authority,
Cumulative Pfd., Series A,
$1.88 259,375
- -------------------------------------------------------
INSURANCE - 1.7%
115,000 Travelers P & C Capital I,
$2.02, Pfd. 3,025,938
- -------------------------------------------------------
UTILITIES - 0.2%
15,000 Alabama Power Capital Trust II,
Pfd., $1.90 385,320
- -------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$5,775,968) 5,968,858
- -------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 18.5%
71,500 Capstead Mortgage Corp. 1,805,375
277,300 Dynex Capital, Inc. 3,847,538
40,000 Glimcher Realty Trust 877,500
23,000 Highwoods Properties, Inc.,
Pfd., $2.00 572,125
<CAPTION>
- -------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
17,810 Hospitality Properties Trust $633,368
57,500 INMC Mortgage Holdings, Inc. 1,304,531
144,000 Imperial Credit Mortgage
Holdings 2,547,000
42,100 Kimco Realty Corp., Cumulative
Pfd., $2.13 1,081,444
119,800 LTC Properties, Inc. 2,448,413
99,973 Meditrust Corp. 3,798,974
40,000 Merry Land and Investment Co. 937,500
105,810 Omega Healthcare Investors 3,828,999
64,356 Pennsylvania Real Estate
Investment Trust 1,540,522
45,000 Public Storage, Inc., Pfd.,
Series F, $2.44 1,254,375
54,777 RFS Hotel Investors, Inc. 1,040,763
49,500 Summit Properties, Inc. 1,027,125
60,000 Thornburg Mortgage Asset Co. 1,177,500
13,600 Town & Country Trust 241,400
40,000 United Dominion Realty Trust,
Inc., Cumulative Pfd., $2.15 1,047,500
15,000 United Dominion Realty Trust,
Inc., Pfd., Series A, $2.31 392,813
124,188 Winston Hotels, Inc. 1,738,632
- -------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(IDENTIFIED COST $32,288,173) 33,143,397
- -------------------------------------------------------
CORPORATE BONDS - 41.6%
- -------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS - 4.5%
$500,000 Capital Holding Corp., 9.25%,
5/7/2001 545,463
3,000,000 Citicorp, 7.25%, 10/15/2011 3,125,250
2,250,000 Donaldson, Lufkin and Jenrette
Securities Corp., 6.875%,
11/1/2005 2,266,673
2,100,000 NationsBank Corp., Medium Term
Note, 6.375%, 2/21/2006 2,059,008
- -------------------------------------------------------
Total 7,996,394
- -------------------------------------------------------
DIVERSIFIED ENERGY - 2.7%
1,565,000 Occidental Petroleum Corp.,
10.125%,
9/15/2009 2,001,541
1,325,000 Occidental Petroleum Corp.,
5.90%,
11/9/1998 1,326,564
1,500,000 Occidental Petroleum Corp.,
8.50%,
11/9/2001 1,609,035
- -------------------------------------------------------
Total 4,937,140
- -------------------------------------------------------
<CAPTION>
- -------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
- -------------------------------------------------------
ELECTRONICS - 0.6%
$1,000,000 Loral Corp., 7.625%, 6/15/2025 $1,075,300
- -------------------------------------------------------
ENERGY - 3.2%
1,500,000 Ashland, Inc., 7.78%, 9/19/2016 1,637,550
750,000 Ashland, Inc., Series F, 7.90%,
8/5/2006 814,635
1,000,000 Chevron Capital USA, Inc.,
7.45%,
8/15/2004 1,042,890
289,000 Duke Energy Corp., 7.875%,
5/1/2024 300,754
2,000,000 Enron Corp., 6.625%, 11/15/2005 1,992,080
- -------------------------------------------------------
Total 5,787,909
- -------------------------------------------------------
ENERGY - OIL EXPLORATION 1.8%
2,900,000 Noble Affiliates, Inc., 8.00%,
4/1/2027 3,168,192
- -------------------------------------------------------
ENTERTAINMENT - 1.4%
2,500,000 Circus Circus Enterprises, Inc.,
6.75%,
7/15/2003 2,466,775
- -------------------------------------------------------
FINANCE - 7.4%
1,500,000 Associates Corp. of North
America, Medium Term Note,
7.25%,
5/22/2006 1,563,885
2,000,000 Banc One Corp., 8.00%, 4/29/2027 2,238,200
2,000,000 Highwoods Forsyth LP, 7.19%,
6/15/2004 2,035,820
1,250,000 International Lease Finance
Corp., 7.00%, 5/15/2000 1,273,800
1,500,000 International Lease Finance
Corp., 8.375%, 12/15/2004 1,667,145
2,000,000 Lehman Brothers Holdings, Inc.,
7.25%, 10/15/2003 2,053,180
2,000,000 Lehman Brothers, Inc., 7.125%,
7/15/2002 2,037,780
289,194 Saxon Mortgage Securities Corp.,
5.25%, 4/25/2024 288,031
- -------------------------------------------------------
Total 13,157,841
- -------------------------------------------------------
GROCERY STORES - 1.8%
1,000,000 Safeway, Inc., Medium Term Note,
8.27%, 3/29/2000 1,040,610
2,000,000 Safeway, Inc., Medium Term Note,
8.57%, 4/1/2003 2,178,160
- -------------------------------------------------------
Total 3,218,770
- -------------------------------------------------------
HOSPITAL MANAGEMENT - 2.7%
2,450,000 Columbia/HCA Healthcare Corp.,
Medium Term Note, 8.70%,
2/10/2010 2,629,291
2,100,000 Manor Care, Inc., 7.50%,
6/15/2006 2,177,637
- -------------------------------------------------------
Total 4,806,928
- -------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.2%
2,000,000 Procter & Gamble Co., 7.375%,
3/1/2023 2,093,300
- -------------------------------------------------------
INDUSTRIAL - 2.4%
2,200,000 Fort James Corp., 6.625%,
9/15/2004 2,198,174
2,000,000 Lockheed Martin Corp., 7.875%,
3/15/2023 2,126,040
- -------------------------------------------------------
Total 4,324,214
- -------------------------------------------------------
<CAPTION>
- -------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
- -------------------------------------------------------
INSURANCE - 1.2%
$2,000,000 Ohio National Life Insurance
Company, 8.875%, 7/15/2004 $2,193,420
- -------------------------------------------------------
MANUFACTURING - 0.1%
250,000 Eastman Kodak Co., 9.875%,
11/1/2004 259,010
- -------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 2.5%
200,000 Meditrust Corp., 7.60%,
7/15/2001 206,264
1,000,000 Post Apartment Homes LP, 7.30%,
4/1/2004 1,042,290
3,175,000 United Dominion Realty Trust,
Inc., 7.25%, 1/15/2007 3,279,172
- -------------------------------------------------------
Total 4,527,726
- -------------------------------------------------------
RETAILING & APPAREL - 1.7%
1,000,000 Penney (J.C.) Co., Inc., 7.95%,
4/1/2017 1,107,420
1,050,000 Penney (J.C.) Co., Inc., 9.45%,
7/15/2002 1,126,566
725,000 Sears, Roebuck & Co., 8.66%,
10/2/2006 832,800
- -------------------------------------------------------
Total 3,066,786
- -------------------------------------------------------
TELECOMMUNICATIONS - 2.0%
3,500,000 GTE Corp., 7.83%, 5/1/2023 3,565,310
- -------------------------------------------------------
TOBACCO - 1.4%
500,000 Philip Morris Cos., Inc., 6.00%,
11/15/1999 495,850
1,029,000 Philip Morris Cos., Inc.,
8.625%,
3/1/1999 1,059,181
1,017,000 Philip Morris Cos., Inc.,
7.125%,
8/15/2002 1,035,591
- -------------------------------------------------------
Total 2,590,622
- -------------------------------------------------------
UTILITIES - 3.0%
1,100,000 Detroit Edison Co., 6.40%,
10/1/1998 1,104,675
2,000,000 Northern Illinois Gas, 7.26%,
10/15/2025 2,093,760
1,000,000 Pacific Bell, 7.25%, 2/1/2008 1,008,320
1,000,000 Pacific Bell, 8.50%, 8/15/2031 1,080,380
- -------------------------------------------------------
Total 5,287,135
- -------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$72,587,596) 74,522,772
- -------------------------------------------------------
INTERNATIONAL SECURITIES - 8.8%
- -------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES - 2.8%
265,000 Kleinwort Benson Australian
Income Fund 2,235,938
220,000 First Commonwealth Fund Inc. 2,750,000
- -------------------------------------------------------
Total 4,985,938
- -------------------------------------------------------
ELECTRONICS - 1.0%
$500,000 Philips Electronics N.V., 6.75%,
8/15/2003 506,150
1,100,000 Philips Electronics N.V.,
8.375%,
9/15/2006 1,228,469
- -------------------------------------------------------
Total 1,734,619
- -------------------------------------------------------
FINANCE - 1.7%
3,000,000 Societe Generale, New York,
7.40%,
6/1/2006 3,103,740
- -------------------------------------------------------
TELECOMMUNICATIONS - 0.1%
5,000 Telefonos de Mexico, Class L,
ADR 247,500
- -------------------------------------------------------
INTERNATIONAL OIL - 2.3%
103,700 TransCanada PipeLines Ltd.,
Pfd., $2.13 $2,735,088
$1,025,000 TransCanada PipeLines Ltd.,
9.875%,
1/1/2021 1,364,798
- -------------------------------------------------------
Total 4,099,886
- -------------------------------------------------------
METALS & MINING - 0.9%
1,600,000 Alcan Aluminum, Ltd., 9.20%,
3/15/2001 1,615,856
- -------------------------------------------------------
TOTAL INTERNATIONAL SECURITIES
(IDENTIFIED COST $15,673,041) 15,787,539
- -------------------------------------------------------
U.S. GOVERNMENT AND AGENCIES - 21.0%
- -------------------------------------------------------
FEDERAL HOME LOAN BANK - 1.7%
191,197 11.00%, 4/1/2003 205,656
823,208 9.00%, 5/1/2021 885,977
1,823,781 8.50%, 6/1/2024 1,920,095
- -------------------------------------------------------
Total 3,011,728
- -------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.7%
670,000 10.00%, PC GTD, 12/15/2020 753,690
2,000,000 10.00%, PC GTD, 1/15/2021 2,252,000
1,100,000 9.50%, REMIC, 6/25/2020 1,194,325
389,558 8.00%, PC GTD, 7/15/2020 393,513
3,750,000 7.50%, PC GTD, 7/15/2021 3,830,475
2,000,000 7.50%, PC GTD, 5/20/2024 2,051,280
1,500,000 6.50%, PC GTD, 12/15/2018 1,502,550
- -------------------------------------------------------
Total 11,977,833
- -------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.6%
153,983 10.00%, REMIC, 12/25/2018 159,675
1,000,000 9.00%, REMIC, 11/25/2019 1,074,530
303,623 9.40%, REMIC, 6/25/2019 312,744
500,000 8.40%, REMIC, 8/25/2019 521,230
2,000,000 7.75%, REMIC, 5/25/2021 2,061,980
3,000,000 7.50%, REMIC, 9/25/2019 3,053,310
2,200,000 7.50%, REMIC, 5/25/2020 2,244,968
538,754 7.25%, REMIC, 2/25/2017 540,042
1,000,000 7.00%, REMIC, 7/25/2007 1,015,640
19,075 4.75%, REMIC, 12/25/2011 19,008
1,000,000 4.00%, REMIC, 6/25/2020 891,300
- -------------------------------------------------------
Total 11,894,427
- -------------------------------------------------------
<CAPTION>
- -------------------------------------------------------
SHARES, PRINCIPAL AMOUNT OR CONTRACTS VALUE
- -------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCIES (CONTINUED)
- -------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.9%
$182,344 9.00%, 7/15/2016 $197,615
484,935 9.00%, 1/15/2022 522,217
3,571,079 8.00%, 8/20/2026 3,675,998
929,589 8.00%, 11/20/2026 956,901
1,200,323 7.50%, 12/15/2026 1,225,458
2,176,492 7.50%, 2/20/2027 2,211,186
- -------------------------------------------------------
Total 8,789,375
- -------------------------------------------------------
U.S. TREASURY NOTE - 1.1%
2,000,000 6.00%, 8/15/2000 2,010,700
- -------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(IDENTIFIED COST $37,518,728) 37,684,063
- -------------------------------------------------------
MUTUAL FUND SHARES - 0.2%
356,068 Flex Funds (AT NET ASSET VALUE) 356,068
- -------------------------------------------------------
(A)REPURCHASE AGREEMENTS - 0.6%
1,088,000 Donaldson, Lufkin and Jenrette
Securities Corp., 5.70%, dated
11/28/1997,
due 12/1/1997 (AT AMORTIZED
COST) 1,088,000
- -------------------------------------------------------
OPTIONS PURCHASED - 0.0%
- -------------------------------------------------------
50 Call Option on CISCO, expires
1/17/1998, strike @ 80 45,313
30 Put Option on Exxon, expires
1/16/1999, strike @ 35 938
35 Put Option on Coca Cola, expires
1/16/1999, strike @ 40 2,844
- -------------------------------------------------------
TOTAL OPTIONS PURCHASED (IDENTIFIED COST
$59,902) 49,095
- -------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$173,189,257) $176,638,360
- -------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
NOTES TO PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at date of the portfolio.
(b) Includes securities held in a segregated account to cover written option
contracts.
* Current credit ratings are unaudited. Please refer to the Statement of
Additional Information for an explanation of the credit ratings.
The following abbreviations are used in these portfolios:
<TABLE>
<S> <C>
ADR--American Depository Receipt LOC--Letter of Credit
AMBAC--American Municipal Bond Assurance Corporation LP--Limited Partnership
FGIC--Financial Guaranty Insurance Company MBIA--Municipal Bond Investors Assurance
FSA--Financial Security Assurance PCA--Pollution Control Authority
GO--General Obligation REMIC--Real Estate Mortgage Investment Conduit
HFDA--Health Facility Development Authority UT--Unlimited Tax
HFDC--Health Facility Development Corporation VRDNs--Variable Rate Demand Notes
INS--Insured
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized Gross Gross
Cost of Appreciation/ Unrealized Unrealized
Investments for (Depreciation) for Appreciation for Depreciation
Federal Tax Federal Tax Federal Tax for Federal Total Net
Star Funds Purposes Purposes Purposes Tax Purposes Assets**
<S> <C> <C> <C> <C> <C>
The Stellar Insured Tax-Free Bond Fund 1$23,610,353 $5,565,325 $5,570,644 $5,319 $128,591,423
Star U.S. Government Income Fund 1$32,051,774 $3,424,912 $3,772,396 $347,484 $137,445,313
Star Strategic Income Fund 1$73,329,101 $3,309,259 $4,531,874 $1,222,615 $179,412,731
</TABLE>
** The categories of investments are shown as a percentage of net assets at
November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
STATEMENTS OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
THE STELLAR
INSURED STAR U.S. STAR
TAX-FREE BOND GOVERNMENT STRATEGIC
FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
ASSETS:
Total investments in securities, at value $129,175,678 $135,476,686 $176,638,360
Cash -- 35,986 176
Income receivable 2,100,787 2,049,193 2,053,904
Receivable for investments sold -- -- 1,414,733
Receivable for Fund shares sold 70,015 47,025 756,470
Deferred organizational costs 1,959 -- 18,880
Other assets -- 3,009 8,296
- ------------------------------------------------------------------------------------------------------
Total assets 131,348,439 137,611,899 180,890,819
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,595,328 -- 1,346,045
Payable for Fund shares redeemed 110,200 817 7,302
Options written, at value -- -- 99,376
Income distribution payable -- 137,372 329
Accrued expenses 51,488 28,397 25,036
- ------------------------------------------------------------------------------------------------------
Total liabilities 2,757,016 166,586 1,478,088
- ------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 122,628,140 136,179,106 174,364,150
Net unrealized appreciation (depreciation)
of investments and options 5,565,325 3,474,857 3,483,214
Accumulated net realized gain (loss) on
investments and options 324,276 (2,228,948) 1,263,104
Undistributed net investment income 73,682 20,298 302,263
- ------------------------------------------------------------------------------------------------------
Total Net Assets $128,591,423 $137,445,313 $179,412,731
- ------------------------------------------------------------------------------------------------------
NET ASSETS: $128,591,423 $137,445,313 $179,412,731
SHARES OUTSTANDING: 12,548,149 13,928,011 16,820,224
NET ASSET VALUE: $10.25 $9.87 $10.67
OFFERING PRICE PER SHARE+: $10.73* $10.23** $10.67
REDEMPTION PROCEEDS PER SHARE: $10.25 $9.87 $10.14***
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Investments, at identified cost $123,610,353 $132,001,829 $173,189,257
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Investments, at tax cost $123,610,353 $132,051,774 $173,329,101
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Computation of Offering price: 100/95.5 of net asset value.
** Computation of Offering price: 100/96.5 of net asset value.
*** Computation of Redemption Proceeds: 95/100 of net asset value.
+ See "What Shares Cost" in the prospectus.
++ See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
THE STELLAR STAR
INSURED STAR U.S. STRATEGIC
TAX-FREE BOND GOVERNMENT INCOME
FUND* INCOME FUND FUND
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $6,009,083 $9,251,220 $7,178,535
Dividend income -- -- 4,688,527
- ------------------------------------------------------------------------------------------------------
Total income 6,009,083 9,251,220 11,867,062
- ------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee 825,962 819,582 1,343,811
Administrative personnel and services fee 101,260 126,436 130,615
Custodian fees 27,532 34,149 35,364
Transfer and dividend disbursing agent fees
and expenses 13,936 31,237 60,828
Directors'/Trustees' fees 3,592 1,979 3,202
Auditing fees 306 17,891 14,477
Legal fees 4,597 4,583 4,661
Portfolio accounting fees 51,063 47,264 51,996
Shareholder services fee 55,064 68,298 70,727
Share registration costs 50,905 29,745 29,585
Printing and postage 6,030 17,619 18,621
Insurance premiums 3,685 4,186 5,356
Miscellaneous 4,020 10,537 9,893
- ------------------------------------------------------------------------------------------------------
Total expenses 1,147,952 1,213,506 1,779,136
- ------------------------------------------------------------------------------------------------------
Waiver--
Waiver of investment advisory fee (275,321) -- --
- ------------------------------------------------------------------------------------------------------
Net Expenses 872,631 1,213,506 1,779,136
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,136,452 8,037,714 10,087,926
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND OPTIONS:
Net realized gain (loss) on investments and
options 324,276 477,834 2,538,513
Net change in unrealized
appreciation/depreciation
on investments and options 5,565,325 75,785 571,178
- ------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND OPTIONS 5,889,601 553,619 3,109,691
- ------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $11,026,053 $8,591,333 $13,197,617
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from December 30, 1996 (date of initial public investment) to
November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE STELLAR STAR U.S. STAR
INSURED GOVERNMENT STRATEGIC
TAX-FREE INCOME INCOME
BOND FUND FUND FUND
------------ -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997* 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS--
Net investment income $5,136,452 $8,037,714 $6,885,390 $10,087,926 $5,272,079
Net realized gain (loss)
on investments and
options 324,276 477,834 (1,134,865) 2,538,513 (1,275,409)
Net change in net
unrealized
appreciation/depreciation
of investments and
options 5,565,325 75,785 293,860 571,178 2,107,201
- -----------------------------------------------------------------------------------------------
Change in net assets
resulting from
operations 11,026,053 8,591,333 6,044,385 13,197,617 6,103,871
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net
investment income (5,062,770) (8,046,199) (6,869,461) (10,071,575) (5,063,250)
- -----------------------------------------------------------------------------------------------
Change in net assets
from distributions to
shareholders (5,062,770) (8,046,199) (6,869,461) (10,071,575) (5,063,250)
- -----------------------------------------------------------------------------------------------
SHARE TRANSACTIONS--
Proceeds from sales of
shares 139,447,600 24,040,035 63,105,408 76,800,372 72,076,625
Net assets value of
shares issued to
shareholders in payment
of distributions
declared 10,086 2,889,975 3,057,540 3,169,146 1,844,849
Cost of shares redeemed (16,829,546) (28,903,412) (36,130,736) (14,457,644) (11,699,941)
- -----------------------------------------------------------------------------------------------
Change in net assets
from share
transactions 122,628,140 (1,973,402) 30,032,212 65,511,874 62,221,533
- -----------------------------------------------------------------------------------------------
Change in net assets 128,591,423 (1,428,268) 29,207,136 68,637,916 63,262,154
NET ASSETS:
Beginning of period 0 138,873,581 109,666,445 110,774,815 47,512,661
- -----------------------------------------------------------------------------------------------
End of period $128,591,423 $137,445,313 $138,873,581 $179,412,731 $110,774,815
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Undistributed net
investment income
included in net assets
at end of period $73,682 $20,298 $28,783 $302,263 $285,912
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net gain (loss) as
computed for federal tax
purposes $324,276 $350,516 ($1,143,487) $2,846,274 ($1,254,679)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 30, 1996 (date of initial
public investment) to November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STAR FUNDS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
NET REALIZED AND DISTRIBUTIONS
NET ASSET UNREALIZED DISTRIBUTIONS FROM NET
VALUE, NET GAIN/(LOSS) ON TOTAL FROM FROM NET REALIZED GAIN
YEAR ENDED BEGINNING OF INVESTMENT INVESTMENTS INVESTMENT INVESTMENT ON INVESTMENTS
NOVEMBER 30 PERIOD INCOME AND OPTIONS OPERATIONS INCOME AND OPTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THE STELLAR INSURED TAX-FREE BOND FUND
1997(a) $10.00 0.44 0.24 0.68 (0.43) --
STAR U.S. GOVERNMENT INCOME FUND
1993(b) $10.00 0.51 0.25 0.76 (0.51) --
1994 $10.25 0.55 (0.90) (0.35) (0.55) (0.11)
1995 $9.24 0.60 0.74 1.34 (0.60) --
1996 $9.98 0.57 (0.15) 0.42 (0.57) --
1997 $9.83 0.57 0.04 0.61 (0.57) --
STAR STRATEGIC INCOME FUND
1995(c) $10.00 0.69 0.55 1.24 (0.67) (0.04)
1996 $10.53 0.73 (0.04) 0.69 (0.72) --
1997 $10.50 0.73 0.18 0.91 (0.74) --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS
IN EXCESS OF
NET REALIZED
GAIN ON
INVESTMENTS
YEAR ENDED AND
NOVEMBER 30 OPTIONS (D)
- -------------------------------
<S> <C>
THE STELLAR IN
1997(a) --
STAR U.S. GOVE
1993(b) --
1994 --
1995 --
1996 --
1997 --
STAR STRATEGIC
1995(c) (0.00)
1996 --
1997 --
- --------------
</TABLE>
(a) Reflects operations for the period from December 30, 1996 (date of initial
public investment) to November 30, 1997.
