(Star Funds Logo)
MONEY MARKET
FUNDS
COMBINED
ANNUAL
REPORT
NOVEMBER 30, 1998
STAR TREASURY FUND
STAR TAX-FREE MONEY MARKET FUND
STAR OHIO TAX-FREE MONEY MARKET FUND
PRESIDENT'S MESSAGE
Dear Shareholders:
On behalf of the Star Funds, I would like to thank you for your continued
support and for giving us the opportunity to help you achieve your financial
goals. As you are aware, interest rates were generally lower in the twelve-
month period ended November 30, 1998.
Following you will find the results for the cash management funds along with
questions and answers from our portfolio managers regarding the fund
performance. I hope you will take the time to read this important information.
STAR TREASURY FUND
This Fund seeks to provide income to shareholders with a principal value that is
stable.*<F1> To achieve this the Fund invests exclusively in short-term
Treasury securities. For the fiscal period just ended, the Fund returned 4.69%
for C Shares and 4.84% for Y Shares. This Fund remains a solid option for
investors who are seeking taxable income with the maximum in stability.
STAR TAX-FREE MONEY MARKET FUND
This Fund seeks current income which is exempt from Federal taxation with a
principal value that is stable.*<F1> This is achieved by investing totally in a
diversified portfolio of short-term municipal securities.**<F2> For the most
recent fiscal year the return on the Fund was 2.83%. This is a great option for
risk averse investors who are in a high tax bracket.
STAR OHIO TAX-FREE MONEY MARKET FUND
This Fund seeks current income which is exempt from both Federal and Ohio state
tax. This is accomplished by investing in municipal obligations of the state of
Ohio and its municipalities.**<F2> The return for the period from the Fund's
inception on December 2, 1997 to November 30, 1998 was 2.85%. So, if you are an
Ohio resident looking for tax-free income with principal stability this is an
excellent option.*<F1>
Again thank you for using the Star Funds for your investment needs and we look
forward to providing solid performance and service to you in the future.
Sincerely,
/s/Daniel B. Benhase
Daniel B. Benhase
President
January 15, 1999
*<F1> 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
funds are neither insured nor guaranteed by the U.S. government.
**<F2> Income may be subject to the federal alternative minimum tax and state
and local taxes.
INVESTMENT REVIEWS
TREASURY FUND
Q The Federal Reserve moved to lower interest rates in 1998 due to
international turmoil and liquidity concerns. How did the Treasury Fund
perform?
A The return of worldwide financial turmoil during the summer months
(recession in Asia, default of Russian debt, and stresses in Latin America) gave
rise to a crisis of confidence. The Fed clearly needed to move interest rates
lower and do it quickly. Thus, short-term interest rates were lowered by a
total of 75 basis points between September and November. This resulted in one-
year T-bill yields declining from approximately 5.5% to 4.5% by the end of
November. Our outlook for 1998 envisioned lower interest rates due to the
anticipation of good inflation data and continued weakness in Asia. Interest
rates were expected to decline and we positioned the Fund to take advantage of
this opportunity. We lengthened the portfolio's average maturity early in the
year to "lock-in" relatively high yields. While the Fund's yield declined due
to lower market levels, it maintained competitive yields compared to its Lipper
peer group throughout the period.
Q What about market dislocations in emerging markets? Did these have any
impact on the Fund?
A Because the Treasury Fund invests exclusively in U.S. Treasury obligations
or securities collateralized by these obligations, the destabilizing events had
a minimal impact on the Fund.
Q Is the Treasury Fund rated by a rating agency?
A Yes. Fitch IBCA has assigned a "AAA" rating, the highest rating possible.
Consideration is given to portfolio assets, management of risk, and degree of
liquidity.
Q What are your expectations for 1999?
A We are looking for an economy that continues the general slow growth, low
inflation pattern of the past several years. This will likely translate into
lower interest rates and better market liquidity. We believe Mr. Greenspan will
advocate reducing the Federal funds rate to 4.5% to 4% within the first six
months of 1999.