(b) 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.
(c) Reflects operations for the period from December 12, 1994 (date of initial
public investment) to November 30, 1995.
(d) Distributions are determined in accordance with federal 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.
(e) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge if applicable.
(f) Computed on an annualized basis.
(g) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(h) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
EXPENSE NET ASSETS, AVERAGE
NET ASSET NET WAIVER/ END COMMISSION
TOTAL VALUE, END TOTAL INVESTMENT REIMBURSE- OF PERIOD RATE
DISTRIBUTIONS OF PERIOD RETURN (E) EXPENSES INCOME MENT (G) (000 OMITTED) PAID (H)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.43) $10.25 6.91% 0.79%(f) 4.66%(f) 0.25%(f) $128,591 --
(0.51) $10.25 7.63% 1.12%(f) 5.55%(f) 0.30%(f) $44,187 --
(0.66) $9.24 (3.53%) 0.97% 5.87% 0.03% $87,924 --
(0.60) $9.98 14.90% 0.92% 6.23% -- $109,666 --
(0.57) $9.83 4.46% 0.92% 5.88% -- $138,874 --
(0.57) $9.87 6.46% 0.89% 5.88% -- $137,445 --
(0.71) $10.53 12.71% 1.47%(f) 7.41%(f) 0.10%(f) $47,513 --
(0.72) $10.50 6.99% 1.36% 7.26% -- $110,775 $0.0043
(0.74) $10.67 9.02% 1.26% 7.13% -- $179,413 $0.0417
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PORTFOLIO
TOTAL TURNOVER
DISTRIBUTIONS RATE
- --------------------------------
<S> <C>
(0.43) 15%
(0.51) 105%
(0.66) 148%
(0.60) 236%
(0.57) 158%
(0.57) 140%
(0.71) 258%
(0.72) 201%
(0.74) 142%
- -----------------
</TABLE>
COMBINED NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
(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 eleven diversified portfolios and one non-diversified
portfolio. 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")
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 Stellar Fund ("Stellar Fund")
The Stellar Insured Tax-Free Bond Fund
("Stellar Tax-Free Bond Fund")*
Star Market Capitalization Fund
("Market Capitalization Fund")**
Star Ohio Tax-Free Money Market Fund
("Ohio Tax-Free Money Market Fund")**
Star International Equity Fund
("International Equity Fund")**
* Stellar Tax-Free Bond Fund became effective on
December 30, 1996.
** The Market Capitalization Fund, Ohio Tax-Free Money Market Fund and
International Equity Fund became effective November 19, 1997 but had no
public investment as of November 30, 1997.
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein along with
each Fund's investment objective:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
- -------------------------------------------------------
<S> <C>
Stellar Tax-Free Bond Fund Provide current income which
is exempt from federal income tax.
U.S. Government Income Fund Provide current income.
Strategic Income Fund Generate high current
income.
</TABLE>
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 Funds, except Stellar Fund,
Growth Equity Fund Relative Value Fund and Treasury Fund are offered without
class designation. Shares of Stellar Fund, Growth Equity Fund, Relative Value
Fund and Treasury Fund are offered in two classes: Trust Shares and Investment
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.
A. 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 valuation; 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. Investments in other
open-end and closed-end regulated investment companies are valued at net asset
value.
B. 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.
C. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and expenses are accrued daily. Bond premium
and discount, if applicable, are amortized as required by the Internal Revenue
Code, as amended (the "Code").
- --------------------------------------------------------------------------------
D. FEDERAL TAXES
It is 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, 1997, 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>
TOTAL
TAX-LOSS
FUND CARRYFORWARD
- --------------------------------------------
<S> <C>
U.S. Government Income Fund $2,200,603
- --------------------------------------------
</TABLE>
Pursuant to the Code, such capital loss carryforwards will expire as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
- ----------------------------------------
EXPIRATION YEAR EXPIRATION AMOUNT
- ----------------------------------------
<S> <C>
2002 $1,057,116
2004 1,143,487
- ----------------------------------------
</TABLE>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued or delayed delivery transactions. The Funds
record when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date.
F. OPTION CONTRACTS WRITTEN
The 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
year ended November 30, 1997, Strategic Income Fund had realized gain on options
contracts both written and purchased of $337,974.
The U.S. Government Income Fund had no written option transactions during the
year.
At November 30, 1997, Strategic Income Fund had the following outstanding
written options:
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
- ---------------------------------------------------------------------------------------------------
NUMBER UNREALIZED
EXPIRATION EXERCISE OF APPRECIATION MARKET
ISSUE TYPE DATE PRICE CONTRACTS (DEPRECIATION) VALUE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chevron Co. Call 12/20/1997 $80.00 100 $39,122 $20,625
Cinergy Corp. Call 12/20/1997 30.00 45 (9,112) 27,563
DTE Energy Co. Call 1/17/1998 30.00 120 (10,861) 36,750
Lyondell
Petrochemical Call 12/20/1997 25.00 140 14,962 14,438
---------------------------
Total $34,111 $99,376
---------------------------
</TABLE>
The following is a summary of the Strategic Income Fund options activity:
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND
--------------------------
NUMBER OF
CONTRACTS PROCEEDS*
--------------------------
<S> <C> <C>
Outstanding at November 30, 1996 395 $67,863
Contracts opened 6,563 3,002,392
Contracts expired (545) (51,558)
Contracts exercised (1,485) (211,180)
Contracts closed (4,523) (2,674,030)
--------------------------
Outstanding at November 30, 1997 405 $133,487
--------------------------
</TABLE>
* Represents premium received less commissions paid.
G. 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.
H. 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>
STELLAR TAX-FREE
BOND FUND
----------
PERIOD ENDED
NOVEMBER 30, 1997*
----------
<S> <C>
Shares sold 14,215,030
Shares issued to shareholders in
payment of distributions
declared 995
Shares redeemed (1,667,876)
----------
Net change resulting from
Fund share transactions 12,548,149
----------
</TABLE>
* For the period from December 30, 1996 (date of initial public investment) to
November 30, 1997.
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
-------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
-------------------------------
<S> <C> <C>
Shares sold 2,492,225 6,580,878
Shares issued to share-
holders in payment of
distributions declared 299,335 316,007
Shares redeemed (2,995,364) (3,751,557)
-------------------------------
Net change resulting from
Fund share transactions (203,804) 3,145,328
-------------------------------
<CAPTION>
STRATEGIC INCOME FUND
-------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
-------------------------------
<S> <C> <C>
Shares sold 7,353,514 6,987,337
Shares issued to share-
holders in payment of
distributions declared 304,065 178,887
Shares redeemed (1,383,953) (1,133,224)
<CAPTION>
-------------------------------
Net change resulting from
Fund share transactions 6,273,626 6,033,000
-------------------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. 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. <TABLE> <CAPTION>
FUND ANNUAL RATE
- --------------------------------------------
<S> <C>
Stellar Tax-Free Bond Fund 0.75%
U.S. Government Income Fund 0.60%
Strategic Income Fund 0.95%
- --------------------------------------------
</TABLE>
The Adviser may voluntarily choose to waive a portion of its fee or reimburse
the funds for certain operating expenses. The Adviser can terminate this
voluntary waiver of its advisory fees at any time at its sole discretion.
B. 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.
Effective January 1, 1998, the fee that FAS receives will change to an annual
rate of 0.12% of each fund's average daily net assets of the Trust. The fee
received during any fiscal year shall be at least $50,000 per Fund. FAS may
choose to voluntarily waive a portion of its fee at any time.
Effective January 1, 1998, under the terms of a Sub-
Administration Agreement between FAS and Star Bank, N.A., FAS will pay to Star
Bank, N.A., solely from the resources of FAS, a sub-administration fee at an
annual rate of 0.04% of the average daily net assets of the Trust, for assisting
FAS in rendering administrative services to the Trust.
C. 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. The 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.
D. 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.
E. 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 is based on the size,
type, and number of accounts and transactions made by shareholders.
Effective January 23, 1998, Star Bank, N.A. will become the Funds transfer and
dividend disbursing agent.
- --------------------------------------------------------------------------------
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES
Organizational expenses were initially borne by FAS. The Funds have reimbursed
FAS for these expenses. These expenses have been deferred and are being
amortized over the five year period following the Fund's effective date. For the
year ended November 30, 1997, the Funds expensed the following:
<TABLE>
<CAPTION>
AMOUNTS
EXPENSES EXPENSED TO
OF FAS FOR THE
ORGANIZING PERIOD ENDED
THE NOVEMBER 30,
EFFECTIVE DATE FUND 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Stellar
Tax-Free Bond
Fund December 30, 1996 $ 2,398 $ 440
U.S. Government
Income Fund November 23, 1992 25,000 7,705
Strategic
Income Fund November 14, 1994 30,000 14,400
- --------------------------------------------------------------
</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
period ended November 30, 1997, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------------------------------------
<S> <C> <C>
Stellar Tax-Free Bond Fund $138,138,182 $16,142,070
U.S. Government Income Fund 188,608,286 188,210,806
Strategic Income Fund 261,303,426 197,303,725
- ------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
STAR FUNDS
(The Stellar Insured Tax-Free Bond Fund, Star Strategic Income Fund
and Star U.S. Government Income Fund):
We have audited the accompanying statements of assets and liabilities of The
Stellar Insured Tax-Free Bond 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, 1997, the related statements of operations and changes in net
assets and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Funds'
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, 1997, 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 The
Stellar Insured Tax-Free Bond Fund, Star Strategic Income Fund and Star U.S.
Government Income Fund (investment portfolios of Star Funds) as of November 30,
1997, and the results of their operations, 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 16, 1998
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
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
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 Federal Deposit
Insurance Corporation.
Investment in mutual funds involves investment risk,
including the 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
objectives and policies, management fees, expenses and other information.
Cusip 854911856 ---------------------------
Cusip 854911500 STAR BANK, N.A.
Cusip 854911880 Investment Adviser
G00446-08 (1/98) ---------------------------
6004TR FEDERATED SECURITIES CORP.
Distributor
---------------------------
[LOGO]
MONEY MARKET
FUNDS
COMBINED
ANNUAL
REPORT
DATED NOVEMBER 30, 1997
PORTFOLIOS OF STAR FUNDS
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. The Report covers activity in the Star Tax-Free Money Market Fund
and the Star Treasury Fund over the 12-month fiscal year period from December 1,
1996 through November 30, 1997. It begins with the portfolio manager's
discussion about the interest rate environment during the period, fund yields,
and portfolio strategy. Next is a list of fund holdings and the financial
statements for each fund.
STAR TAX-FREE MONEY MARKET FUND
Designed for tax-sensitive investors, Star Tax-Free Money Market Fund is a
practical way to pursue daily tax-free income. The fund invests in high-quality
money market securities issued by municipalities across the U.S. During the
reporting period, the fund paid tax-free dividends totaling $0.03 per share.*
The fund's assets totaled $126.3 million at the end of the period.
STAR TREASURY FUND
The Star Treasury Fund is a highly conservative way to pursue daily income. This
fund invests in money market securities issued by the U.S. Treasury. During the
reporting period, the fund's Investment Shares paid dividends totaling $0.05 per
share, while the fund's Trust Shares paid dividends totaling $0.03 per share.
The fund's assets reached more than $1 billion at the end of the period.
Whatever your needs--an emergency cash reserve for planned or unplanned
expenses, a "parking place" for cash in-between investments, or a highly
conservative investment for income--the Star Money Market Funds are practical
choices. Of course, each fund also gives you the additional advantages of easy
access to your money and relative stability.**
Thank you for participating in the daily earning power of these funds.
Sincerely,
Edward C. Gonzales
President
January 15, 1998
* Income may be subject to the federal alternative minimum tax.
** Although money market funds seek to maintain a share value of $1.00, there is
no guarantee that they will do so. Investments in money market mutual funds
are neither insured nor guaranteed by the U.S. government.
- --------------------------------------------------------------------------------
Investment Reviews
Star Tax-Free Money Market Fund
Q
What major factors affected the tax-free money markets during the fund's
fiscal year?
A
Two primary factors govern the tax-free money markets: Treasury securities
yield and supply/demand levels. Treasury yields peaked in mid-April 1997,
on fears of a strong U.S. economy and a more vigilant Federal Reserve Board
(the "Fed") following the March interest rate increase. However, that all
changed by late summer when problems in Asia began to surface which stimulated
demand. One of the most powerful supply effects was generated by the continued
shrinkage of the Federal budget deficit. The lower-than-expected deficit created
a need for less Treasury Bill issuance, which sharply dropped the yield of these
securities. Beginning in April, municipal markets witnessed a swelling of demand
that sharply exceeded new note issuance. As a result, yields fell noticeably
over the last six months of the reporting period.
Q
How did the yield of Star Tax-Free Money Market fund move over the course
of the fiscal year?
A
The Star Tax-Free Money Market Fund's 7-day yield increased from 2.85% on
November 30, 1996 to 3.22% on November 30, 1997.* 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 peers. Consequently,
the yield of the fund remained within a few basis points of the peer average.
Q
What is your outlook for short-term rates in 1998?
A
Our 1998 economic outlook calls for slower growth and contained
inflationary pressures. As a result of the Asian economic crisis, we expect
U.S. Gross Domestic Product growth to slow slightly towards a 2% to 2.5%
rate. The best news for next year will likely be the lack of inflation. Imported
goods from Asia are expected to show noticeable price declines. In 1997 alone,
Asian imported goods prices were down 4%. With growth slowing, inflation
remaining well behaved, and the potential for further international crisis, we
believe the Fed will leave the Federal funds rate unchanged for the foreseeable
future at 5.50%. We intend to maintain the strategy of keeping the fund's
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.
Star Treasury Fund
Q
The fund's fiscal year saw a single rate increase by the Fed in March along
with moderate to strong growth and subdued inflation. What is your
analysis?
A
Despite the fact that the Fed changed the Federal funds rate only once
during the reporting period the money markets were anything but placid. One
of the most powerful effects was generated by the continued shrinkage of
the Federal budget deficit. The lower-than-expected deficit created a need for
less Treasury Bill issuance, which sharply dropped the yield of these
securities. The money markets were also roiled by the disturbance in the Asian
markets in October, as investors sought the "safe-haven" of Treasury securities,
Treasury Bills in particular. In short, it may be asserted that the market did
some of the Fed's work for it during the reporting period.
Q
How did Star Treasury Fund's yield move over the course of the fiscal year?
A
The yield on the Star Treasury Fund was relatively stable during fiscal
1997, with the 7-day net yield of the Investment Shares ranging from 4.65%
on November 30, 1996 to 4.79% on November 30, 1997.* The fund benefited
from the Fed's hike of short-term interest rates due to its portfolio structure,
which emphasizes the use of overnight investments.
* Performance quoted represents past performance and is not indicative of
future results. Yield will vary.
- --------------------------------------------------------------------------------
Q
What is your outlook for short-term rates and your strategy as we enter
1998?
A
Our outlook for short-term rates is for continued stability during the
first half of 1998. Potentially inflationary economic forces, such as wage
increases, are somewhat offset by disinflationary ones, such as the likely
decline in import prices. Therefore, barring any further exogenous shocks, the
Fed should have little impetus to change the Federal funds and Discount rates in
the near-term. In the longer-term, however, we look for domestic economic
strength to prevail, and a preemptive rate hike after mid-year.
- --------------------------------------------------------------------------------
Portfolios of Investments
--------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND November 30, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------
- -------------------------------------------------------
CREDIT
PRINCIPAL AMOUNT RATING* VALUE
- -------------------------------------------------------
- -------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPALS - 99.4%
- -------------------------------------------------------------
ALABAMA - 0.9%
$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 - 1.6%
2,000,000 Smith Creek
Metropolitan
District of
Colorado, Revenue
Bonds Weekly VRDNs
(Nationsbank, Fort
Worth LOC) A1+ 2,000,000
- --------------------------------------------------------------
GEORGIA - 2.6%
1,300,000 Columbus, GA Housing
Authority Weekly
VRDNs (Columbus
State University
Foundation)/
(SunTrust Bank,
Atlanta LOC) Aa3 1,300,000
1,000,000 Fulton County, GA
Development
Authority Weekly
VRDNs (Arthritis
Foundation Inc.)/
(SunTrust Bank,
Atlanta LOC) AA3 1,000,000
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 3,300,000
- --------------------------------------------------------------
ILLINOIS - 14.7%
2,000,000 Illinois Development
Finance Authority,
(Series 1993A)
Weekly VRDNs
(Loyola
Academy)/(Northern
Trust Co. LOC) A1+ 2,000,000
1,055,000 Illinois Development
Finance Authority,
Revenue Bonds
Weekly VRDNs (Lake
Forest
Academy)/(Northern
Trust Co. 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
1,500,000 Illinois Development
Finance Authority,
Series A Weekly
VRDNs (Presbyterian
Home Lake)/(Lasalle
National Bank,
Chicago LOC) VMIG1 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
2,000,000 Illinois Health
Facilities
Authority, Revenue
Bonds (Series C),
3.75% (Victory
Health Project)
1/30/1998 LOC FNB
Chicago AAA 2,000,000
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
1,330,000 Schaumburg, IL, IDR
Refunding Bonds
Weekly VRDNs (La
Quita Motor
Inns)/(Nationsbank,
Fort Worth LOC) AA3 1,330,000
200,000 Springfield, IL,
Community
Improvement
Refunding Revenue
Bonds Weekly VRDNs
(Kent Family
Project)/(PNC Bank,
N.A. LOC) A1 200,000
- --------------------------------------------------------------
Total 18,585,000
- --------------------------------------------------------------
INDIANA - 4.9%
2,000,000 Indiana Bond Bank,
Series A-2, 4.25%
TANs, SP-1+/
1/21/1998 MIG1 2,001,485
3,195,000 Logansport, IN,
Revenue Bonds
Weekly VRDNs (MMM
Invest, Inc.)/
(Bank One,
Indianapolis, N.A.
LOC) NR 3,195,000
1,000,000 Purdue University,
IN, Revenue Bonds
(Series K) Weekly
VRDNs VMIG1 1,000,000
- --------------------------------------------------------------
Total 6,196,485
- --------------------------------------------------------------
KENTUCKY - 5.2%
1,000,000 Boone County, KY,
IDRB (Series 1994A)
Weekly VRDNs
(Square D. Co.)/
(Societe Generale
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
- --------------------------------------------------------------
MARYLAND - 1.8%
1,700,000 Baltimore, MD EDA
Weekly VRDNs (Field
Container Co. L.P.)
(American National
Bank LOC) A1+ 1,700,000
540,000 Maryland State IDFA,
(Series 1991)
Weekly VRDNs
(Maryland Academy
of Sciences
Facility)/(Nationsbank,
N.A., Charlotte
LOC) VMIG1 540,000
- --------------------------------------------------------------
Total 2,240,000
- --------------------------------------------------------------
MASSACHUSETTS - 1.6%
2,000,000 Massachusetts Bay
Transit Authority,
(Series C), 3.65%
CP (Westdeutsche
Landesbank
Girozentrale LOC),
Mandatory Tender
12/5/1997 P1/A-1+ 2,000,000
- --------------------------------------------------------------
MICHIGAN - 3.1%
3,500,000 Cornell, MI Economic
Development Corp.,
Industrial
Development Revenue
Refunding Bonds
(Series 1990),
3.65% CP (Mead-
Escanaba Paper Co.
Project)/(Credit
Suisse First Boston
LOC), Mandatory
Tender
12/1/1997 A1+ 3,500,000
365,000 Lenawee County, MI
EDC, Revenue Bonds
Weekly VRDNs
(Hardwoods of
Michigan,
Inc.)/(National
City Bank,
Cleveland, OH LOC) VMIG1 365,000
- --------------------------------------------------------------
Total 3,865,000
- --------------------------------------------------------------
MISSISSIPPI - 1.6%
2,000,000 Forest, MS, IDR
Refunding Bonds
Weekly VRDNs (Sara
Lee Corp.) AA- 2,000,000
- --------------------------------------------------------------
MISSOURI - 9.7%
$700,000 Independence, MO IDA,
IDRB Weekly VRDNs
(Shoney's Inn)/
(Wachovia Bank of
NC, NA,
Winston-Salem LOC) NR $700,000
1,500,000 Missouri State
Environmental
Improvement &
Energy Authority,
(Series 1985A),
3.75% CP (Union
Electric Co.)/
(Union Bank of
Switzerland, Zurich
LOC), Mandatory
Tender
1/5/1998 P1 1,500,000
1,500,000 Missouri State
Environmental
Improvement &
Energy Authority,
(Series 1985A),
3.80% CP (Union
Electric Co.)/
(Union Bank of
Switzerland, Zurich
LOC), Mandatory
Tender
1/13/1998 P1 1,500,000
6,000,000 Missouri State
Environmental
Improvement &
Energy Authority,
Refunding Revenue
Bonds Weekly VRDNs
(Kansas City Power
And Light Co.) VMIG1 6,000,000
2,500,000 Missouri State HEFA,
Revenue Bonds
(Series D) Daily
VRDNs (Washington
University) VMIG1 2,500,000
- --------------------------------------------------------------
Total 12,200,000
- --------------------------------------------------------------
NEW MEXICO - 1.1%
1,400,000 Belen, NM, IDR
Refunding Bonds
(Series 1991)
Weekly VRDNs
(United Desiccants,
Inc.)/ (National
City Bank, Kentucky
LOC) NR 1,400,000
- --------------------------------------------------------------
OHIO - 25.9%
1,250,000 Butler County, OH,
3.70% BANs,
3/20/1998 NR 1,251,437
2,000,000 Butler County, OH,
3.90% BANs,
8/6/1998 NR 2,005,096
2,000,000 Butler County, OH, GO UT, 4.25% BANs,
10/22/1998 NR 2,006,911
480,000 Centerville, OH,
Health Care Revenue
Bonds Weekly VRDNs
(Bethany Lutheran
Village)/(PNC Bank,
Ohio, N.A. LOC) VMIG1 480,000
1,750,000 Chagrin Falls, OH
Village School
District, GO UT,
4.50% BANs,
2/10/1998 NR 1,752,403
1,000,000 Columbus, OH Sewer
System, Revenue
Bonds (Series 1994)
Weekly VRDNs VMIG1 1,000,000
$3,565,000 Columbus, OH, Series
1 Weekly VRDNs VMIG1 $3,565,000
2,000,000 Cuyahoga County, OH
Hospital Authority,
(Series C) Weekly
VRDNs (Cleveland
Clinic) VMIG1 2,000,000
2,000,000 Dublin, OH City
School District, GO
UT, 4.33% Bonds, SP-1+/
5/13/1998 MIG1 2,002,831
2,800,000 Franklin County, OH
Hospital Facility
Authority, Series A
Weekly VRDNs (U.S.
Health Corporation
of
Columbus)/(Morgan
Guaranty Trust Co.,
New York LOC) VMIG1 2,800,000
2,750,000 Hamilton County, OH
Hospital Facilities
Authority, (Series
1997A) Weekly VRDNs
(Children's
Hospital Medical
Center, Akron)/
(PNC Bank, Ohio,
N.A. LOC) VMIG1 2,750,000
500,000 Hamilton County, OH
Hospital Facilities
Authority, Series B
Revenue Bonds
Weekly VRDNs
(Health Alliance of
Greater
Cincinnati)/ (MBIA
Insurance
Corporation INS) VMIG1 500,000
90,000 Marion County, OH
Hospital Authority
Weekly VRDNs
(Pooled Lease
Program)/ (Bank
One, Ohio, N.A.
LOC) VMIG1 90,000
1,205,000 Marion County, OH
Hospital Authority,
(Series 1991)
Weekly VRDNs
(Marion County, OH
Pooled Hospital
Program)/(Bank One,
Ohio, N.A. LOC) A1+ 1,205,000
3,000,000 Ohio School
Districts, (Series
B), 4.47% TANs, SP-1+/
6/30/1998 MIG1 3,009,843
385,000 Ohio State IDR,
Refunding Bonds
Weekly VRDNs
(Cincinnati
Riverfront
Coliseum,
Inc.)/(PNC Bank,
Ohio, N.A. LOC) A1 385,000
310,000 Ohio State IDR,
Refunding Bonds
Weekly VRDNs
(Cincinnati
Riverfront
Coliseum,
Inc.)/(PNC Bank,
Ohio, N.A. LOC) A1 310,000
485,000 Ohio State IDR,
Refunding Bonds
Weekly VRDNs
(Cincinnati
Riverfront
Coliseum,
Inc.)/(PNC Bank,
Ohio, N.A. LOC) A1 485,000
$450,000 Ohio State IDR,
Refunding Bonds
Weekly VRDNs
(Cincinnati
Riverfront
Coliseum,
Inc.)/(PNC Bank,
Ohio, N.A. LOC) A1 $450,000
2,000,000 Ohio State Water
Development
Authority,
Pollution Control
Revenue Refunding
Bonds (Series 1997)
Weekly VRDNs
(Philip Morris
Cos., Inc.) P1 2,000,000
2,000,000 University of
Cincinnati, OH,
(Series T), 3.70% SP-1+/
BANs, 3/19/1998 MIG1 2,001,968
750,000 University of
Cincinnati, OH,
Series AA, 3.65% SP-1+/
BANs, 3/19/1998 MIG1 751,284
- --------------------------------------------------------------
Total 32,801,773
- --------------------------------------------------------------
PENNSYLVANIA - 7.9%
3,000,000 Allegheny County, PA
HDA, (Series 1990
C) Daily VRDNs
(Presbyterian
University
Hospital)/ (MBIA
Insurance
Corporation INS) VMIG1 3,000,000
4,000,000 Allegheny County, PA
IDA, PCR (Series
1992A), 3.85% TOBs
(Duquesne Light
Power Co.)/
(Canadian Imperial
Bank of Commerce,
Toronto LOC), PUT
10/21/1998 P1/A1+ 4,000,000
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,
(Series 1997-1998),
4.50% TRANs, SP-1+/
6/30/1998 MIG1 2,006,115
- --------------------------------------------------------------
Total 10,006,115
- --------------------------------------------------------------
TENNESSEE - 5.2%
1,000,000 Greenville, TN IDB,
IDRB Weekly VRDNs
(Ball
Corp.)/(Wachovia
Bank of Georgia NA,
Atlanta LOC) A1+ 1,000,000
2,000,000 Rutherford County, TN
IDB Weekly VRDNs
(Square D.
Co.)/(Societe
Generale LOC) A1+ 2,000,000
3,540,000 Sullivan County, TN
Health Educational
& Housing
Facilities Board,
Revenue Bonds
Weekly VRDNs
(Asbury Center)/
(Nationsbank, N.A.,
Charlotte LOC) NR 3,540,000
- --------------------------------------------------------------
Total 6,540,000
- --------------------------------------------------------------
TEXAS - 8.6%
$2,275,000 Bexar County, Health
Facilities
Development
Authority Weekly
VRDNs (Army
Retirement
Resources
Foundation)/
(Rabobank
Nederland, Utrecht
LOC) A1 $2,275,000
3,050,000 Harris County, TX
HFDC, (Series 1994)
Daily VRDNs
(Methodist
Hospital, Harris
County, TX) A1+ 3,050,000
1,600,000 Lone Star, TX Airport
Improvement
Authority, Revenue
Bonds (Series A-1)
Daily VRDNs
(American
Airlines)/ (Royal
Bank of Canada,
Montreal LOC) VMIG1 1,600,000
1,900,000 (a) San Antonio, TX
IDA Weekly VRDNs
(San Antonio River
Center
Associates)/(PNC
Bank, N.A. LOC) A1 1,900,000
2,000,000 Waller County, TX
IDC, Industrial
Improvement Revenue
Bonds Weekly VRDNs
(Tubular Steel,
Inc.) LOC Wachovia
Bank of Georgia P1 2,000,000
- --------------------------------------------------------------
Total 10,825,000
- --------------------------------------------------------------
VIRGINIA - 1.4%
$1,810,000 Rockbridge County, VA
IDA, IDR Bonds,
3.85% PUT (Safeway,
Inc.)/ (Bankers
Trust Co., New York
LOC) 2/2/1998 A1 $1,810,000
- --------------------------------------------------------------
WISCONSIN - 1.6%
2,000,000 Racine County, WI
School District,
Tax & Revenue
Anticipation Prom
Nts, 4.25% Bonds,
8/24/1998 SP-1+ 2,005,613
- --------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPALS 125,574,986
- --------------------------------------------------------------
MUTUAL FUND SHARES - 0.3%
368,145 SEI Tax Exempt Money
Market Fund (AT NET
ASSET VALUE) 368,145
- --------------------------------------------------------------
TOTAL INVESTMENTS (AT AMORTIZED
COST)(A) $125,943,131
- --------------------------------------------------------------
</TABLE>
----------------------------------------------------
STAR TREASURY FUND November 30, 1997
- -------------------------------------------------------
- -------------------------------------------------------
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------
- -------------------------------------------------------
<TABLE>
<C> <S> <C>
U.S. TREASURY - 28.6%
- ----------------------------------------------------------------------
$105,000,000 United States Treasury
Bills,
2/26/1998 $103,705,331
218,000,000 United States Treasury
Notes, 5.00%-9.00%,
11/30/1997-11/30/98 218,538,581
- ----------------------------------------------------------------------
TOTAL U.S. TREASURY 322,243,912
- ----------------------------------------------------------------------
(B) REPURCHASE AGREEMENTS - 67.9%
- ----------------------------------------------------------------------
55,000,000 Bear, Stearns and Co.,
5.700%, dated
11/28/1997, due
12/1/1997 55,000,000
55,000,000 Dean Witter Reynolds,
Inc., 5.680%, dated
11/28/1997, due
12/1/1997 55,000,000
280,609,000 Donaldson, Lufkin and
Jenrette Securities
Corp., 5.700%, dated
11/28/1997, due
12/1/1997 280,609,000
$55,000,000 Merrill Lynch, Pierce,
Fenner and Smith,
5.700%, dated
11/28/1997, due
12/1/1997 $55,000,000
40,000,000 Morgan Stanley Group,
Inc., 5.650%, dated
11/28/1997, due
12/1/1997 40,000,000
280,609,000 SBC Capital Markets,
Inc., 5.650%, dated
11/28/1997, due
12/1/1997 280,609,000
- ----------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 766,218,000
- ----------------------------------------------------------------------
MUTUAL FUNDS--3.5%
20,000,000 Merrill Lynch
Institutions Treasury
Fund 20,000,000
20,000,000 Short Term Investment
Fund 20,000,000
- ----------------------------------------------------------------------
TOTAL MUTUAL FUNDS (AT NET ASSET VALUE) 40,000,000
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $1,128,461,912
- ----------------------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
- --------------------------------------------------------------------------------
Notes to Portfolios of Investments
(a) Also represents cost for federal tax purposes.
(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at date of the portfolio.
* Current credit ratings are unaudited. Please refer to the Statement of
Additional Information for an explanation of the credit ratings.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
BANs --Bond Anticipation Notes
CP --Commercial Paper
EDA --Economic Development Authority
EDC --Economic Development Commission
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
IDC --Industrial Development Corporation
IDR --Industrial Development Revenue
IDRB --Industrial Development Revenue Bond
IDFA --Industrial Development Finance Authority
INS --Insured
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
MMM --Money Market Municipal
PCR --Pollution Control Revenue
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
<TABLE>
<CAPTION>
Total Net
Star Funds Assets**
<S> <C>
Star Tax-Free Money Market Fund $126,347,535
Star Treasury Fund 1,128,695,727
</TABLE>
** The categories of investments are shown as a percentage of net assets at
November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
Statements of Assets & Liabilities
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
STAR
TAX-FREE
MONEY STAR
MARKET TREASURY
FUND FUND
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in repurchase agreements, at amortized cost $-- $766,218,000
Investments in securities 125,943,131 362,243,912
- --------------------------------------------------------------------------------------------------------------
Total investments in securities, at value $125,943,131 $1,128,461,912
Cash -- 6,795
Income receivable 737,015 4,747,481
Receivable for Fund shares sold -- 1,094
- --------------------------------------------------------------------------------------------------------------
Total assets 126,680,146 1,133,217,282
- --------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares redeemed -- 150
Income distribution payable 312,491 4,393,196
Accrued expenses 20,120 128,209
- --------------------------------------------------------------------------------------------------------------
Total liabilities 332,611 4,521,555
- --------------------------------------------------------------------------------------------------------------
NET ASSETS:
Trust Shares -- $659,295,588
Investment Shares $126,347,535 469,400,139
- --------------------------------------------------------------------------------------------------------------
Total Net Assets $126,347,535 $1,128,695,727
- --------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
Trust Shares -- 659,295,588
Investment Shares 126,347,535 469,400,139
- --------------------------------------------------------------------------------------------------------------
Total shares outstanding 126,347,535 1,128,695,727
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Trust Shares -- $1.00
Investment Shares $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Investments, at identified cost $125,943,131 $1,128,461,912
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Investments, at tax cost $125,943,131 $1,128,461,912
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
Statements of Operations
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
STAR
TAX-FREE
MONEY STAR
MARKET TREASURY
FUND FUND
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $5,053,405 $54,977,537
EXPENSES:
Investment advisory fee 761,469 4,990,143
Administrative personnel and services fee 128,243 922,287
Custodian fees 34,612 249,507
Transfer and dividend disbursing agent fees and expenses 24,274 68,491
Directors'+Trustees' fees 2,902 15,217
Auditing fees 14,183 18,620
Legal fees 5,052 20,808
Portfolio accounting fees 35,676 136,061
Distribution services fee -- 202,834(a)
Shareholder services fee 69,224 499,014(b)
Share registration costs -- 99,536
Printing and postage 6,903 21,764
Insurance premiums 4,875 11,981
Miscellaneous 1,326 3,323
- -------------------------------------------------------------------------------------------------------------------
Total expenses 1,088,739 7,259,586
- -------------------------------------------------------------------------------------------------------------------
Waivers--
- -------------------------------------------------------------------------------------------------------------------
Waiver of investment advisory fee (138,449) --
- -------------------------------------------------------------------------------------------------------------------
Net Expenses 950,290 7,259,586
- -------------------------------------------------------------------------------------------------------------------
Net investment income 4,103,115 47,717,951
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents distribution services fee for the Investment Shares.
(b) Represents shareholders services fees of $185,780 and $313,234 for Trust
Shares and Investment Shares, respectively.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
Statements of Changes In Net Assets
<TABLE>
<CAPTION>
STAR
TAX-FREE STAR
MONEY MARKET TREASURY
FUND FUND
YEAR ENDED NOVEMBER 30, YEAR ENDED NOVEMBER 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $4,103,115 $5,133,251 $47,717,951 $33,607,634
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Trust Shares -- -- (17,991,145) --
Investment Shares (4,103,115) (5,133,251) (29,726,806) (33,607,634)
- -------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions to shareholders (4,103,115) (5,133,251) (47,717,951) (33,607,634)
- -------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS--
Proceeds from sales of shares 529,216,899 573,340,058 6,634,149,054 7,139,876,502
Net assets value of shares issued to shareholders in
payment of distributions declared 5,547 890 469,381 102,722
Cost of shares redeemed (556,130,618) (587,441,413) (6,335,181,799) (6,965,683,064)
- --------------------------------------------------------------------------------------------------------------------
Change in net assets from share transactions (26,908,172) (14,100,465) 299,436,636 174,296,160
- --------------------------------------------------------------------------------------------------------------------
Change in net assets (26,908,172) (14,100,465) 299,436,636 174,296,160
NET ASSETS:
Beginning of period 153,255,707 167,356,172 829,259,091 654,962,931
- --------------------------------------------------------------------------------------------------------------------
End of period $126,347,535 $153,255,707 $1,128,695,727 $829,259,091
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
Financial Highlights
STAR FUNDS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS RATIOS TO AVERAGE NET ASSETS
VALUE, NET FROM NET NET ASSET NET EXPENSE
YEAR ENDED BEGINNING INVESTMENT INVESTMENT VALUE, END TOTAL INVESTMENT WAIVER/
NOVEMBER 30 OF PERIOD INCOME INCOME OF PERIOD RETURN(B) EXPENSES INCOME REIMBURSEMENT(C)
- ------------------------------------------------------------------------------------------------------------------------
STAR TAX-FREE MONEY MARKET FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991(a) $1.00 0.03 (0.03) $1.00 2.84% 0.55%(d) 3.95%(d) 0.48%(d)
1992 $1.00 0.03 (0.03) $1.00 2.59% 0.66% 2.54% 0.40%
1993 $1.00 0.02 (0.02) $1.00 1.91% 0.65% 1.90% 0.40%
1994 $1.00 0.02 (0.02) $1.00 2.15% 0.65% 2.12% 0.15%
1995 $1.00 0.03 (0.03) $1.00 3.32% 0.66% 3.26% 0.15%
1996 $1.00 0.03 (0.03) $1.00 2.91% 0.70% 2.87% 0.11%
1997 $1.00 0.03 (0.03) $1.00 3.02% 0.69% 2.96% 0.10%
STAR TREASURY FUND
INVESTMENT SHARES
1989(e) $1.00 0.05 (0.05) $1.00 5.36% 0.77%(d) 8.28%(d) 0.01%(d)
1990 $1.00 0.07 (0.07) $1.00 7.72% 0.73% 7.44% 0.03%
1991 $1.00 0.06 (0.06) $1.00 5.72% 0.71% 5.51% 0.10%
1992 $1.00 0.03 (0.03) $1.00 3.41% 0.71% 3.33% 0.25%
1993 $1.00 0.03 (0.03) $1.00 2.56% 0.70% 2.53% 0.25%
1994 $1.00 0.03 (0.03) $1.00 3.30% 0.70% 3.24% --
1995 $1.00 0.05 (0.05) $1.00 5.23% 0.71% 5.14% --
1996 $1.00 0.05 (0.05) $1.00 4.80% 0.70% 4.69% --
1997 $1.00 0.05 (0.05) $1.00 4.85% 0.73% 4.73% --
TRUST SHARES
1997(f) $1.00 0.03 (0.03) $1.00 3.37% 0.72%(d) 4.87%(d) --
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET ASSETS
END OF
PERIOD
YEAR ENDED (000
NOVEMBER 30 OMITTED)
- -----------------------
STAR TAX-FREE MONEY MARKET FUND
<S> <C>
1991(a) $113,731
1992 $144,487
1993 $135,022
1994 $135,427
1995 $167,356
1996 $153,256
1997 $126,348
STAR TREASURY FUND
INVESTMENT SHARES
1989(e) $174,062
1990 $226,519
1991 $307,278
1992 $346,508
1993 $386,020
1994 $358,766
1995 $654,963
1996 $829,259
1997 $469,400
TRUST SHARES
1997(f) $659,296
- ------------
</TABLE>
(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 if reflected in both the expense and net
investment income ratios shown above.