TAX-FREE MONEY MARKET FUND
Q During the Fund's fiscal year, what major factors affected the tax-free
money market?
A Two primary factors govern the tax-free money market yields: Treasury
securities and supply/demand levels. First, Treasury yields generally declined
over the period. The return of worldwide financial turmoil during the summer
months (recession in Asia, default of Russian debt, and stresses in Latin
America) gave rise to a crisis of confidence. The Fed clearly needed to move
interest rates lower and do it quickly. Thus, short-term interest rates were
lowered by a total of 75 basis points between September and November. This
resulted in one-year T-bill yields declining from approximately 5.5% to 4.5% by
the end of November. The second factor driving municipal markets,
supply/demand, continued the trend from last year. Strong demand sharply
exceeded new note issuance, the polar opposite of what has happened with longer-
term securities. As a result, yields have fallen steadily for the past several
months.
Q How did the yield of the Star Tax-Free Money Market Fund move over the
course of the year?
A As with the entire market, yields declined over the period. Our outlook for
1998 envisioned lower interest rates due to the anticipation of good inflation
data and continued weakness in Asia. Interest rates were expected to decline
and we positioned the Fund to take advantage of this opportunity. We lengthened
the portfolio's average maturity early in the year to "lock-in" relatively high
yields. Consequently, the yield of the Tax-Free Money Market Fund remained
within a few basis points of the Lipper peer group average.
Q What is your outlook for short-term rates in 1999?
A We are looking for an economy that continues the general slow growth, low
inflation pattern of the past several years. This will likely translate into
lower interest rates and better market liquidity. We believe Mr. Greenspan will
advocate reducing the Federal funds rate to 4.5% to 4% within the first six
months of 1999. Municipalities will likely avoid any negative impact from the
worldwide turmoil experienced in the past several months. Credit quality
continues to improve for most entities because of moderate economic growth,
better fiscal management, and stable reserves.
OHIO TAX-FREE MONEY MARKET FUND
Q During the Fund's fiscal year, what major factors affected the tax-free
money market?
A Two primary factors govern the tax-free money market yields: Treasury
securities and supply/ demand levels. First, Treasury yields generally declined
over the period. The return of worldwide financial turmoil during the summer
months (recession in Asia, default of Russian debt, and stresses in Latin
America) gave rise to a crisis of confidence. The Fed clearly needed to move
interest rates lower and do it quickly. Thus, short-term interest rates were
lowered by a total of 75 basis points between September and November. This
resulted in one-year T-bill yields declining from approximately 5.5% to 4.5% by
the end of November. The second factor driving municipal markets, supply/demand,
continued the trend from last year. Strong demand sharply exceeded new note
issuance, the polar opposite of what has happened with longer-term securities.
As a result, yields have fallen steadily for the past several months.
Q How did the yield of Star Ohio Tax-Free Money Market Fund move over the
course of the year?
A As with the entire market, yields declined over the period. Our outlook for
1998 envisioned lower interest rates due to the anticipation of good inflation
data and continued weakness in Asia. Interest rates were expected to decline
and we positioned the Fund to take advantage of this opportunity. We lengthened
the portfolio's average maturity early in the year to "lock-in" relatively high
yields. Consequently, the yield of the Ohio Tax-Free Money Market Fund remained
within a few basis points of the Lipper peer group average.
Q What is your outlook for short-term rates in 1999?
A We are looking for an economy that continues the general slow growth, low
inflation pattern of the past several years. This will likely translate into
lower interest rates and better market liquidity. We believe Mr. Greenspan will
advocate reducing the Federal funds rate to 4.5% to 4% within the first six
months of 1999. Municipalities will likely avoid any negative impact from the
worldwide turmoil experienced in the past several months. Credit quality
continues to improve for most entities because of moderate economic growth,
better fiscal management, and stable reserves.