(d) Computed on an annualized basis.
(e) Reflects operations for the period from April 14, 1989 (date of initial
public investment) to November 30, 1989.
(f) Reflects operations for the period from March 25, 1997 (date of initial
public investment) to November 30, 1997.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements
NOVEMBER 30, 1997
(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 eleven diversified portfolios and one non-diversified portfolio. 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 Stellar Insured Tax-Free Bond Fund
("Stellar Tax-Free Bond Fund")*
Star Market Capitalization Fund
("Market Capitalization Fund")**
Star Ohio Tax-Free Money Market Fund
("Ohio Tax-Free Money Market Fund")**
Star International Equity Fund
("International Equity Fund")**
* Stellar Tax-Free Bond Fund became effective on
December 30, 1996.
** The Market Capitalization Fund, Ohio Tax-Free Money Market Fund and
International Equity Fund became effective on November 19, 1997 but had no
public investment as of November 30, 1997.
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein along with
each Fund's investment objective:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
<S> <C>
- --------------------------------------------------------
Tax-Free Money Market Fund Current income exempt from
federal regular income tax consistent with
stability of principal.
Treasury Fund Stability of principal and current income
consistent with stability of principal.
</TABLE>
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 Treasury Fund offers two classes
of shares: Trust Shares and Investment Shares; the Tax-Free Money Market Fund is
offered without class designation.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS
The Funds' use the amortized cost method to value their portfolio securities in
accordance with Rule 2a-7 under the Act. Investments in other open-end
investment companies are valued at net asset value.
B. REPURCHASE AGREEMENTS
It is the policy of the Funds to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
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.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
D. FEDERAL TAXES
It is each Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of their income. Accordingly, no provisions for federal tax
are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued or delayed delivery transactions. The Funds
record when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date.
F. 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.
G. OTHER
Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1997, capital paid-in for Tax-Free Money Market Fund and Treasury
Fund aggregated $126,347,535 and $1,128,695,727, respectively. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
TAX-FREE
MONEY MARKET FUND
----------------------------
YEAR ENDED
NOVEMBER 30,
1997 1996
----------------------------
<S> <C> <C>
Shares sold 529,216,899 573,340,058
Shares issued to share
holders in payment of
distributions declared 5,547 890
Shares redeemed (556,130,618) (587,441,413)
----------------------------
Net change resulting from
share transactions (26,908,172) (14,100,465)
----------------------------
</TABLE>
<TABLE>
<CAPTION>
TREASURY FUND
----------------
PERIOD ENDED
NOVEMBER 30,
TRUST SHARES 1997*
- --------------------------------------- ----------------
<S> <C>
Shares sold 2,057,044,184
Shares issued to shareholders in
payment of distributions declared 81,573
Shares redeemed (1,397,830,169)
----------------
Net change resulting from share
transactions 659,295,588
----------------
</TABLE>
* Reflects operations for the period from March 25, 1997 (date of initial public
investment) to November 30, 1997.
<TABLE>
<CAPTION>
TREASURY FUND
----------------------------
YEAR ENDED
NOVEMBER 30,
INVESTMENT SHARES 1997 1996
- --------------------------- ------------- ---------------
<S> <C> <C>
Shares sold 4,577,104,870 7,139,876,502
Shares issued to
shareholders in payment
of distributions declared 387,808 102,722
Shares redeemed (4,937,351,630) (6,965,683,064)
------------- -------------
Net change resulting
from share
transactions (359,858,952) 174,296,160
------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. 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 equal to the
percentage of each Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
FUND ANNUAL 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 or reimburse
the funds for certain operating expenses.
The Adviser can terminate this voluntary waiver of its advisory fees at any time
at its sole discretion.
B. 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.
Effective January 1, 1998, the fee that FAS receives will change to an annual
rate of 0.12% of each fund's average daily net assets of the Trust. The fee
received during any fiscal year shall be at least $50,000 per Fund. FAS may
choose to voluntarily waive a portion of its fee at any time.
Effective January 1, 1998, under the terms of a Sub-Administration Agreement
between FAS and Star Bank, N.A., FAS will pay to Star Bank, N.A., solely from
the resources of FAS, a sub-administration fee at an annual rate of 0.04% of the
average daily net assets of the Trust, for assisting FAS in rendering
administrative services to the Trust.
C. 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 Treasury Fund is accruing and
paying 12b-1 fees. The Tax-Free Money Market Fund 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.
D. 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, the Funds plan 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.
E. 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.
Effective January 23, 1998, Star Bank, N.A. will become the Funds transfer and
dividend disbursing agent.
F. 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.
G. 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.
H. 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, 1997, 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 Funds' 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, 1997, 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, 1997, 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 16, 1998
- --------------------------------------------------------------------------------
Trustees Officers
<TABLE>
<S> <C>
Thomas L. Conlan, Jr. Edward C. Gonzales
Edward C. Gonzales PRESIDENT AND TREASURER
Alfred Gottschalk, Ph.D. Joseph S. Machi
Robert J. Hill, D.O. 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, 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
oraccompanied by the Trust's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO OF STAR FUNDS] STOCK FUNDS
COMBINED
ANNUAL
REPORT
DATED NOVEMBER 30, 1997
PORTFOLIOS OF THE STAR FUNDS
THE STELLAR FUND
STAR RELATIVE VALUE FUND
STAR GROWTH EQUITY FUND
STAR CAPITAL APPRECIATION FUND
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the Star Stock
Funds. The Report covers the 12-month fiscal year period from December 1, 1996
through November 30, 1997. It includes a discussion with each fund's portfolio
manager, which covers economic and market conditions and their impact on fund
performance and strategy. Next are graphs of each fund's long-term performance,
followed by a complete list of each fund's holdings and financial statements.
In general, the Star Stock Funds continued to deliver highly positive returns as
the bull market marched on, accompanied by an extremely high level of
volatility. Fund-by-fund highlights over the 12-month period are as follows:
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 a total return on November 30, 1997 of 11.94%, or
6.91% adjusted for the sales charge, for Investment Shares.* Contributing to the
total return were dividends totaling $0.36 per share, capital gains totaling
$0.50 per share, and a net asset value increase over the fiscal year from $13.59
to $14.27 at period end.
Shareholders of Trust Shares received a total return on November 30, 1997 of
12.22% through dividends totaling $0.40 per share, capital gains totaling $0.50
per share, and a net asset value increase from $13.59 to $14.27 at the end of
the period.*
On the last day of the period, fund net assets totaled $114.1 million.
STAR RELATIVE VALUE FUND
The fund pursues a high level of total return through a portfolio of stocks that
appear to be undervalued and offer above-average yields with low volatility.
Many of these stocks are household names and at the end of the reporting period
included American Express, Bristol-Myers Squibb, Ford, Gillette, Goodyear, IBM,
Intel, Merck, J.C. Penney, and more. On November 30, 1997 the fund's Investment
Shares delivered a total return of 27.69%, or 21.93% adjusted for the sales
charge.* The Investment Shares' net asset value rose significantly, from $19.03
on the first day of the period to $23.48 on the last day. Shareholders received
dividends totaling $0.28 per share and capital gains totaling $0.39 per share.
The fund's Trust Shares, introduced on August 18, 1997, produced a 3.93% total
return in its first three months of operation ended November 30, 1997, through
$0.07 in income and a $0.82 increase in net asset value.*
Fund assets increased substantially over the fiscal year, from $216 million to
$349.8 million at period end.
STAR GROWTH EQUITY FUND
The fund pursues growth through high-quality stocks that, at the end of the
reporting period, included companies such as Allstate, Boeing, Brunswick,
Disney, Dow, General Motors, Gillette, Hewlett-Packard, IBM, Intel, J.P. Morgan,
Microsoft, Pepsico, Pfizer, and Wal-Mart. On November 30, 1997 the fund's
Investment Shares produced a total return of 22.65%, or 17.22% adjusted for the
sales charge.* Contributing to the total return were a $2.00 increase in net
asset value, $0.14 per share in dividends and $1.02 in capital gains.
The fund's Trust Shares, introduced on August 18, 1997, produced a 4.59% total
return in its first three months of operation ended November 30, 1997, through
$0.04 in income and a $0.72 increase in net asset value.* Over the year, fund
assets soared from $85 million to $154 million.
* Performance quoted represents 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.
+ Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
STAR CAPITAL APPRECIATION FUND
At the end of the 12-month reporting period, the fund's portfolio of more than
100 growth-oriented stocks included such familiar names as Brunswick, Clorox,
Coca-Cola, General Dynamics, Hershey, and Whirlpool. The fund achieved a total
return on November 30, 1997 of 14.26%, or 9.13% adjusted for the sales charge,
through a $1.79 increase in net asset value. Fund assets grew to reach $83.1
million at period end.*
Thank you for pursuing your longer-term goals through the Star Stock Funds. We
hope you are pleased with your progress. We will continue to keep you up-to-date
on the details of your investment on a regular basis, through the highest level
of service possible.
Sincerely,
[LOGO SIGNATURE OF EDWARD C. GONZALES]
Edward C. Gonzales
President
January 15, 1998
* Performance quoted represents 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.
INVESTMENT REVIEWS
- --------------------------------------------------------------------------------
The Stellar Fund
- ----------------
Q The fund's fiscal year saw an improved environment for U.S. bonds, strong
yet volatile U.S. stock performance, and an international marketplace that
was negatively impacted by a strong U.S. dollar. How did the Stellar Fund's
multi-asset investment mix perform for shareholders?
A As we expected, the Stellar Fund produced results that reflected its asset
mix of 20% positions in an established variety of investment alternatives.
The fund's total return for Investment Shares based on net asset value on
November 30, 1997 was 11.94%.* The fund also maintained a degree of reduced
volatility that was approximately 60% less than the equity market. The fund's
performance was negatively impacted by the international exposure and the
position in cash management tools. Both of these areas generated positive
numbers for the fund, but not to the degree that the equity, bond, and REIT
markets contributed to the overall performance.
Q Since U.S. securities have had several years of excellent performance,
should the Stellar Fund commit more of its assets in this arena?
A There is no question that the U.S. market has been a superior performer
over the past few years. However, long-term performance is the goal of the
fund and it intends to obtain those long-term results by maintaining equal
positions in five asset classes which we believe use the benefits of
diversification to achieve long-term performance. For example, in eight of the
past fifteen years, the international market has outperformed the domestic
market. Furthermore, of the five asset classes, the U.S. domestic equity market
has been the best performer in only three of the past fifteen years.
Q How is the fund managed with a five asset class mix?
A We have taken a team approach to the investment management of the fund.
Certainly, no one portfolio manager can fully understand the opportunities
and vulnerabilities within so many investment markets. Therefore, it was
prudent to have the specialists in each of our particular markets manage their
portion of the fund. For example, within the Star Funds family, we manage both a
REIT mutual fund and an international mutual fund. The experience we glean from
these "focused" mutual funds can, therefore, be applied by the managers for the
fund. In this manner, the fund shareholders can benefit from experienced,
professional management by specialists in five different investment markets.
Q With turmoil in Southeast Asia how can the Stellar Fund avoid the market
fallout?
A Throughout 1997, the fund systematically avoided investment in the
economies of Southeast Asia and Japan. In fact, there are only two current
holdings that are domiciled in that area of the world. We have focused our
energies on Canada, Latin America, and Western Europe for the predominance of
our international exposure. While the turmoil in Southeast Asia will,
undoubtedly, provide certain opportunities, we are still somewhat leary of
significantly increasing our exposure during the foreseeable future.
Star Relative Value Fund
- ------------------------
Q Despite an unprecedented level of volatility, the stock market recorded
impressive gains over the fund's fiscal year. In this environment, Star
Relative Value Fund out-performed the Lipper Growth and Income Average.
What are your comments?
A The Star Relative Value Fund produced a 27.69% total return for Investment
Shares, based on net asset value, for the twelve months ended November 30,
1997. This return exceeded that of the Lipper Growth and Income
- ---------
* Performance quoted represents 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 based on offering price for the period was 6.91%.
- --------------------------------------------------------------------------------
Average which had a return of 23.72% for the last twelve months.* The Star
Relative Value Fund continued its disciplined investment approach during the
volatile markets as is evidenced by the low portfolio turnover rate.
Q What specific sectors and stocks made the greatest impact on fund
performance?
A The financial sector, followed by health care, consumer staples, and
transportation were the best performing sectors relative to the S&P 500.
The following stocks in the fund's portfolio outperformed the S&P 500 by
over 40% for the fiscal year ended November 30, 1997: Cincinnati Financial,
American Bankers Insurance Group, Travelers Group, Vodafone Group PLC ADR,
Mellon Bank Corp., and Bristol-Myers Squibb.
Q Looking ahead to 1998, which sectors appear to offer value?
A In looking ahead, a continued low interest rate environment, slowing of
economic growth as a result of the banking and credit problems in Asia, and
an expectation that corporate profits will increase at single digit rates
in 1998 all suggest that defensive, interest-rate sensitive, domestic companies
will be the stocks to own. Therefore, financial related securities and utilities
appear to be attractive sectors for value investors in 1998.
Q As we leave a tumultuous yet rewarding 1997, do you anticipate that we will
see continued volatility and sector rotation in the new year?
A Volatility will become a way of life for investors as we move forward in
the new year thus recreating the need for portfolio managers to be flexible
in shifting from sector to sector. Diversification within these sectors and
fundamental stock selection will remain important.
Star Growth Equity Fund
- -----------------------
Q Despite extreme day-to-day volatility, the stock market delivered
impressive returns over the fund's fiscal year. Star Growth Equity Fund
produced a total return on November 30, 1997 of 22.65% for Investment
Shares based on net asset value.** What is your analysis?
A The market continued to flourish in an environment primarily characterized
by lower interest rates and continued strong earnings growth from corporate
America. This led to a market which was driven mostly by large
recapitalization companies and also by more "value" driven stocks. The fund
concentrates its positions in companies which typically have above-market
expectations for growth and a slightly lower average market capitalization than
the S&P 500. This style allowed the fund to participate in the strong upward
movement of the market, but the lower capitalization did hinder it slightly
versus the S&P 500. To reduce the volatility in the fund, we have maintained a
strong policy towards diversification. Not only have we remained invested in all
of the broad economic sectors, we also on average have carried about 90 stocks
in the fund. This helped to reduce the volatility associated with market
rotations or unexpected corporate events.
Q What sectors accounted for the fund's performance?
A The decline in interest rates along with continued consolidation really
spurred the financial service stocks forward during the reporting period.
The fund was market-weighted to over-weighted throughout most of the
- ---------
* Performance quoted represents 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. The fund's total return based on offering price for the period
was 21.93%. 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. Lipper figures do
not reflect sales charges.
** Performance quoted represents 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 based on offering price for the period was
17.22%.
- --------------------------------------------------------------------------------
period. This was a big positive in the performance for the fund. Specific stocks
which were positive performers included Allstate, Traveler's, and Merrill Lynch.
Another area which was overweighted and which performed well was machinery
stocks. This group also benefited from strong earnings growth. Specific stocks
included Parker Hannifin, ITW and Caterpillar. Lastly, the fund's Healthcare
stocks did very well. Earnings growth and a significant upward movement in
valuations helped propel this group. The fund owned such names as Schering
Plough, Bristol Myers, and Sofamor Danek.
Q Considering the recent level of volatility and sector rotation in the
market, in what sectors do you see opportunities?
A Our forecast for continued lower rates and further industry consolidation
still leads us to place a heavier-than-market weight on the financial
stocks. The heaviest emphasis is being placed on insurance companies and
other non-bank financials. We are also finding value in some of the oil drilling
stocks where we believe earnings expectations are too low. The recent pullback
experienced by this group creates opportunities. Otherwise, we believe that this
is a stock picker's market and that there will, for the time being, be less
emphasis on sectors. Therefore, we will continue to emphasize strong
diversification and concentrate on future earnings growth in our stock
selection.
Star Capital Appreciation Fund
- ------------------------------
Q 1997 was a rewarding year for stocks overall. However, the end of the
reporting period was marked by unprecedented volatility--much of it driven
by a reaction to overseas problems--from which the market more or less
recovered. Can you comment?
A The performance of the stocks in the fund was due more to the realization
that expectations for many companies were too optimistic rather than the
international economic and political problems that occurred in the fourth
quarter.
Q In this environment, how did Star Capital Appreciation Fund perform over
its fiscal year?
A With a total return of 14.26% based on net asset value on November 30,
1997, the fund performed well into its peer group.*
Q The fund's core strategy has been to studiously avoid the perils of market
timing, while focusing on selecting the highest quality, most solid mid-cap
stocks with good long-term prospects. With that fundamental framework, did
you make any adjustments to sector weightings?
A As changes were made to the fund's holdings and as sectors were adjusted to
reflect our view of the economy, the fund deployed cash reserves to bring
equity holdings back to a full compliment.
Q As we enter 1998, what is your outlook for equities? Do you anticipate
continued day-to-day volatility?
A Yes, our view of the economy is that market expectations are still too
optimistic and that the process of working to a realistic level will cause
a continuation of the day-to-day volatility.
- ---------
* Performance quoted is 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 based on offering price for the period was 9.13%.
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, 1997 COMPARED TO THE STANDARD & POOR'S 500/LEHMAN
BROTHERS GOVERNMENT CORPORATE TOTAL INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 Brothers 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.
+The Standard & Poor's 500/Lehman Brothers 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--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, 1997 COMPARED TO THE STANDARD & POOR'S 500/ LEHMAN
BROTHERS GOVERNMENT CORPORATE TOTAL INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 Brothers Government Corporate
Total Index has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
+The Standard & Poor's 500/Lehman Brothers 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 RELATIVE VALUE FUND--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR RELATIVE VALUE FUND--INVESTMENT SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR RELATIVE VALUE FUND--INVESTMENT SHARES (THE "FUND") FROM JUNE 4, 1991
(START OF PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE STANDARD & POOR'S
500 INDEX+ AND THE LIPPER GROWTH AND INCOME AVERAGE.++
[GRAPH APPEARS HERE-SEE APPENDIX]
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 and Lipper Growth and
Income Average have been adjusted to reflect reinvestment of dividends on
securities in the index and average. The index is unmanaged.
**Total return quoted reflects all applicable 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 Lipper Growth and Income Average represents the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective category and is not adjusted to
reflect any sales charges. However, these total returns are reported net of
expenses or other fees that the SEC requires to be reflected in the Fund's
performance.
STAR RELATIVE VALUE FUND--TRUST SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR RELATIVE VALUE FUND--TRUST SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR RELATIVE VALUE FUND--TRUST SHARES (THE "FUND") FROM AUGUST 18, 1997 (START
OF PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE STANDARD & POOR'S 500
INDEX+ AND LIPPER GROWTH AND INCOME AVERAGE.++
[GRAPH APPEARS HERE-SEE APPENDIX]
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 Fund's
performance assumes the reinvestment of all dividends and distributions. The
Standard & Poor's 500 Index and Lipper Growth and Income Average have been
adjusted to reflect reinvestment of dividends on securities in the index and
average. The index is unmanaged.
+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 Lipper Growth and Income Average represents the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective category and is not adjusted to
reflect any sales charges. However, these total returns are reported net of
expenses or other fees that the SEC requires to be reflected in the Fund's
performance.
STAR GROWTH EQUITY FUND--INVESTMENT SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR GROWTH EQUITY FUND--INVESTMENT SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR GROWTH EQUITY FUND--INVESTMENT SHARES (THE "FUND") FROM DECEMBER 12, 1994
(START OF PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE STANDARD & POOR'S
500 INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 2.00% contingent deferred sales charge on any
redemption less than four years from the purchase date. The maximum contingent
deferred sales charge is 5.00% 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 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 GROWTH EQUITY FUND--TRUST SHARES
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN STAR GROWTH EQUITY FUND--TRUST SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE
STAR GROWTH EQUITY FUND--TRUST SHARES (THE "FUND") FROM AUGUST 18, 1997 (START
OF PERFORMANCE) TO NOVEMBER 30, 1997 COMPARED TO THE STANDARD & POOR'S 500
INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 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.
+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 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, 1997 COMPARED TO THE S&P MIDCAP 400 INDEX.+
[GRAPH APPEARS HERE-SEE APPENDIX]
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 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.
+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.
- --------------------------------------------------------------------------------
PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
THE STELLAR FUND November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
U.S. EQUITIES - 20.8%
- -----------------------------------------------------------
BASIC INDUSTRY - 1.8%
- -----------------------------------------------------------
CHEMICALS - 0.5%
3,000 Dow Chemical Co. $296,250
12,400 Lyondell Petrochemical Co. 315,425
- -----------------------------------------------------------
Total 611,675
- -----------------------------------------------------------
MANUFACTURING - 0.8%
9,800 AGCO Corp. 268,275
7,000 Caterpillar, Inc. 335,562
7,875 Parker-Hannifin Corp. 350,437
- -----------------------------------------------------------
Total 954,274
- -----------------------------------------------------------
METALS & MINING - 0.2%
2,600 Aluminum Co. of America 174,850
- -----------------------------------------------------------
STEEL - 0.3%
14,000 AK Steel Holding Corp. 275,625
- -----------------------------------------------------------
TOTAL BASIC INDUSTRY 2,016,424
- -----------------------------------------------------------
CAPITAL GOODS - 3.3%
- -----------------------------------------------------------
AEROSPACE - 0.4%
5,000 Boeing Co. 265,625
3,500 Honeywell, Inc. 229,250
- -----------------------------------------------------------
Total 494,875
- -----------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.3%
5,400 Emerson Electric Co. 297,000
- -----------------------------------------------------------
ELECTRONICS - 0.9%
13,700 Intel Corp. 1,063,462
- -----------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT - 1.7%
16,600 (a) Cisco Systems, Inc. 1,431,750
5,300 Hewlett-Packard Co. 323,631
13,000 (a) Sybase, Inc. 182,000
- -----------------------------------------------------------
Total 1,937,381
- -----------------------------------------------------------
TOTAL CAPITAL GOODS 3,792,718
- -----------------------------------------------------------
CONSUMER CYCLICAL - 2.9%
- -----------------------------------------------------------
AUTOMOTIVE & RELATED - 0.3%
7,000 Johnson Controls, Inc. 320,687
- -----------------------------------------------------------
ENTERTAINMENT & LEISURE - 0.2%
8,000 Callaway Golf Co. 255,000
- -----------------------------------------------------------
RETAILING & APPAREL - 1.7%
8,100 Gap (The), Inc. 434,869
26,753 Pier 1 Imports, Inc. 598,587
30,000 (a) Roberds, Inc. 118,125
8,122 (a) Safeway, Inc. 493,411
8,400 Wal-Mart Stores, Inc. 335,475
- -----------------------------------------------------------
Total 1,980,467
- -----------------------------------------------------------
TRANSPORTATION - 0.7%
11,700 Comair Holdings, Inc. 258,862
20,000 (a) Genesee & Wyoming, Inc.,
Class A 507,500
- -----------------------------------------------------------
Total 766,362
- -----------------------------------------------------------
TOTAL CONSUMER CYCLICAL 3,322,516
- -----------------------------------------------------------
CONSUMER STAPLES - 2.4%
- -----------------------------------------------------------
FOOD & BEVERAGE - 1.0%
11,425 R.J.R. Nabisco, Inc., Class
A $532,691
3,500 Sara Lee Corp. 185,062
9,000 Sysco Corp. 401,062
- -----------------------------------------------------------
Total 1,118,815
- -----------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.7%
1,500 Gillette Co. 138,469
9,000 Procter & Gamble Co. 686,812
- -----------------------------------------------------------
Total 825,281
- -----------------------------------------------------------
TOBACCO - 0.7%
18,000 Philip Morris Cos., Inc. 783,000
- -----------------------------------------------------------
TOTAL CONSUMER STAPLES 2,727,096
- -----------------------------------------------------------
ENERGY - 2.5%
- -----------------------------------------------------------
ENERGY SERVICES - 0.5%
5,800 (a) BJ Services Co. 416,512
3,200 (a) Rowan Companies, Inc. 108,800
- -----------------------------------------------------------
Total 525,312
- -----------------------------------------------------------
ENERGY - EXPLORATION 0.7%
2,000 Diamond Offshore Drilling,
Inc. 99,750
14,170 (a) Global Marine, Inc. 372,848
7,000 Halliburton Co. 377,562
- -----------------------------------------------------------
Total 850,160
- -----------------------------------------------------------
ENERGY - TRANSPORTATION 0.2%
6,000 Santa Fe Pacific Pipeline
Partners LP 281,625
- -----------------------------------------------------------
INTERNATIONAL OIL - 0.7%
6,000 Mobil Corp. 431,625
6,400 Texaco, Inc. 361,600
- -----------------------------------------------------------
Total 793,225
- -----------------------------------------------------------
NATURAL GAS - 0.4%
4,250 Coastal Corp. 248,891
5,000 Noble Affiliates, Inc. 185,625
- -----------------------------------------------------------
Total 434,516
- -----------------------------------------------------------
TOTAL ENERGY 2,884,838
- -----------------------------------------------------------
EQUITY MUTUAL FUNDS - 1.7%
100,000 Gateway Trust 1,904,000
- -----------------------------------------------------------
TOTAL EQUITY MUTUAL FUNDS 1,904,000
- -----------------------------------------------------------
FINANCE - 3.0%
- -----------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS - 1.2%
3,031 Banc One Corp. 155,718
3,000 BankBoston Corp. 267,375
2,658 Citicorp 318,794
6,400 First Union Corp. 312,000
5,000 Popular, Inc. 266,250
- -----------------------------------------------------------
Total 1,320,137
- -----------------------------------------------------------
INSURANCE - 0.7%
7,500 American International
Group, Inc. 756,094
- -----------------------------------------------------------
OTHER FINANCE - 1.1%
3,400 American Express Co. 268,175
8,000 Merrill Lynch & Co., Inc. 561,500
8,400 Morgan Stanley, Dean Witter,
Discover & Co. 456,225
- -----------------------------------------------------------
Total 1,285,900
- -----------------------------------------------------------
TOTAL FINANCE 3,362,131
- -----------------------------------------------------------
HEALTH CARE - 2.3%
- -----------------------------------------------------------
HOSPITAL MANAGEMENT - 0.5%
10,000 Columbia/HCA Healthcare
Corp. $295,000
12,000 (a) Quorum Health Group,
Inc. 288,000
- -----------------------------------------------------------
Total 583,000
- -----------------------------------------------------------
HOSPITAL SUPPLIES - 0.3%
5,000 Johnson & Johnson 314,687
- -----------------------------------------------------------
MEDICAL DEVICES - 0.3%
4,650 (a) Sofamor Danek Group,
Inc. 327,244
- -----------------------------------------------------------
PHARMACEUTICALS - 1.2%
3,900 American Home Products Corp. 272,512
6,000 Bristol-Myers Squibb Co. 561,750
6,000 Merck & Co., Inc. 567,375
- -----------------------------------------------------------
Total 1,401,637
- -----------------------------------------------------------
TOTAL HEALTH CARE 2,626,568
- -----------------------------------------------------------
MISCELLANEOUS - 0.2%
- -----------------------------------------------------------
DIVERSIFIED - 0.2%
7,000 Allied-Signal, Inc. 259,875
- -----------------------------------------------------------
UTILITIES - 0.7%
- -----------------------------------------------------------
TELECOMMUNICATIONS - 0.7%
9,000 Cincinnati Bell, Inc. 265,500
5,600 GTE Corp. 283,150
4,022 SBC Communications, Inc. 292,852
- -----------------------------------------------------------
TOTAL UTILITIES 841,502
- -----------------------------------------------------------
TOTAL U.S. EQUITIES (IDENTIFIED COST
$15,836,713) 23,737,668
- -----------------------------------------------------------
INTERNATIONAL SECURITIES - 22.5%
- -----------------------------------------------------------
INTERNATIONAL EQUITIES - 20.9%
- -----------------------------------------------------------
AUSTRALIA - 2.7%
30,000 National Australia Bank,
Ltd., Melbourne, ADR 2,000,625
10,000 News Corp., Ltd., ADR 197,500
40,000 News Corp., Ltd., ADR 867,500
- -----------------------------------------------------------
TOTAL AUSTRALIA 3,065,625
- -----------------------------------------------------------
CANADA - 3.4%
60,000 Alcan Aluminum, Ltd. 1,616,250
45,000 Canadian Pacific Ltd. 1,274,063
2,500 Seagram Co. Ltd. 80,781
35,000 United Dominion Industries 905,625
- -----------------------------------------------------------
TOTAL CANADA 3,876,719
- -----------------------------------------------------------
DENMARK - 1.6%
30,000 Novo-Nordisk, ADR 1,843,125
- -----------------------------------------------------------
FRANCE - 0.4%
15,000 Thomson CSF, ADR 433,980
- -----------------------------------------------------------
GERMANY - 0.9%
15,000 (a) Daimler Benz AG, ADR 1,059,375
- -----------------------------------------------------------
GREAT BRITAIN - 4.7%
14,000 British Petroleum Co. PLC,
ADR 1,162,000
50,000 Cable & Wireless
Communications PLC, ADR 1,346,875
30,000 Smithkline Beecham Corp.,
ADR 1,488,750
20,000 Vodafone Group PLC, ADR* 1,320,000
- -----------------------------------------------------------
TOTAL GREAT BRITAIN 5,317,625
- -----------------------------------------------------------
HOLLAND - 0.3%
6,000 Royal Dutch Petroleum Co.,
ADR 316,125
- -----------------------------------------------------------
ITALY - 0.3%
5,000 Luxottica Group S.p.A., ADR $295,000
- -----------------------------------------------------------
JAPAN - 1.3%
10,000 Hitachi Ltd., ADR 718,125
45,000 Pioneer Electronic Corp, ADR 807,188
- -----------------------------------------------------------
TOTAL JAPAN 1,525,313
- -----------------------------------------------------------
MEXICO - 1.1%
25,000 Telefonos de Mexico, Class
L, ADR 1,237,500
- -----------------------------------------------------------
NORWAY - 1.3%
30,000 Norsk Hydro A.S., ADR 1,554,375
- -----------------------------------------------------------
SPAIN - 1.9%
50,000 Repsol SA, ADR 2,156,250
- -----------------------------------------------------------
SWEDEN - 1.0%
42,750 Volvo AB, ADR 1,135,547
- -----------------------------------------------------------
TOTAL INTERNATIONAL EQUITIES 23,816,559
- -----------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES - 1.6%
30,000 Chile Fund, Inc. 613,125
62,500 Kleinwort Benson Australian
Income Fund 527,344
38,010 Mexico Fund 719,814
- -----------------------------------------------------------
TOTAL CLOSED-END INVESTMENT COMPANIES 1,860,283
- -----------------------------------------------------------
TOTAL INTERNATIONAL SECURITIES
(IDENTIFIED COST $20,686,642) 25,676,842
- -----------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 19.8%
13,498 Arden Realty Group, Inc. 410,845
28,000 Avalon Properties, Inc. 861,000
13,000 BRE Properties, Inc., Class
A 373,750
20,000 Bay Apartment Communities,
Inc. 798,750
12,000 Beacon Properties Corp. 540,000
20,000 Cali Realty Corp. 793,750
16,500 Camden Property Trust 539,344
18,000 CarrAmerica Realty Corp. 542,250
24,300 CenterPoint Properties Corp. 804,937
9,000 Chelsea GCA Realty, Inc. 342,000
9,000 Developers Diversified
Realty 350,437
10,000 Duke Realty Investments,
Inc. 230,000
12,000 EastGroup Properties, Inc. 258,000
13,000 Equity Residential
Properties Trust 650,000
16,400 Federal Realty Investment
Trust 413,075
15,000 FelCor Suite Hotels, Inc. 544,688
2,400 Highwoods Properties, Inc. 86,250
25,000 Irvine Apartment
Communities, Inc. 776,563
11,000 Kilroy Realty Corp. 288,750
15,250 Kimco Realty Corp. 524,219
39,500 LTC Properties, Inc. 807,281
26,600 Liberty Property Trust 743,137
40,000 Manufactured Home
Communities, Inc. 1,090,000
18,024 Meditrust Corp. 684,912
12,000 New Plan Realty Trust 291,000
23,600 Omega Healthcare Investors 854,025
7,000 Pacific Gulf Properties,
Inc. 156,625
5,000 Patriot American
Hospitality, Inc. 156,250
40,000 RFS Hotel Investors, Inc. 760,000
10,000 Realty Income Corp. 261,875
15,000 Reckson Associates Realty
Corp. 398,438
1,925 Security Capital Group,
Inc., Warrants 10,347
36,571 Security Capital Pacific
Trust 889,132
20,080 Simon DeBartolo Group, Inc. 656,365
71,500 Sizeler Property Investment,
Inc. 710,531
14,000 Spieker Properties, Inc. 568,750
<CAPTION>
- -----------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------
<C> <S> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
25,500 Starwood Lodging Trust $1,367,438
15,000 Storage Trust Realty 373,125
10,000 Storage USA, Inc. 390,625
31,800 Summit Properties, Inc. 659,850
9,400 United Dominion Realty
Trust, Inc. 138,063
12,500 Weingarten Realty Investors 521,094
- -----------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(IDENTIFIED COST $16,563,152) 22,617,471
- -----------------------------------------------------------
FIXED INCOME OBLIGATIONS - 21.4%
- -----------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES - 0.5%
50,000 First Commonwealth Fund Inc. 625,000
- -----------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.1%
$60,000 General Electric Co., Deb.,
7.875%, 9/15/1998 60,995
- -----------------------------------------------------------
ENERGY - 1.0%
250,000 Ashland, Inc., Unsecd. Note,
Series F, 7.90%, 8/5/2006 271,545
800,000 Occidental Petroleum Corp.,
Sr. Note, 8.50%, 11/9/2001 858,152
- -----------------------------------------------------------
Total 1,129,697
- -----------------------------------------------------------
FINANCE - 4.3%
2,050,000 Associates Corp. of North
America, Sr. Note, 6.68%,
9/17/1999 2,070,787
500,000 Citicorp, Sub. Note, 8.625%,
12/1/2002 547,835
250,000 International Lease Finance
Corp., Unsecd. Note,
6.25%, 10/15/2000 250,580
250,000 International Lease Finance
Corp., Unsecd. Note,
8.375%, 12/15/2004 277,858
400,000 Meditrust Corp., Note,
7.82%, 9/10/2026 419,432
500,000 United Dominion Realty
Trust, Inc., Note, 7.95%,
7/12/2006 541,770
742,049 Vendee Mortgage Trust 1992-2, Series 1992-2, Class B, 6.75%,
7/15/2011 742,383
- -----------------------------------------------------------
Total 4,850,645
- -----------------------------------------------------------
FOREIGN - 1.7%
500,000 Alcan Aluminum, Ltd., Deb.,
9.20%, 3/15/2001 504,955
200,000 TransCanada PipeLines Ltd.,
Deb., 9.875%, 1/1/2021 266,302
1,000,000 TransCanada PipeLines Ltd.,
Sub. Deb., 9.125%,
4/20/2006 1,162,010
- -----------------------------------------------------------
Total 1,933,267
- -----------------------------------------------------------
HEALTH CARE - 0.6%
500,000 Columbia/HCA Healthcare
Corp., Sr. Note, 6.91%,
6/15/2005 480,695
250,000 Columbia/HCA Healthcare
Corp., Unsecd. Note,
6.125%, 12/15/2000 242,928
- -----------------------------------------------------------
Total 723,623
- -----------------------------------------------------------
INDUSTRIAL - 0.2%
198,162 Dow Chemical Co., Series
1992-A1, 7.60%, 1/2/2002 204,265
- -----------------------------------------------------------
TECHNOLOGY - 0.0%
11,000 WMX Technologies, Inc.,
Unsecd. Note, 8.125%,
2/1/1998 11,046
- -----------------------------------------------------------
TOBACCO--0.1%
$70,000 Philip Morris Cos., Inc.,
6.375%, 1/15/1998 $70,082
70,000 Philip Morris Cos., Inc.,
Note, 9.00%, 5/15/1998 71,015
- -----------------------------------------------------------
Total 141,097
- -----------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 7.4%
1,000,000 Federal Home Loan Mortgage
Corp., 5.50%, 8/15/2004 997,570
1,500,000 Federal Home Loan Mortgage
Corp., 6.50%, 2/15/2023 1,505,910
673,251 Federal National Mortgage
Association, 5.50%,
3/25/2014 670,652
332,600 Federal National Mortgage
Association, 6.00%,
2/25/2011 322,655
240,759 Federal National Mortgage
Association, 6.00%,
7/25/2012 240,210
500,000 Federal National Mortgage
Association, 6.14%,
11/25/2005 500,825
1,000,000 Federal National Mortgage
Association, 6.17%,
11/9/2000 997,780
750,000 Federal National Mortgage
Association, 6.50%,
4/25/2023 754,830
250,000 Federal National Mortgage
Association, 6.85%,
8/22/2005 261,120
250,000 Federal National Mortgage
Association, 6.93%,
9/17/2012 258,008
851,000 Federal National Mortgage
Association, 7.25%,
1/17/2021 873,203
500,000 Federal National Mortgage
Association, 7.50%,
9/25/2019 508,885
500,000 Federal National Mortgage
Association, 9.50%,
6/25/2020 542,875
- -----------------------------------------------------------
Total 8,434,523
- -----------------------------------------------------------
U.S. TREASURY SECURITIES - 5.0%
100,000 United States Treasury Bond,
12.75%, 11/15/2010 142,205
850,000 United States Treasury Bond,
6.75%, 8/15/2026 923,508
1,150,000 United States Treasury Bond,
7.50%, 11/15/2016 1,325,663
1,750,000 United States Treasury Bond,
8.875%, 8/15/2017 2,295,633
1,000,000 United States Treasury Note,
5.875%, 3/31/1999 1,001,900
- -----------------------------------------------------------
Total 5,688,909
- -----------------------------------------------------------
UTILITY - 0.4%
500,000 Georgia Power Co., 1st Mtg.