PORTFOLIOS OF INVESTMENTS
STAR TREASURY FUND November 30, 1998
- ----------------------------------------------------------------------
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------
U.S. TREASURIES - 34.4%
U.S. TREASURY BILLS - 5.1%
$75,000,000 12/15/1998 $74,860,244
10,000,000 12/24/1998 9,972,208
- ----------------------------------------------------------------------
Total 84,832,452
- ----------------------------------------------------------------------
U.S. TREASURY NOTES - 29.3%
10,000,000 5.125%, 12/31/1998 9,996,114
20,000,000 5.75%, 12/31/1998 20,000,719
10,000,000 6.375%, 1/15/1999 10,011,111
60,000,000 5.875%, 1/31/1999 60,115,523
20,000,000 6.25%, 3/31/1999 20,047,604
15,000,000 7.00%, 4/15/1999 15,079,718
60,000,000 6.375%, 4/30/1999 60,209,033
10,000,000 6.50%, 4/30/1999 10,041,788
100,000,000 6.25%, 5/31/1999 100,803,301
60,000,000 6.00%, 6/30/1999 60,401,386
80,000,000 5.875%, 8/31/1999 80,872,899
40,000,000 5.75%, 9/30/1999 40,355,078
- ----------------------------------------------------------------------
Total 487,934,274
- ----------------------------------------------------------------------
TOTAL U.S. TREASURIES 572,766,726
- ----------------------------------------------------------------------
REPURCHASE AGREEMENTS - 64.8%
- ----------------------------------------------------------------------
79,245,000 Dean Witter Reynolds, Inc.,
5.00%, dated 11/30/1998,
due 12/1/1998, repurchase
price $79,256,006 (Collateralized
by U.S. Government Securities) 79,245,000
420,000,000 Donaldson, Lufkin and Jenrette
Securities Corp., 5.30%,
dated 11/30/1998, due
12/1/1998, repurchase price
$420,061,833 (Collateralized
by U.S. Government Securities) 420,000,000
80,000,000 Lehman Brothers Inc., 4.95%,
dated 11/27/1998, due
12/1/1998, repurchase price
$80,044,000 (Collateralized
by U.S. Government Securities) 80,000,000
80,000,000 Merrill Lynch, Pierce, Fenner and
Smith, Inc., 5.33%, dated
11/30/1998, due 12/1/1998,
repurchase price $80,011,844
(Collateralized by U.S.
Government Securities) 80,000,000
420,000,000 Swiss Bank, 5.30%, dated
11/30/1998, due 12/1/1998,
repurchase price $420,061,833
(Collateralized by U.S.
Government Securities) 420,000,000
- ----------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 1,079,245,000
- ----------------------------------------------------------------------
MUTUAL FUNDS - 5.3%
10,387,706 Merrill Lynch Institutions
Treasury Fund 10,387,706
77,562,944 Short Term Investment Fund 77,562,944
- ----------------------------------------------------------------------
TOTAL MUTUAL FUNDS 87,950,650
- ----------------------------------------------------------------------
TOTAL INVESTMENTS - 104.5% 1,739,962,376
- ----------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS - (4.5%) (74,388,891)
- ----------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $1,665,573,485
- ----------------------------------------------------------------------
(See Notes to Financial Statements.)