Bond, 6.625%, 4/1/2003 498,920
- -----------------------------------------------------------
TOTAL FIXED INCOME OBLIGATIONS
(IDENTIFIED COST $23,934,726) 24,301,987
- -----------------------------------------------------------
CASH EQUIVALENTS - 7.6%
- -----------------------------------------------------------
FINANCE - 2.0%
1,255,000 International Lease Finance
Corp., 6.25%, 6/15/1998 1,258,991
100,000 Lehman Brothers Holdings,
Inc., Sr. Note, 6.375%,
6/1/1998 100,225
1,000,000 Lehman Brothers Holdings,
Inc., 5.75%, 2/15/1998 1,000,300
85,000 NationsBank Corp., 6.625%,
1/15/1998 85,149
- -----------------------------------------------------------
Total 2,444,665
- -----------------------------------------------------------
INDUSTRIAL - 0.4%
$500,000 Du Pont (E.I.) de Nemours &
Co., Deb., 8.65%,
12/1/1997 $500,355
- -----------------------------------------------------------
TELECOMMUNICATIONS - 0.3%
350,000 GTE Corp., Deb., 8.85%,
3/1/1998 352,699
- -----------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 4.9%
456,526 Federal Home Loan Mortgage
Corp., 5.50%, 5/1/1998 455,737
1,275,000 Federal National Mortgage
Association, 5.36%,
2/16/2001 1,253,465
266,455 Federal National Mortgage
Association, 6.25%,
2/25/2004 265,986
115,565 Federal National Mortgage
Association, 7.25%,
1/25/2019 115,675
1,725 Government National Mortgage
Association, 9.00%,
6/15/1998 1,734
3,500,000 Student Loan Marketing
Association,
5.473%-5.633%, 1/21/1998-
8/2/1999 $3,500,545
- -----------------------------------------------------------
Total 5,593,142
- -----------------------------------------------------------
TOTAL CASH EQUIVALENTS (IDENTIFIED COST
$8,699,673) 8,890,861
- -----------------------------------------------------------
MUTUAL FUND SHARES - 4.1%
2,957,691 Flex Funds 2,957,691
1,750,000 Government Money Market Fund 1,750,000
- -----------------------------------------------------------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 4,707,691
- -----------------------------------------------------------
(B)REPURCHASE AGREEMENTS - 1.4%
$1,583,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
5.70%, dated
11/28/1997, due 12/1/1997
(AT AMORTIZED COST) 1,583,000
- -----------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$92,011,597) $111,515,520
- -----------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
- -----------------------------------------------------------
STAR RELATIVE VALUE FUND November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 99.7%
- -----------------------------------------------------------
AEROSPACE - 5.7%
75,000 Honeywell, Inc. $4,912,500
97,000 Lockheed Martin Corp. 9,463,562
98,000 Raytheon Co. 5,481,875
- -----------------------------------------------------------
Total 19,857,937
- -----------------------------------------------------------
AUTOMOBILE - 2.1%
80,000 Ford Motor Co. 3,440,000
65,000 General Motors Corp. 3,965,000
- -----------------------------------------------------------
Total 7,405,000
- -----------------------------------------------------------
AUTOMOTIVE & RELATED - 3.7%
130,000 Goodyear Tire & Rubber Co. 7,889,375
110,000 Johnson Controls, Inc. 5,039,375
- -----------------------------------------------------------
Total 12,928,750
- -----------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS - 4.2%
26,000 Citicorp 3,118,375
22,000 First Financial Bancorp 1,036,750
62,000 Mellon Bank Corp. 3,514,625
25,000 National Australia Bank,
Ltd., Melbourne, ADR 1,667,188
70,000 NationsBank Corp. 4,204,375
20,000 TCF Financial Corp. 1,182,500
- -----------------------------------------------------------
Total 14,723,813
- -----------------------------------------------------------
CHEMICAL & FERTILIZERS - 6.0%
160,000 Dow Chemical Co. 15,800,000
200,000 Lyondell Petrochemical Co. 5,087,500
- -----------------------------------------------------------
Total 20,887,500
- -----------------------------------------------------------
DIVERSIFIED - 2.1%
200,000 Allied-Signal, Inc. 7,425,000
- -----------------------------------------------------------
DRUGS - 11.7%
100,000 American Home Products Corp. $6,987,500
130,000 Bristol-Myers Squibb Co. 12,171,250
103,500 Merck & Co., Inc. 9,787,219
240,000 Smithkline Beecham Corp.,
ADR 11,910,000
- -----------------------------------------------------------
Total 40,855,969
- -----------------------------------------------------------
UTILITIES - ELECTRIC 2.1%
190,000 GPU, Inc. 7,505,000
- -----------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.6%
124,000 General Electric Co. 9,145,000
- -----------------------------------------------------------
ELECTRONICS - 5.7%
210,000 Intel Corp. 16,301,250
60,000 Motorola, Inc. 3,772,500
- -----------------------------------------------------------
Total 20,073,750
- -----------------------------------------------------------
ENERGY - 1.9%
145,000 Ashland, Inc. 6,769,687
- -----------------------------------------------------------
ENERGY SERVICES - 2.3%
151,000 Halliburton Co. 8,144,562
- -----------------------------------------------------------
FINANCE - 1.4%
100,000 Lehman Brothers Holdings,
Inc. 5,056,250
- -----------------------------------------------------------
HOUSEHOLD PRODUCTS - 7.2%
97,000 Gillette Co. 8,954,313
212,000 Procter & Gamble Co. 16,178,250
- -----------------------------------------------------------
Total 25,132,563
- -----------------------------------------------------------
INSURANCE - 6.0%
100,000 American Bankers Insurance
Group, Inc. 4,050,000
35,000 Cincinnati Financial Corp. 3,552,500
125,000 Ohio Casualty Corp. 5,703,125
150,000 Travelers Group, Inc. 7,575,000
- -----------------------------------------------------------
Total 20,880,625
- -----------------------------------------------------------
INTERNATIONAL OIL - 8.1%
148,000 Mobil Corp. $10,646,750
156,000 Royal Dutch Petroleum Co.,
ADR 8,219,250
170,000 Texaco, Inc. 9,605,000
- -----------------------------------------------------------
Total 28,471,000
- -----------------------------------------------------------
MANUFACTURING - 1.0%
40,000 Lucent Technologies, Inc. 3,205,000
- -----------------------------------------------------------
MISC. FINANCIAL SERVICES - 1.7%
75,000 American Express Co. 5,915,625
- -----------------------------------------------------------
NATURAL GAS & COAL - 1.0%
86,000 NICOR, Inc. 3,461,500
- -----------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT - 6.0%
190,000 International Business
Machines Corp. 20,816,875
- -----------------------------------------------------------
RAILROADS - 0.7%
25,000 Burlington Northern Santa Fe 2,287,500
- -----------------------------------------------------------
RETAILING & APPAREL - 4.3%
150,000 Penney (J.C.) Co., Inc. 9,637,500
118,000 Sears, Roebuck & Co. 5,405,875
- -----------------------------------------------------------
Total 15,043,375
- -----------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS - 8.3%
169,000 AT&T Corp. $9,442,875
67,000 Cable & Wireless
Communications PLC, ADR 1,804,812
250,000 Cincinnati Bell, Inc. 7,375,000
152,000 GTE Corp. 7,685,500
39,000 Vodafone Group PLC, ADR 2,574,000
- -----------------------------------------------------------
Total 28,882,187
- -----------------------------------------------------------
TOBACCO - 3.4%
50,000 Fortune Brands, Inc. 1,809,375
235,000 Philip Morris Cos., Inc. 10,222,500
- -----------------------------------------------------------
Total 12,031,875
- -----------------------------------------------------------
TRANSPORTATION - 0.5%
82,500 Comair Holdings, Inc. 1,825,313
- -----------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$209,060,589) 348,731,656
- -----------------------------------------------------------
(B) REPURCHASE AGREEMENTS - 5.4% $18,918,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
5.70%, dated
11/28/1997, due 12/1/1997
(AT AMORTIZED COST) 18,918,000
- -----------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$227,978,589) $367,649,656
- -----------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
- -----------------------------------------------------------
STAR GROWTH EQUITY FUND November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------
PRINCIPAL AMOUNT OR SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 96.2%
- -----------------------------------------------------------
AEROSPACE & DEFENSE - 0.7%
20,000 Boeing Co. $1,062,500
- -----------------------------------------------------------
AUTOMOBILE - 0.8%
20,000 General Motors Corp. 1,220,000
- -----------------------------------------------------------
BANKING - 0.7%
10,100 J.P. Morgan & Co., Inc. 1,153,294
- -----------------------------------------------------------
BEVERAGE & TOBACCO - 0.5%
20,000 Fortune Brands, Inc. 723,750
- -----------------------------------------------------------
BROADCASTING - 1.1%
26,000 (a) Clear Channel
Communications, Inc. 1,761,500
- -----------------------------------------------------------
CHEMICALS - 2.4%
25,000 Dow Chemical Co. 2,468,750
50,000 Lyondell Petrochemical Co. 1,271,875
- -----------------------------------------------------------
Total 3,740,625
- -----------------------------------------------------------
COMPUTER SERVICES - 8.5%
50,600 (a) Cisco Systems, Inc. 4,364,250
43,140 Hewlett-Packard Co. 2,634,236
24,000 (a) Microsoft Corp. 3,396,000
85,000 (a) Oracle Corp. 2,831,563
- -----------------------------------------------------------
Total 13,226,049
- -----------------------------------------------------------
DRUGS - 7.8%
17,900 American Home Products Corp. 1,250,763
36,000 Bristol-Myers Squibb Co. 3,370,500
21,000 Merck & Co., Inc. 1,985,813
20,000 Pfizer, Inc. 1,455,000
38,000 Schering Plough Corp. $2,382,125
50,000 (a) Watson Pharmaceuticals,
Inc. 1,487,500
- -----------------------------------------------------------
Total 11,931,701
- -----------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.5%
32,000 General Electric Co. 2,360,000
- -----------------------------------------------------------
ELECTRONIC TECHNOLOGY - 5.7%
58,500 (a) Atmel Corp. 1,312,594
61,340 Intel Corp. 4,761,518
13,773 Lucent Technologies, Inc. 1,103,562
36,500 Telefonaktiebolaget LM
Ericsson, Class B 1,475,969
- -----------------------------------------------------------
Total 8,653,643
- -----------------------------------------------------------
ENERGY MINERALS - 0.8%
40,000 Occidental Petroleum Corp. 1,187,500
- -----------------------------------------------------------
ENERGY SERVICES - 4.9%
15,000 (a) BJ Services Co. 1,077,188
60,000 ENSCO International, Inc. 2,145,000
60,000 (a) Global Marine, Inc. 1,578,750
30,000 Halliburton Co. 1,618,125
35,000 (a) Rowan Companies, Inc. 1,190,000
- -----------------------------------------------------------
Total 7,609,063
- -----------------------------------------------------------
ENTERTAINMENT - 2.6%
50,000 Brunswick Corp. 1,671,875
40,000 Callaway Golf Co. 1,275,000
11,147 Disney (Walt) Co. 1,058,268
- -----------------------------------------------------------
Total 4,005,143
- -----------------------------------------------------------
FINANCE - 3.8%
15,000 Barnett Banks, Inc. $1,055,625
9,555 Charter One Financial, Inc. 566,134
9,680 First Financial Bancorp 456,170
32,000 Merrill Lynch & Co., Inc. 2,246,000
11,000 SLM Holding Corp. 1,420,375
- -----------------------------------------------------------
Total 5,744,304
- -----------------------------------------------------------
FOOD & BEVERAGE - 3.5%
30,000 Campbell Soup Co. 1,680,000
35,000 ConAgra, Inc. 1,257,813
30,000 Lance, Inc. 763,125
48,000 PepsiCo, Inc. 1,770,000
- -----------------------------------------------------------
Total 5,470,938
- -----------------------------------------------------------
GOVERNMENT AGENCY - 1.4%
40,000 Federal National Mortgage
Association 2,112,500
- -----------------------------------------------------------
HEALTH TECHNOLOGY - 1.7%
40,000 Allegiance Corp. 1,267,500
20,000 (a) Sofamor Danek Group,
Inc. 1,407,500
- -----------------------------------------------------------
Total 2,675,000
- -----------------------------------------------------------
HOUSEHOLD PRODUCTS - 6.0%
44,000 Clorox Co. 3,415,500
18,008 Gillette Co. 1,662,364
53,658 Procter & Gamble Co. 4,094,776
- -----------------------------------------------------------
Total 9,172,640
- -----------------------------------------------------------
HOSPITAL SUPPLY - 0.6%
15,000 Abbott Laboratories 975,000
- -----------------------------------------------------------
INSURANCE - 8.0%
35,000 Allstate Corp. 3,005,625
58,000 American Bankers Insurance
Group, Inc. 2,349,000
23,341 American International
Group, Inc. 2,353,065
25,000 Ohio Casualty Corp. 1,140,625
30,000 SunAmerica, Inc. 1,215,000
45,000 Travelers Group, Inc. 2,272,500
- -----------------------------------------------------------
Total 12,335,815
- -----------------------------------------------------------
METALS & MINING - 0.9%
20,000 Aluminum Co. of America 1,345,000
- -----------------------------------------------------------
MULTI-INDUSTRY - 0.5%
21,058 Allied-Signal, Inc. 781,778
- -----------------------------------------------------------
OFFICE EQUIPMENT - 0.7%
10,000 International Business
Machines Corp. 1,095,625
- -----------------------------------------------------------
OIL - DOMESTIC 4.0%
2,500 Ashland, Inc. 116,719
12,000 Atlantic Richfield Co. 978,000
25,000 Chevron Corp. 2,004,688
55,000 Texaco, Inc. 3,107,500
- -----------------------------------------------------------
Total 6,206,907
- -----------------------------------------------------------
OIL - FOREIGN 1.1%
22,600 Mobil Corp. 1,625,788
- -----------------------------------------------------------
PRINTING & PUBLISHING - 1.5%
40,000 Gannett Co., Inc. 2,322,500
- -----------------------------------------------------------
PROCESS INDUSTRIES - 0.6%
20,000 International Paper Co. $948,750
- -----------------------------------------------------------
PRODUCER MANUFACTURING - 7.6%
37,800 AGCO Corp. 1,034,775
30,000 Caterpillar, Inc. 1,438,125
40,000 Illinois Tool Works, Inc. 2,192,500
25,000 Masco Corp. 1,178,125
30,000 PACCAR, Inc. 1,650,000
52,500 Parker-Hannifin Corp. 2,336,250
30,000 Textron, Inc. 1,773,750
- -----------------------------------------------------------
Total 11,603,525
- -----------------------------------------------------------
REAL ESTATE - 1.3%
24,000 Camden Property Trust 784,500
31,242 Meditrust Corp. 1,187,181
- -----------------------------------------------------------
Total 1,971,681
- -----------------------------------------------------------
RESTAURANTS - 0.4%
20,000 (a) ShowBiz Pizza Time, Inc. 430,000
4,800 (a) Tricon Global
Restaurants, Inc. 162,300
- -----------------------------------------------------------
Total 592,300
- -----------------------------------------------------------
RETAIL TRADE - 5.7%
40,000 (a) JP Foodservice, Inc. 1,177,500
30,800 (a) Kohl's Corp. 2,229,150
41,526 Premark International, Inc. 1,084,867
43,122 (a) Safeway, Inc. 2,619,662
20,000 Sears, Roebuck & Co. 916,250
20,000 Wal-Mart Stores, Inc. 798,750
- -----------------------------------------------------------
Total 8,826,179
- -----------------------------------------------------------
TELECOMMUNICATIONS - 4.4%
11,520 Bell Atlantic Corp. 1,028,160
53,000 BellSouth Corp. 2,901,750
50,000 GTE Corp. 2,528,125
5,200 Vodafone Group PLC, ADR* 343,200
- -----------------------------------------------------------
Total 6,801,235
- -----------------------------------------------------------
TRANSPORTATION - 1.6%
20,000 Airborne Freight Corp. 1,273,750
45,000 Canadian Pacific Ltd. 1,274,063
- -----------------------------------------------------------
Total 2,547,813]
- -----------------------------------------------------------
UTILITIES - 2.9%
36,150 Coastal Corp. 2,117,034
60,000 GPU, Inc. 2,370,000
- -----------------------------------------------------------
Total 4,487,034
- -----------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$110,885,083) 148,277,080
- -----------------------------------------------------------
OPTIONS PURCHASED - 0.0%
270 Put Option on Coca-Cola,
expires
1/16/1999, Strike @ 40 21,938
120 Put Option on Exxon, expires
1/16/1999, Strike @ 35 3,750
240 Put Option on General
Electric, expires
1/16/1999, Strike @ 40 7,500
40 Put Option on Merck, expires
1/16/1999, Strike @ 60 3,375
75 Put Option on Phillip
Morris, expires 1/17/1998,
Strike @ 23.375 469
- -----------------------------------------------------------
TOTAL OPTIONS (IDENTIFIED COST $122,392) 37,032
- -----------------------------------------------------------
MUTUAL FUNDS - 2.5%
894,000 Flex Funds $894,000
3,000,000 Government Money Market Fund 3,000,000
- -----------------------------------------------------------
Total (AT NET ASSET VALUE) 3,894,000
- -----------------------------------------------------------
(B) REPURCHASE AGREEMENT - 0.9% $1,359,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
5.70%, dated
11/28/1997, due 12/1/1997 $1,359,000
- -----------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$116,260,475) $153,567,112
- -----------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
- -----------------------------------------------------------
STAR CAPITAL APPRECIATION FUND November 30, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 89.9%
- -----------------------------------------------------------
AIRLINES - 1.8%
14,000 ASA Holdings Ltd. $414,750
10,000 (a) Alaska Air Group, Inc. 373,750
33,000 Comair Holdings, Inc. 730,125
- -----------------------------------------------------------
Total 1,518,625
- -----------------------------------------------------------
AEROSPACE & DEFENSE - 2.0%
5,000 General Dynamics Corp. 433,125
24,500 (a) Gilat Satellite
Networks 796,250
5,300 Thiokol Corp. 437,913
- -----------------------------------------------------------
Total 1,667,288
- -----------------------------------------------------------
APPLIANCES - 0.7%
19,000 Maytag Corp. 613,938
- -----------------------------------------------------------
BANKING - 7.4%
25,000 City National Corp. 812,500
10,000 Comerica, Inc. 851,875
16,000 Crestar Financial Corp. 822,000
19,000 First Tennessee National
Corp. 1,129,302
22,000 First of America Bank Corp. 1,292,500
34,000 Hibernia Corp., Class A 616,250
10,000 Union Planters Corp. 617,500
- -----------------------------------------------------------
Total 6,141,927
- -----------------------------------------------------------
BUILDING & CONSTRUCTION - 2.3%
22,000 CalMat Co. 576,125
10,000 Martin Marietta Materials 346,250
6,000 Southdown, Inc. 346,125
13,000 (a) U.S.G. Corp. 609,375
- -----------------------------------------------------------
Total 1,877,875
- -----------------------------------------------------------
CHEMICALS - 1.9%
10,000 Betz Laboratories, Inc. 608,750
14,000 (a) Cytec Industries, Inc. 640,500
10,000 Sigma-Aldrich Corp. 361,250
- -----------------------------------------------------------
Total 1,610,500
- -----------------------------------------------------------
COMMERCIAL SERVICES - 0.5%
6,000 Omnicom Group, Inc. 444,750
- -----------------------------------------------------------
COMPUTER SERVICES - 9.2%
22,000 (a) Compuware Corp. 768,625
22,000 (a) EMC Corp. Mass 666,875
22,000 (a) Electronic Arts, Inc. 737,000
28,000 International Game
Technology 700,000
25,000 (a) Intuit 754,688
35,000 (a) Iomega Corp. 1,150,625
20,000 (a) Lexmark Intl. Group,
Class A 637,500
13,000 (a) Parametric Technology
Corp. 657,313
10,000 (a) Storage Technology
Corp. 645,625
38,400 (a) Symantec Corp. $960,000
- -----------------------------------------------------------
Total 7,678,251
- -----------------------------------------------------------
CONSUMER NON-DURABLES - 1.4%
14,500 Alberto-Culver Co., Class B 452,219
4,000 Clorox Co. 310,500
29,400 (a) Perrigo Co. 418,950
- -----------------------------------------------------------
Total 1,181,669
- -----------------------------------------------------------
DRUGS - 1.9%
20,000 Mylan Laboratories, Inc. 443,750
12,000 Omnicare, Inc. 346,500
26,000 (a) Watson Pharmaceuticals,
Inc. 773,500
- -----------------------------------------------------------
Total 1,563,750
- -----------------------------------------------------------
ELECTRIC - 3.5%
26,000 CMS Energy Corp. 1,023,750
39,000 Illinova Corp. 943,313
35,000 Wisconsin Energy Corp. 945,000
- -----------------------------------------------------------
Total 2,912,063
- -----------------------------------------------------------
ELECTRONICS - 0.8%
10,000 Avnet, Inc. 662,500
- -----------------------------------------------------------
ENTERTAINMENT & LEISURE - 0.2%
5,000 Brunswick Corp. 167,188
- -----------------------------------------------------------
FINANCE - 13.3%
15,000 Countrywide Credit
Industries, Inc. 614,063
10,000 Equifax, Inc. 341,250
24,000 Finova Group, Inc. 1,131,000
30,000 Pinnacle West Capital Corp. 1,156,875
82,000 S&P Depositary Receipts
Trust, ADR 7,843,813
- -----------------------------------------------------------
Total 11,087,001
- -----------------------------------------------------------
FOOD & BEVERAGE - 2.9%
10,000 Coca Cola Enterprises, Inc. 305,625
4,000 Hershey Foods Corp. 245,500
10,000 International Multifoods
Corp. 268,750
15,000 Interstate Bakeries Corp. 518,438
10,000 Lance, Inc. 254,375
5,000 Quaker Oats Co. 265,000
13,000 Universal Foods Corp. 539,500
- -----------------------------------------------------------
Total 2,397,188
- -----------------------------------------------------------
INDUSTRIAL PRODUCTS - 2.4%
5,000 Dover Corp. 335,313
18,200 Kennametal, Inc. 958,913
35,000 (a) Magnetek, Inc. 730,625
- -----------------------------------------------------------
Total 2,024,851
- -----------------------------------------------------------
INSURANCE - 1.4%
4,000 Lincoln National Corp. $285,500
7,000 Torchmark Corp. 285,688
5,000 Transatlantic Holdings,
Inc. 357,188
5,000 UNUM Corp. 237,188
- -----------------------------------------------------------
Total 1,165,564
- -----------------------------------------------------------
MANUFACTURED HOUSING - 2.6%
20,000 Centex Corp. 1,267,500
15,000 D. R. Horton, Inc. 267,188
28,000 Kaufman & Broad Homes Corp. 607,250
- -----------------------------------------------------------
Total 2,141,938
- -----------------------------------------------------------
MANUFACTURING - 6.7%
10,000 Brush Wellman, Inc. 237,500
10,000 Carlisle Cos., Inc. 425,000
15,000 (a) Gentex Corp. 371,250
8,000 HON Industries, Inc. 431,000
23,000 Kaydon Corp. 757,563
16,000 Sonoco Products Co. 525,000
20,000 Stanley Works 881,250
24,100 Teleflex, Inc. 921,825
17,000 Wausau Paper Mills Co. 364,438
12,000 Whirlpool Corp. 657,750
- -----------------------------------------------------------
Total 5,572,576
- -----------------------------------------------------------
MEDICAL - 5.5%
33,000 Biomet, Inc. 787,875
21,000 (a) Centocor, Inc. 913,500
40,500 (a) Chiron Corp. 736,594
34,500 (a) Genzyme Corp. 925,031
22,000 (a) Healthcare & Retirement
Corp. 866,250
8,000 Stryker Corp. 315,000
- -----------------------------------------------------------
Total 4,544,250
- -----------------------------------------------------------
METALS - 1.3%
16,500 (a) Alumax, Inc. 518,719
30,000 Coeur d'Alene Mines Corp. 258,750
10,000 Newmont Gold Co. 303,125
- -----------------------------------------------------------
Total 1,080,594
- -----------------------------------------------------------
OIL & GAS - 6.2%
8,000 (a) BJ Services Co. 574,500
14,000 Baker Hughes, Inc. 586,250
8,000 Burlington Resources, Inc. 356,000
10,000 Diamond Offshore Drilling,
Inc. 498,750
16,000 ENSCO International, Inc. 572,000
21,000 (a) Global Marine, Inc. 552,563
8,000 Helmerich & Payne, Inc. 608,500
10,000 (a) Nabors Industries, Inc. 350,625
12,000 Transocean Offshore, Inc. 569,250
10,000 (a) Varco International,
Inc. 511,875
- -----------------------------------------------------------
Total 5,180,313
- -----------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------
<C> <S> <C>
OIL INTERNATIONAL - 0.7%
9,000 (a) Smith International,
Inc. $576,000
- -----------------------------------------------------------
PRINTING-COMMERCIAL - 0.8%
25,000 Banta Corp. 625,000
- -----------------------------------------------------------
RETAIL - 6.3%
28,000 (a) Best Buy Co., Inc. 815,500
30,000 Claire's Stores, Inc. 678,750
24,000 (a) Lands' End, Inc. 847,500
10,000 Longs Drug Stores Corp. 292,500
10,000 Lowe's Cos., Inc. 459,375
24,000 (a) Meyer (Fred), Inc. 813,000
15,000 (a) Ruby Tuesday, Inc. 393,750
32,000 (a) Staples, Inc. 902,000
- -----------------------------------------------------------
Total 5,202,375
- -----------------------------------------------------------
TECHNOLOGY SERVICES - 2.0%
10,000 Harris Corp. 474,375
4,900 TCA Cable TV, Inc. 203,350
22,000 Telephone and Data System,
Inc. 966,625
- -----------------------------------------------------------
Total 1,644,350
- -----------------------------------------------------------
TELECOMMUNICATIONS - 1.1%
40,000 Comsat Corp. 915,000
- -----------------------------------------------------------
TRANSPORTATION - 0.5%
14,000 Alexander and Baldwin, Inc. 378,000
- -----------------------------------------------------------
UTILITIES - 2.6%
29,000 Ipalco Enterprises, Inc. 1,071,189
16,500 Keyspan Energy Corp. 549,656
11,500 National Fuel Gas Co. 536,905
- -----------------------------------------------------------
Total 2,157,750
- -----------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$72,183,207) 74,733,074
- -----------------------------------------------------------
MUTUAL FUND SHARES - 4.1%
39,857 Dean Small Cap Value Fund,
Class A 458,351
1,992,731 Flex Funds 1,992,731
1,000,000 Government Money Market
Fund 1,000,000
- -----------------------------------------------------------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 3,451,082
- -----------------------------------------------------------
(B) REPURCHASE AGREEMENT - 5.8%
- -----------------------------------------------------------
$4,788,000 Donaldson, Lufkin and
Jenrette Securities
Corp., 5.70%, dated
11/28/1997, due 12/1/1997
(AT AMORTIZED COST) 4,788,000
- -----------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$80,422,289) $82,972,156
- -----------------------------------------------------------
</TABLE>
(See Notes to the Portfolios of Investments)
NOTES TO PORTFOLIOS OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at date of the portfolio.
The following abbreviations are used in these portfolios:
ADR--American Depositary Receipt
PLC--Public Limited Company
<TABLE>
<CAPTION>
Net Unrealized Gross Gross
Cost of Appreciation/ Unrealized Unrealized
Investments for (Depreciation) for Appreciation for Depreciation
Federal Tax Federal Tax Federal Tax for Federal Total Net
Star Funds Purposes Purposes Purposes Tax Purposes Assets*
- ------------------------------------------- --------------- ------------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
The Stellar Fund $92,114,893 $19,400,627 $20,616,455 $1,215,828 $114,139,329
Star Relative Value Fund 227,978,589 139,671,067 140,551,297 880,230 349,803,892
Star Growth Equity Fund 116,297,081 37,270,031 38,454,642 1,184,611 154,112,254
Star Capital Appreciation Fund 80,424,363 2,547,793 4,873,730 2,325,937 83,118,254
</TABLE>
* The categories of investments are shown as a percentage of net assets at
November 30, 1997.
STATEMENTS OF ASSETS & LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
STAR STAR STAR
THE RELATIVE GROWTH CAPITAL
STELLAR VALUE EQUITY APPRECIATION
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Total investments in securities, at value $111,515,520 $367,649,656 $153,567,112 $82,972,156
Cash -- 767 -- 1,176
Income receivable 526,886 810,026 237,999 128,367
Receivable for investments sold 2,074,264 8,357,533 -- --
Receivable for Fund shares sold 58,060 267,676 330,907 30,340
Deferred organizational costs -- -- 20,853 13,187
Other assets -- -- 10,354 2,839
- -------------------------------------------------------------------------------------------------------------
Total assets 114,174,730 377,085,658 154,167,225 83,148,065
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased -- 27,217,087 -- --
Payable for Fund shares redeemed 2,752 28,707 -- 5,100
Payable to Bank 101 -- 41,716 --
Accrued expenses 32,548 35,972 13,255 24,711
- -------------------------------------------------------------------------------------------------------------
Total liabilities 35,401 27,281,766 54,971 29,811
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 83,882,456 196,990,910 108,095,324 62,623,866
Net unrealized appreciation (depreciation) of
investments and options 19,503,923 139,671,067 37,306,637 2,549,867
Accumulated net realized gain (loss) on investments and
options 10,536,942 12,351,403 8,531,682 17,820,444
Undistributed net investment income 216,008 790,512 178,611 124,077
- -------------------------------------------------------------------------------------------------------------
Total Net Assets $114,139,329 $349,803,892 $154,112,254 $83,118,254
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Trust Shares $63,741,786 $312,056,017 $109,086,937 --
Investment Shares 50,397,543 37,747,875 45,025,317 $83,118,254
- -------------------------------------------------------------------------------------------------------------
Total Net Assets $114,139,329 $349,803,892 $154,112,254 $83,118,254
- -------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
Trust Shares 4,466,534 13,282,047 6,350,229 --
Investment Shares 3,531,949 1,607,399 2,622,284 5,795,859
- -------------------------------------------------------------------------------------------------------------
Total shares outstanding 7,998,483 14,889,446 8,972,513 5,795,859
=============================================================================================================
NET ASSET VALUE:
Trust Shares $14.27 $23.49 $17.18 --
Investment Shares $14.27 $23.48 $17.17 $14.34
- -------------------------------------------------------------------------------------------------------------
OFFERING PRICE PER SHARE+:
Trust Shares $14.27 $23.49 $17.18 --
Investment Shares $14.94* $24.59* $17.17 $15.02*
- -------------------------------------------------------------------------------------------------------------
REDEMPTION PROCEEDS PER SHARE+:
Trust Shares $14.27 $23.49 $17.18 --
Investment Shares $14.27 $23.48 $16.31** $14.34
=============================================================================================================
Investments, at identified cost $92,011,597 $227,978,589 $116,260,475 $80,422,289
=============================================================================================================
Investments, at tax cost $92,114,893 $227,978,589 $116,297,081 $80,424,363
=============================================================================================================
</TABLE>
* Computation of Offering price: 100/95.5 of net asset value.
** Computation of Redemption Proceeds: 95/100 of net asset value.
+ See "What Shares Cost" in the prospectus.
++ See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
STAR STAR STAR
THE RELATIVE GROWTH CAPITAL
STELLAR VALUE EQUITY APPRECIATION
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $2,771,967 $550,449 $313,137 $399,819
Dividend income 2,152,697 6,555,931 2,089,661 733,137
- -------------------------------------------------------------------------------------------------------------
Total income 4,924,664 7,106,380 2,402,798 1,132,956
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee 1,114,195 2,220,214 946,601 744,928
Administrative personnel and services fee 108,560 273,396 116,489 72,536
Custodian fees 29,321 74,007 31,553 19,603
Transfer and dividend disbursing agent fees and expenses 131,029 90,330 74,747 31,275
Directors'+Trustees' fees 1,859 5,493 -- 473
Auditing fees 18,068 17,467 14,307 15,182
Legal fees 1,853 6,205 1,202 604
Portfolio accounting fees 56,833 75,380 45,908 38,811
Distribution services fee--Investment Shares 126,341 22,038 25,307 --
Shareholder services fee--Trust Shares 33,372 37,820 13,538 --
Shareholder services fee--Investment Shares 25,270 110,194 49,569 39,207
Share registration costs 14,950 24,987 28,138 8,627
Printing and postage 1,041 28,456 4,955 23,600
Insurance premiums 4,693 4,949 2,447 6,369
Miscellaneous 78 3,486 8,027 7,664
- -------------------------------------------------------------------------------------------------------------
Total expenses 1,667,463 2,994,422 1,362,788 1,008,879
- -------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,257,201 4,111,958 1,040,010 124,077
- -------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
OPTIONS:
Net realized gain (loss) on investments and options 10,472,803 12,351,845 8,585,979 18,507,772
Net change in unrealized appreciation (depreciation) on
investments and options (266,167) 69,992,342 22,147,767 (8,746,048)
- -------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
OPTIONS 10,206,636 82,344,187 30,733,746 9,761,724
- -------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $13,463,837 $86,456,145 $31,773,756 $9,885,801
=============================================================================================================
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STAR
THE RELATIVE
STELLAR VALUE
FUND FUND
-------------------------- --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $3,257,201 $3,193,081 $4,111,958 $2,849,808
Net realized gain (loss) on investments and
options 10,472,803 4,345,528 12,351,845 4,395,132
Net change in net unrealized
appreciation/depreciation of investments and
options (266,167) 10,205,542 69,992,342 38,173,415
- ------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations 13,463,837 17,744,151 86,456,145 45,418,355
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Trust Shares (1,933,469) (1,925,727) (918,577) --
Investment Shares (1,325,460) (1,310,474) (2,940,841) (2,646,694)
Distributions from net realized gain on
investments and options
Trust Shares (2,461,154) (1,066,240) -- --
Investment Shares (1,845,065) (800,304) (4,395,625) (82,169)
- ------------------------------------------------------------------------------------------------------
Change in net assets from distributions to
shareholders (7,565,148) (5,102,745) (8,255,043) (2,728,863)
- ------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Proceeds from sales of shares 15,147,571 19,396,895 382,346,269 57,530,540
Net asset value of shares issued to
shareholders in payment of distributions
declared 6,507,375 4,345,134 3,231,015 961,791
Cost of shares redeemed (30,556,221) (32,897,560) (329,817,737) (17,317,728)
- ------------------------------------------------------------------------------------------------------
Change in net assets from share transactions (8,901,275) (9,155,531) 55,759,547 41,174,603
- ------------------------------------------------------------------------------------------------------
Change in net assets (3,002,586) 3,485,875 133,960,649 83,864,095
NET ASSETS:
Beginning of period 117,141,915 113,656,040 215,843,243 131,979,148
- ------------------------------------------------------------------------------------------------------
End of period $114,139,329 $117,141,915 $349,803,892 $215,843,243
======================================================================================================
Undistributed net investment income included
in net assets at end of period $216,008 $217,736 $790,512 $537,972
======================================================================================================
Net gain (loss) as computed for federal tax
purposes $10,410,330 $4,329,998 $12,351,845 $4,395,132
======================================================================================================
</TABLE>
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STAR STAR
GROWTH CAPITAL
EQUITY APPRECIATION
FUND FUND
- -------------------------- --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C>
$1,040,010 $794,667 $124,077 ($167,843)
8,585,979 5,752,898 18,507,772 (659,396)
22,147,767 9,454,543 (8,746,048) 6,695,619
- ------------------------------------------------------
31,773,756 16,002,108 9,885,801 5,868,380
- ------------------------------------------------------
(220,127) -- -- --
(830,336) (700,531) -- --
-- -- -- --
(5,807,116) (2,544,369) -- (1,408,024)
- ------------------------------------------------------
(6,857,579) (3,244,900) -- (1,408,024)
- ------------------------------------------------------
160,959,446 34,897,506 13,656,375 31,488,956
4,941,932 2,488,056 -- 606,085
(122,016,691) (13,530,374) (19,586,731) (13,822,232)
- ------------------------------------------------------
43,884,687 23,855,188 (5,930,356) 18,272,809
- ------------------------------------------------------
68,800,864 36,612,396 3,955,445 22,733,165
85,311,390 48,698,994 79,162,809 56,429,644
- ------------------------------------------------------
$154,112,254 $85,311,390 $83,118,254 $79,162,809
======================================================
$178,611 $189,064 $124,077 --
======================================================
$8,618,710 $5,807,183 $18,482,144 ($657,799)
======================================================
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STAR FUNDS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
NET NET REALIZED AND DISTRIBUTIONS
NET ASSET INVESTMENT UNREALIZED DISTRIBUTIONS DISTRIBUTIONS FROM NET
VALUE, INCOME/ GAIN/(LOSS) ON TOTAL FROM FROM NET IN EXCESS OF REALIZED GAIN
YEAR ENDED BEGINNING (OPERATING INVESTMENTS INVESTMENT INVESTMENT NET INVESTMENT ON INVESTMENTS
NOVEMBER 30 OF PERIOD LOSS) AND OPTIONS OPERATIONS INCOME INCOME (H) AND OPTIONS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE STELLAR FUND
TRUST SHARES
1994(a) $11.34 0.21 (0.48) (0.27) (0.17) -- --
1995 $10.90 0.38 1.32 1.70 (0.38) -- (0.05)
1996 $12.17 0.37 1.62 1.99 (0.37) -- (0.20)
1997 $13.59 0.40 1.18 1.58 (0.40) -- (0.50)
INVESTMENT SHARES
1991(b) $10.00 0.05 (0.25) (0.20) -- -- --
1992 $9.80 0.29 0.74 1.03 (0.31) -- --
1993 $10.52 0.24 0.99 1.23 (0.28) (0.03) (0.10)
1994 $11.34 0.29 (0.41) (0.12) (0.24) -- (0.08)
1995 $10.90 0.34 1.33 1.67 (0.35) -- (0.05)
1996 $12.17 0.34 1.62 1.96 (0.34) -- (0.20)
1997 $13.59 0.36 1.18 1.54 (0.36) -- (0.50)
STAR RELATIVE VALUE FUND
TRUST SHARES
1997(c) $22.67 0.08 0.81 0.89 (0.07) -- --
INVESTMENT SHARES
1991(d) $10.00 0.22 (0.66) (0.44) (0.13) -- --
1992 $9.43 0.30 1.12 1.42 (0.33) -- --
1993 $10.52 0.20 1.30 1.50 (0.22) -- --
1994 $11.80 0.23 (0.40) (0.17) (0.23) -- (0.04)
1995 $11.36 0.29 3.65 3.94 (0.28) -- --
1996 $15.02 0.27 4.01 4.28 (0.26) -- (0.01)
1997 $19.03 0.67 4.45 5.12 (0.28) -- (0.39)
STAR GROWTH EQUITY FUND
TRUST SHARES
1997(e) $16.46 0.03 0.73 0.76 (0.04) -- --
INVESTMENT SHARES
1995(f) $10.00 0.24 2.67 2.91 (0.21) -- --
1996 $12.70 0.17 3.12 3.29 (0.16) -- (0.66)
1997 $15.17 0.19 2.97 3.16 (0.14) -- (1.02)
STAR CAPITAL APPRECIATION FUND
1994(g) $10.00 -- 0.15 0.15 -- -- --
1995 $10.15 0.03 1.72 1.75 (0.04) (0.00) (0.04)
1996 $11.82 (0.03) 1.05 1.02 -- -- (0.29)
1997 $12.55 0.02 1.77 1.79 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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) 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.
(c) Reflects operations for the period from August 18, 1997 (date of initial
public offering) to November 30, 1997.
(d) 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.
(e) Reflects operations for the period from August 18, 1997 (date of initial
public offering) to November 30, 1997.
(f) Reflects operations for the period from December 12, 1994 (date of initial
public investment) to November 30, 1995.
(g) Reflects operations for the period from June 13, 1994 (date of initial
public investment) to November 30, 1994.
(h) Distributions are determined in accordance with federal 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.
(i) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge if applicable.
(j) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(k) Computed on an annualized basis.