STAR TAX-FREE MONEY MARKET FUND November 30, 1998
- ----------------------------------------------------------------------
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------
SHORT-TERM MUNICIPALS - 99.0%
ARIZONA - 0.7%
$1,000,000 Tempe, AZ Industrial Development
Authorities, IDR Bonds Mandatory
Put, Safeway, Inc., (Bankers Trust
Company LOC), 3.15%, 4/15/1999 $1,000,000
- ----------------------------------------------------------------------
COLORADO - 1.5%
2,000,000 Smith Creek Metropolitan District of
Colorado, Revenue Bonds Weekly
VRDNs, (NationsBank, Fort Worth,
LOC), 3.10%, 10/1/2035 2,000,000
- ----------------------------------------------------------------------
FLORIDA - 1.7%
800,000 University of Florida Athletic Association,
Daily VRDNs, University of Florida
Stadium, (SunTrust Bank, Central
Florida LOC), 3.15%, 2/1/2020 800,000
1,500,000 University of Florida Athletic Association,
Daily VRDNs, University of Florida
Stadium, (SunTrust Bank, Central
Florida LOC), 3.04%, 12/1/2020 1,500,000
- ----------------------------------------------------------------------
Total 2,300,000
- ----------------------------------------------------------------------
GEORGIA - 3.7%
1,300,000 Columbus, GA Housing Authority,
Weekly VRDNs, Columbus State
University Foundation, (SunTrust Bank,
Atlanta LOC), 3.20%, 11/1/2017 1,300,000
1,000,000 Fulton County, GA Development
Authority, Weekly VRDNs, Arthritis
Foundation, Inc., (SunTrust Bank,
Atlanta LOC), 3.20%, 12/1/2016 1,000,000
800,000 Fulton County, GA Development
Authority, Revenue Bonds Weekly
VRDNs, Robert W. Woodruff Arts
Center, (SunTrust Bank, Atlanta LOC),
3.20%, 2/1/2016 800,000
1,900,000 Rockdale County, GA Hospital Authority
Series 1994, Revenue Certificates
Weekly VRDNs, Rockdale Hospital,
(SunTrust Bank, Atlanta LOC),
3.20%, 10/1/2009 1,900,000
- ----------------------------------------------------------------------
Total 5,000,000
- ----------------------------------------------------------------------
ILLINOIS - 16.0%
2,000,000 Illinois Development Finance Authority
Series 1993A, Weekly VRDNs, Loyola
Academy, (Northern Trust Corp. LOC),
3.15%, 10/1/2027 2,000,000
1,055,000 Illinois Development Finance Authority,
Revenue Bonds Weekly VRDNs, Lake
Forest Academy, (Northern Trust
Corp. LOC), 3.20%, 12/1/2024 1,055,000
2,000,000 Illinois Development Finance Authority,
Revenue Bonds Weekly VRDNs,
Roosevelt University, (American
National Bank, Chicago LOC), 3.20%,
4/1/2025 2,000,000
2,500,000 Illinois Development Finance Authority
Series A, Weekly VRDNs, Presbyterian
Home Lake, (LaSalle National Bank,
Chicago LOC), 3.20%, 9/1/2031 2,500,000
4,500,000 Illinois Development Finance Authority
Series 1996, Variable/Fixed Rate
Demand Revenue Bonds Weekly
VRDNs, Chicago Symphony Orchestra
Project, (Bank of America Illinois LOC),
3.10%, 6/1/2031 4,500,000
2,000,000 Illinois Development Finance Authority
Pollution Control Series C, Revenue
Bonds Weekly VRDNs, Illinois Power
Company, (ABN AMRO Bank N.A. LOC),
3.00%, 8/26/1999 2,000,000
2,500,000 Illinois Educational Facilities Authority,
Revenue Bonds Weekly VRDNs,
Newberry Library Project, (Northern
Trust Corp. LOC), 3.15%, 3/1/2028 2,500,000
400,000 Illinois Health Facilities Authority,
Revenue Bonds Weekly VRDNs,
Gottlieb Health Resources, Inc.,
(Harris Trust & Savings Bank, Chicago
LOC), 3.15%, 11/15/2024 400,000
2,900,000 Illinois Health Facilities Authority,
Revenue Bonds Weekly VRDNs,