(l) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------
EXPENSE NET ASSETS, AVERAGE
NET ASSET NET WAIVER/ END COMMISSION PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT REIMBURSE- OF PERIOD RATE TURNOVER
DISTRIBUTIONS OF PERIOD RETURN (I) EXPENSES INCOME MENT (J) (000 OMITTED) PAID (L) RATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(0.17) $10.90 (1.81%) 1.43%(k) 3.57%(k) -- $60,822 -- 79%
(0.43) $12.17 15.97% 1.40% 3.23% -- $64,754 -- 104%
(0.57) $13.59 16.94% 1.39% 2.85% -- $67,047 $ 0.0671 65%
(0.90) $14.27 12.22% 1.31% 2.89% -- $63,742 $ 0.1046 64%
-- $9.80 (2.00%) 1.44%(k) 5.32%(k) 0.29%(k) $13,942 -- 18%
(0.31) $10.52 10.68% 1.53% 3.03% 0.33% $35,544 -- 98%
(0.41) $11.34 11.99% 1.45% 1.87% 0.25% $73,197 -- 87%
(0.32) $10.90 (1.22%) 1.55% 2.32% 0.12% $50,648 -- 79%
(0.40) $12.17 15.67% 1.65% 2.98% -- $48,902 -- 104%
(0.54) $13.59 16.64% 1.66% 2.76% -- $50,094 $ 0.0671 65%
(0.86) $14.27 11.94% 1.56% 2.63% -- $50,398 $ 0.1046 64%
(0.07) $23.49 3.93% 1.00%(k) 1.35%(k) -- $312,056 $ 0.0918 18%
(0.13) $9.43 (4.31%) 0.40%(k) 4.75%(k) 0.93%(k) $33,015 -- 38%
(0.33) $10.52 15.39% 0.47% 3.01% 1.00% $38,154 -- 45%
(0.22) $11.80 14.47% 1.19% 1.79% 0.31% $49,701 -- 59%
(0.27) $11.36 (1.54%) 1.15% 2.02% -- $74,094 -- 30%
(0.28) $15.02 35.10% 1.06% 2.17% -- $131,979 -- 24%
(0.27) $19.03 28.86% 1.04% 1.71% -- $215,843 $ 0.0905 16%
(0.67) $23.48 27.69% 1.01% 1.40% -- $37,748 $ 0.0918 18%
(0.04) $17.18 4.59% 1.06%(k) 0.68%(k) -- $109,087 $ 0.1035 60%
(0.21) $12.70 29.44% 1.17%(k) 2.00%(k) 0.03%(k) $48,699 -- 171%
(0.82) $15.17 27.34% 1.19% 1.31% -- $85,311 $ 0.0007 96%
(1.16) $17.17 22.65% 1.09% 0.86% -- $45,025 $ 0.1035 60%
-- $10.15 1.50% 1.58%(k) 0.08%(k) 0.10%(k) $30,013 -- 36%
(0.08) $11.82 17.35% 1.47% 0.28% 0.01% $56,430 -- 144%
(0.29) $12.55 8.95% 1.32% (0.24%) -- $79,163 $ 0.0703 174%
-- $14.34 14.26% 1.29% 0.16% -- $83,118 $ 0.0967 262%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMBINED NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
(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 eleven diversified portfolios and one non-diversified
portfolio. 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")
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 Stellar Fund ("Stellar Fund")
The Stellar Insured Tax Free Bond Fund
("Stellar Tax Free Bond Fund")*
Star Market Capitalization Fund
("Market Capitalization Fund")**
Star Ohio Tax-Free Money Market Fund
("Ohio Tax-Free Money Market Fund")**
Star International Equity Fund
("International Equity Fund")**
* Stellar Tax-Free Bond Fund became effective on
December 30, 1996.
** The Market Capitalization Fund, Ohio Tax-Free Money Market Fund and
International Equity Fund became effective on November 19, 1997 but had no
public investment as of November 30, 1997.
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein along with
each Fund's investment objective:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
- -------------------------------------------------------
<S> <C>
Stellar Fund Maximize total return, a combination of
dividend income and capital appreciation.
Relative Value Fund Maximize total return, a combination
of income and capital appreciation.
Growth Equity Fund Maximize capital
appreciation.
Capital Appreciation Fund Maximize capital
appreciation.
</TABLE>
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. Capital Appreciation Fund offered
without class designation. Shares of Stellar Fund, Growth Equity Fund and
Relative Value Fund are offered in two classes: Trust Shares and Investment
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.
A. 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 valuation; 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. Investments in other
open-end and closed-end regulated investment companies are valued at net asset
value.
B. 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.
C. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and expenses are accrued daily. Bond premium
and discount, if applicable, are amortized as required by the Internal Revenue
Code, as amended (the "Code").
D. FEDERAL TAXES
It is 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.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued or delayed delivery transactions. The Funds
record when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date.
F. OPTION CONTRACTS WRITTEN
Capital Appreciation Fund, Growth Equity Fund and Stellar Fund may write
"covered" call option contracts. All of the Funds 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 period ended November 30,
1997, Stellar Fund, Growth Equity Fund and Capital Appreciation Fund, had
realized gain (loss) on options contracts written and purchased of ($1,734),
($415,986), and ($1,076,954), respectively.
At November 30, 1997, Stellar Fund and Growth Equity Fund had no outstanding
written options.
The Capital Appreciation Fund had no written option transactions during the
year.
The following is a summary of the Stellar Fund and Growth Equity Fund options
activity:
<TABLE>
<CAPTION>
STELLAR FUND
----------------------------
NUMBER OF
CONTRACTS PROCEEDS*
----------------------------
<S> <C> <C>
Outstanding at November 30, 1996 0 $0
Contracts opened 1,150 1,231,958
Contracts expired -- --
Contracts exercised (750) (152,494)
Contracts closed (400) (1,079,464)
----------------------------
Outstanding at November 30, 1997 0 $0
----------------------------
<CAPTION>
GROWTH EQUITY FUND
--------------------------
NUMBER OF
CONTRACTS PROCEEDS*
--------------------------
<S> <C> <C>
Outstanding at November 30, 1996 400 $212,765
Contracts opened 1,961 662,709
Contracts expired (150) (13,150)
Contracts exercised (300) (58,423)
Contracts closed (1,911) (803,901)
--------------------------
Outstanding at November 30, 1997 0 $0
--------------------------
</TABLE>
*Represents premium received less commissions paid.
G. 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.
H. 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>
STELLAR FUND
------------------------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
------------------------ ----------------------
INVESTMENT SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 229,880 3,158,813 288,055 3,589,181
Shares issued to shareholders in payment of distributions declared 234,369 3,116,031 168,747 2,069,667
Shares redeemed (618,771) (8,513,615) ( 788,848) (9,876,152)
------------------------------------------------
Net change resulting from Investment Share transactions (154,522) (2,238,771) ( 332,046) ($4,217,304)
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STELLAR FUND
--------------------------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
------------------------- -----------------------
TRUST SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------------------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 875,937 11,988,758 1,265,521 15,807,714
Shares issued to shareholders in payment of distributions
declared 254,884 3,391,344 185,421 2,275,467
Shares redeemed (1,598,328) (22,042,606) (1,837,574) (23,021,408)
--------------------------------------------------
Net change resulting from Trust Share transactions (467,507) (6,662,504) (386,632) (4,938,227)
--------------------------------------------------
Net change resulting from Fund Share transactions (622,029) (8,901,275) (718,678) ($9,155,531)
--------------------------------------------------
<CAPTION>
RELATIVE VALUE FUND
--------------------------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
------------------------- -----------------------
INVESTMENT SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------------------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 4,467,573 74,577,199 3,556,654 57,530,540
Shares issued to shareholders in payment of distributions
declared 154,522 2,938,215 59,691 961,791
Shares redeemed (14,355,524) (319,674,245) (1,062,532) (17,317,728)
--------------------------------------------------
Net change resulting from Investment Share transactions (9,733,429) (242,158,831) 2,553,813 41,174,603
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RELATIVE VALUE FUND
-----------------------
PERIOD ENDED NOVEMBER
30, 1997*
-----------------------
TRUST SHARES SHARES DOLLARS
- --------------------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Shares sold 13,707,273 307,769,070
Shares issued to shareholders in payment of distributions declared 12,454 292,800
Shares redeemed (437,680) (10,143,492)
-----------------------
Net change resulting from Trust Share transactions 13,282,047 297,918,378
-----------------------
Net change resulting from Fund Share transactions 3,548,618 55,759,547
-----------------------
</TABLE>
*For the period from August 18, 1997 (date of initial public investment) to
November 30, 1997.
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
----------------------------------------------------
YEAR ENDED NOVEMBER 30,
1997 1996
-------------------------- ------------------------
INVESTMENT SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 4,005,011 53,886,404 2,614,772 34,897,506
Shares issued to shareholders in payment of distributions
declared 346,216 4,838,986 201,504 2,488,056
Shares redeemed (7,354,386) (118,965,391) (1,025,812) (13,530,374)
----------------------------------------------------
Net change resulting from Investment Share transactions (3,003,159) (60,240,001) 1,790,464 23,855,188
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROWTH EQUITY FUND
----------------------
PERIOD ENDED NOVEMBER
30, 1997*
----------------------
TRUST SHARES SHARES DOLLARS
- ---------------------------------- --------- -----------
<S> <C> <C>
Shares sold 6,523,027 107,073,043
Shares issued to shareholders in
payment of distributions declared 5,992 102,945
Shares redeemed (178,790) (3,051,300)
----------------------
Net change resulting from Trust
Share transactions 6,350,229 104,124,688
----------------------
Net change resulting from Fund
Share transactions 3,347,070 43,884,687
----------------------
</TABLE>
*For the period from August 18, 1997 (date of initial public offering) to
November 30, 1997.
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION FUND
----------------------
YEAR ENDED NOVEMBER
30,
----------------------
INVESTMENT SHARES 1997 1996
- ----------------------------------- ---------- ----------
<S> <C> <C>
Investment Shares 991,069 2,651,433
Shares issued to shareholders in
payment of distributions declared -- 54,406
Shares redeemed (1,501,409) (1,172,964)
----------------------
Net change resulting from Fund
Share transactions (510,340) 1,532,875
----------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. 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>
Stellar Fund 0.95%
Relative Value Fund 0.75%
Growth Equity Fund 0.75%
Capital Appreciation
Fund 0.95%
- ---------------------------------------
</TABLE>
B. 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.
Effective January 1, 1998, the fee that FAS receives will change to an annual
rate of 0.12% of each fund's average daily net assets of the Trust. The fee
received during any fiscal year shall be at least $50,000 per Fund. FAS may
choose to voluntarily waive a portion of its fee at any time.
Effective January 1, 1998, under the terms of a Sub-Administration Agreement
between FAS and Star Bank, N.A., FAS will pay to Star Bank, N.A., solely from
the resources of FAS, a sub-administration fee at an annual rate of 0.04% of the
average daily net assets of the Trust, for assisting FAS in rendering
administrative services to the Trust.
C. 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, the Stellar Fund, Relative Value and
Growth Equity Fund are accruing and paying 12b-1 fees. The Capital Appreciation
Fund 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.
D. 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.
E. 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 is based on the size,
type, and number of accounts and transactions made by shareholders.
Effective January 23, 1998 Star Bank, N.A. will become the Fund's transfer and
dividend disbursing agent.
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES
Organizational expenses were initially borne by FAS. The Funds have reimbursed
FAS for these expenses. These expenses have been deferred and are being
amortized over the five year period following the Fund's effective date. For the
year ended November 30, 1997, the Funds expensed the following:
<TABLE>
<CAPTION>
AMOUNTS
EXPENSES EXPENSED TO FAS
OF FOR THE PERIOD
ORGANIZING ENDED
THE NOVEMBER 30,
EFFECTIVE DATE FUND 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Growth Equity
Fund November 14, 1994 $ 30,000 $ 8,857
Capital
Appreciation
Fund May 16,1994 $ 30,000 $ 4,873
- ----------------------------------------------------------------
</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
period ended November 30, 1997, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------------------------------------
<S> <C> <C>
Stellar Fund $70,161,046 $84,535,918
Relative Value Fund 114,217,976 51,899,078
Growth Equity Fund 107,903,119 71,726,108
Capital Appreciation Fund 185,922,492 197,220,161
- ------------------------------------------------------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
Stellar Fund invests in equity and fixed income securities of non-U.S. issuers.
Although, Stellar Fund maintains 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.
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, and The Stellar Fund):
We have audited the accompanying statements of assets and liabilities of Star
Capital Appreciation Fund, Star Growth Equity Fund, Star Relative Value Fund and
The Stellar Fund (investment portfolios of Star Funds, a Massachusetts business
trust), including the schedules of portfolio investments, as of November 30,
1997, 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 Funds' 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, 1997, 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 and
The Stellar Fund, (investment portfolios of Star Funds) as of November 30, 1997,
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 16, 1998
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
Thomas L. Conlan Jr. Edward C. Gonzales
PRESIDENT AND TREASURER
Edward C. Gonzales Joseph S. Machi
VICE PRESIDENT AND ASSISTANT TREASURER
Dr. Alfred Gottschalk C. Grant Anderson
SECRETARY
Dr. Robert J. Hill
Dawn M. Hornback
Lawrence M. Turner
William H. Zimmer III
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 Federal
Deposit Insurance Corporation. Investment in mutual funds involves investment
risk, including the possible loss of principal.
Thisreport is authorized for distribution to prospective investors only when
preceded or accompanied by the Trust's prospectus which contains facts
concerning its objectives and policies, management fees, expenses and other
information.
Cusip 854911708 --------------------------------------
Cusip 854911609 Star Bank, N.A.
Cusip 854911401 Investment Adviser
Cusip 854911823 --------------------------------------
Cusip 854911864 Federated Securities Corp.
Cusip 854911823 Distributor
Cusip 854911807 --------------------------------------
G00446-07(1/98)
6003TR
APPENDIX
STELLAR INSURED TAX-FREE BOND FUND
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Stellar
Insured Tax-Free Bond Fund (the "Fund"). The dotted line represents the Lehman
Brothers Ten Year Insured Bond Index ("LBTYIBI") and the dashed line represents
the Lipper Municipal Bond Fund Average ("LMBFA"). The line graph shows that an
initial investment of $10,000 in the Fund on 12/30/96, would have a reinvested
total worth of $10,210 on 11/30/97 as compared to $10,746 and $10,735 for the
LBTYIBI and LMBFA, respectively for the same period. The "x" axis reflects
annual computation periods from 12/30/96 to 11/30/97. The right margin of the
chart reflects the ending values of a hypothetical investment of $10,000 in the
Fund measured in increments of $1,000 ranging from $9,000 to $11,000.
STAR U.S. GOVERNMENT INCOME FUND
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
U.S. Government Income Fund (the "Fund"). The dotted line represents the Lehman
Brothers Government/Corporate Total Index ("LBGCTI") and the dashed line
represents the Lipper U.S. Government Fund Average ("LUSGFA"). The line graph
shows that an initial investment of $10,000 in the Fund on 1/5/93, would have a
reinvested total worth of $12,816 on 11/30/97 as compared to $14,282 and $13,229
for the LBGCTI and LUSGFA, respectively for the same period. The "x" axis
reflects annual computation periods from 1/5/93 to 11/30/97. The right margin of
the chart reflects the ending values of a hypothetical investment of $10,000 in
the Fund measured in increments of $1,000 ranging from $9,000 to $15,000.
STAR STRATEGIC INCOME FUND
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Strategic Income Fund (the "Fund"). The dotted line represents the Lehman
Brothers Government/Corporate Total Index ("LBGCTI"). The line graph shows that
an initial investment of $10,000 in the Fund on 12/12/94, would have a
reinvested total worth of $12,901 on 11/30/97 as compared to $13,416 for the
LBGCTI for the same period. The "x" axis reflects annual computation periods
from 12/12/94 to 11/30/97. The right margin of the chart reflects the ending
values of a hypothetical investment of $10,000 in the Fund measured in
increments of $1,000 ranging from $9,000 to $14,000.
THE STELLAR FUND-INVESTMENT SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in The Stellar
Fund (the "Fund"). The dotted line represents the Standard & Poor's 500/Lehman
Brothers Government Corporate Total Index ("S&PLBGCTI"). The line graph shows
that an initial investment of $10,000 in the Fund on 10/18/91, would have a
reinvested total worth of $17,307 on 11/30/97 as compared to $21,757 for the
S&PLBGCTI for the same period. The "x" axis reflects annual computation periods
from 10/18/91 to 11/30/97. The right margin of the chart reflects the ending
values of a hypothetical investment of $10,000 in the Fund measured in
increments of $1,000 ranging from $9,000 to $22,000.
THE STELLAR FUND-TRUST SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in The Stellar
Fund (the "Fund"). The dotted line represents the Standard & Poor's 500/Lehman
Brothers Government Corporate Total Index ("S&PLBGCTI"). The line graph shows
that an initial investment of $10,000 in the Fund on 4/6/94, would have a
reinvested total worth of $14,943 on 11/30/97 as compared to $17,699 for the
S&PLBGCTI for the same period. The "x" axis reflects annual computation periods
from 4/6/94 to 11/30/97. The right margin of the chart reflects the ending
values of a hypothetical investment of $10,000 in the Fund measured in
increments of $1,000 ranging from $9,000 to $19,000.
STAR RELATIVE VALUE FUND-INVESTMENT SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Relative Value Fund (the "Fund"). The dotted line represents the Standard &
Poor's 500 Index ("S&P500") and the dashed line represents the Lipper Growth and
Income Average ("LGIA"). The line graph shows that an initial investment of
$10,000 in the Fund on 6/4/91, would have a reinvested total worth of $26,417 on
11/30/97 as compared to $28,995 and $27,748 for the S&P500 and LGIA,
respectively for the same period. The "x" axis reflects annual computation
periods from 6/4/91 to 11/30/97. The right margin of the chart reflects the
ending values of a hypothetical investment of $10,000 in the Fund measured in
increments of $1,000 ranging from $9,000 to $31,000.
<PAGE>
STAR RELATIVE VALUE FUND-TRUST SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Relative Value Fund (the "Fund"). The dotted line represents the Standard &
Poor's 500 Index ("S&P500") and the dashed line represents the Lipper Growth and
Income Average ("LGIA"). The line graph shows that an initial investment of
$10,000 in the Fund on 8/19/97, would have a reinvested total worth of $10,393
on 11/30/97 as compared to $10,367 and $9,938 for the S&P500 and LGIA,
respectively for the same period. The "x" axis reflects annual computation
periods from 8/18/974 to 11/30/97. The right margin of the chart reflects the
ending values of a hypothetical investment of $10,000 in the Fund measured in
increments of $1,000 ranging from $9,000 to $13,000.
STAR GROWTH EQUITY FUND-INVESTMENT SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Growth Equity Fund (the "Fund"). The dotted line represents the Standard &
Poor's 500 Index ("S&P500"). The line graph shows that an initial investment of
$10,000 in the Fund on 12/12/94, would have a reinvested total worth of $19,979
on 11/30/97 as compared to $22,512 for the S&P500 for the same period. The "x"
axis reflects annual computation periods from 12/12/94 to 11/30/97. The right
margin of the chart reflects the ending values of a hypothetical investment of
$10,000 in the Fund measured in increments of $1,000 ranging from $9,000 to
$23,000.
STAR GROWTH EQUITY FUND-TRUST SHARES
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Growth Equity Fund (the "Fund"). The dotted line represents the Standard &
Poor's 500 Index ("S&P500"). The line graph shows that an initial investment of
$10,000 in the Fund on 8/18/97, would have a reinvested total worth of $10,459
on 11/30/97 as compared to $10,367 for the S&P500 for the same period. The "x"
axis reflects annual computation periods from 8/18/97 to 11/30/97. The right
margin of the chart reflects the ending values of a hypothetical investment of
$10,000 in the Fund measured in increments of $1,000 ranging from $9,000 to
$12,000.
<PAGE>
STAR CAPITAL APPRECIATION FUND
The graphic representation here displayed consists of a legend in the upper left
quadrant indicating the components of the corresponding line graph. The solid
line represents the value of a hypothetical investment of $10,000 in the Star
Capital Appreciation Fund (the "Fund"). The dotted line represents the S&P
Midcap 400 Index ("S&P400"). The line graph shows that an initial investment of
$10,000 in the Fund on 6/13/94, would have a reinvested total worth of $14,160
on 11/30/97 as compared to $19,961 for the S&P400 for the same period. The "x"
axis reflects annual computation periods from 6/13/94 to 11/30/97. The right
margin of the chart reflects the ending values of a hypothetical investment of
$10,000 in the Fund measured in increments of $1,000 ranging from $9,000 to
$21,000.