Gottlieb Health Resources, Inc.,
(Harris Trust & Savings Bank,
Chicago LOC), 3.15%, 11/15/2025 2,900,000
1,245,000 Schaumburg, IL, IDR, Weekly VRDNs,
La Quita Motor Inns, (NationsBank,
Fort Worth LOC), 3.25%, 8/1/2001 1,245,000
450,000 Springfield, IL, Community Improvement
Revenue Bonds Weekly VRDNs,
Kent Family Project, (PNC Bank,
N.A. LOC), 3.30%, 7/1/1999 450,000
- ----------------------------------------------------------------------
Total 21,550,000
- ----------------------------------------------------------------------
INDIANA - 0.7%
1,000,000 Indiana Bond Bank, Advance Funding
Program Notes Series 1998 A-2,
4.00%, 1/20/1999 1,000,530
- ----------------------------------------------------------------------
KENTUCKY - 3.7%
1,000,000 Boone County, KY, IDRB Series 1994A,
Weekly VRDNs, Square D Co., (Societe
Generale, Chicago, IL LOC), 3.15%,
3/1/2003 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), 3.15%, 5/1/2010 4,000,000
- ----------------------------------------------------------------------
Total 5,000,000
- ----------------------------------------------------------------------
MARYLAND - 1.4%
1,700,000 Baltimore, MD, EDA Weekly VRDNs,
Field Container Co. L.P., (American
National Bank, Chicago LOC),
3.20%, 12/1/1999 1,700,000
170,000 Maryland State IDFA Series 1991,
Weekly VRDNs, Maryland Academy
of Sciences Facility, (NationsBank, N.A.,
Charlotte LOC), 3.20%, 6/1/2002 170,000
- ----------------------------------------------------------------------
Total 1,870,000
- ----------------------------------------------------------------------
MASSACHUSETTS - 3.7%
5,000,000 Massachusetts Bay Transit Authority
Series C, CP (Westdeutsche
Landesbank Girozentrale LOC),
3.10%, 1/14/1999 5,000,000
- ----------------------------------------------------------------------
MICHIGAN - 3.0%
3,800,000 Cornell, MI Economic Development
Corp., Industrial Development Revenue
Bonds Series 1990, CP Mead-Escanaba
Paper Co. Project, (Credit Suisse First
Boston LOC), 3.05%, 1/13/1999 3,800,000
195,000 Lenawee County, MI EDC, Revenue
Bonds Weekly VRDNs, Hardwoods of
Michigan, Inc., (National City Bank, Ohio
LOC), 3.30%, 10/1/1999 195,000
- ----------------------------------------------------------------------
Total 3,995,000
- ----------------------------------------------------------------------
MISSISSIPPI - 1.5%
2,000,000 Forest, MS, IDR Refunding Bonds
Weekly VRDNs, Sara Lee Corp.,
3.20%, 10/1/2012 2,000,000
- ----------------------------------------------------------------------
MISSOURI - 10.3%
600,000 Independence, MO IDA, IDRB Weekly
VRDNs, Shoney's Inn, (Wachovia
Bank of NC, NA, Winston-Salem LOC),
3.50%, 10/1/2007 600,000
1,500,000 Missouri State Environmental
Improvement & Energy Authority
Series 1985A, Union Electric Co.,
(Union Bank of Switzerland,
Zurich LOC), 3.375%, 12/4/1998 1,500,000
1,000,000 Missouri State Environmental
Improvement & Energy Authority
Series 1985A, Union Electric Co.,
(Union Bank of Switzerland,
Zurich LOC), 3.25%, 1/7/1999 1,000,000
7,200,000 Missouri State Environmental
Improvement & Energy Authority,
Revenue Bonds Weekly VRDNs,
Kansas City Power and Light Co.,
3.20%, 7/1/2017 7,200,000
1,500,000 Missouri State HEFA, Revenue Bonds
Series C, Daily VRDNs, Washington
University, 3.30%, 9/1/2030 1,500,000
2,000,000 Missouri State HEFA, Revenue Bonds
Series D, Daily VRDNs, Washington
University, 3.30%, 9/1/2030 2,000,000
- ----------------------------------------------------------------------
Total 13,800,000
- ----------------------------------------------------------------------
NEW MEXICO - 0.7%
900,000 Belen, NM, IDR Series 1991, Weekly
VRDNs, United Desiccants, Inc.,
(National City Bank, Kentucky LOC),
3.35%, 4/1/2000 900,000
- ----------------------------------------------------------------------
OHIO - 18.7%
1,250,000 Butler County, OH, GO LT BANs,
4.00%, 3/19/1999 1,251,428
500,000 Butler County, OH, GO LT BANs,
4.02%, 3/19/1999 500,538
500,000 Butler County, OH, GO LT BANs,
4.10%, 8/5/1999 501,303
2,000,000 Butler County, OH, GO LT BANs,
3.55%, 10/21/1999 2,006,872
470,000 Centerville, OH, Health Care, Revenue
Bonds Weekly VRDNs, Bethany
Lutheran Village, (PNC Bank, Ohio,
N.A. LOC), 3.15%, 11/1/2013 470,000
1,670,000 Clermont County, OH, GO LT BANs,
4.125%, 12/17/1998 1,670,158
2,500,000 Cuyahoga County, OH Hospital
Authority Series B Weekly VRDNs,
Cleveland Clinic, 3.15%, 1/1/2025 2,500,000
2,000,000 East Muskingum Water Authority,
OH Series 1998, BANs,
4.32%, 6/24/1999 2,003,447
1,000,000 Erie County, OH, GO LT BANs,
4.25%, 6/1/1999 1,002,398
800,000 Franklin County, OH Hospital Facility
Authority Series A, Weekly VRDNs,
U.S. Health Corp. of Columbus,
(Morgan Guaranty Trust Co.,
New York LOC), 3.15%, 12/1/2021 800,000
750,000 Hamilton County, OH Hospital Facilities
Authority Series 1997A, Weekly
VRDNs, Children's Hospital Medical
Center, (PNC Bank, Ohio, N.A. LOC),
3.35%, 5/15/2017 750,000
300,000 Hamilton County, OH Hospital Facilities
Authority Series B, Revenue Bonds
Weekly VRDNs, Health Alliance of
Greater Cincinnati, (MBIA Insurance
Corporation INS), 3.10%, 1/1/2018 300,000
350,000 Marion County, OH Hospital Authority
Weekly VRDNs, Pooled Lease
Program, (Bank One, Ohio, N.A. LOC),
3.20%, 3/1/2016 350,000
110,000 Marion County, OH Hospital Authority,
Revenue Bonds Weekly VRDNs,
Pooled Lease Program, (Bank One,
Ohio N.A. LOC), 3.20%, 8/1/2020 110,000
740,000 Marysville, OH, GO LT BANs,
3.67%, 3/15/1999 740,561
500,000 Mason, OH City School District Series A
BANs, 4.02%, 2/18/1999 500,438
3,000,000 Mayfield, OH, GO LT BANs,
3.65%, 9/28/1999 3,005,491
1,900,000 Middleburg Heights, OH Hospital
Improvement Revenue Bonds
Weekly VRDNs, (KeyBank, N.A. LOC),
3.25%, 8/15/2022 1,900,000
1,000,000 Ohio School Districts Cash Flow
Borrowing Program Series B
TANs, 3.60%, 6/30/1999 1,002,510
310,000 Ohio State IDR Weekly VRDNs,
Cincinnati Riverfront Coliseum, Inc.,
(PNC Bank, Ohio, N.A. LOC),
3.30%, 6/1/1999 310,000
450,000 Ohio State IDR Weekly VRDNs,
Cincinnati Riverfront Coliseum, Inc.,
(PNC Bank, Ohio, N.A. LOC),
3.30%, 6/1/2002 450,000
485,000 Ohio State IDR Weekly VRDNs,
Cincinnati Riverfront Coliseum, Inc.,
(PNC Bank, Ohio, N.A. LOC),
3.30%, 6/1/2003 485,000
500,000 Ohio State Water Development Authority,
Pollution Control Series 1997,
Revenue Bonds Weekly VRDNs, Philip
Morris Cos., Inc., 3.30%, 9/1/2018 500,000
2,000,000 Summit County, OH Series A, GO LT
BANs, 4.50%, 6/3/1999 2,007,350
- ----------------------------------------------------------------------
Total 25,117,494
- ----------------------------------------------------------------------
OREGON - 3.6%
4,845,000 Portland, OR Weekly VRDNs, University
Park Apartments, (Bank of Boston
LOC), 3.15%, 10/1/2011 4,845,000
- ----------------------------------------------------------------------
PENNSYLVANIA - 11.7%
1,110,000 Allegheny County, PA HDA Series B2,
Weekly VRDNs, Presbyterian
University Hospital, (NBD Bank LOC),
3.30%, 3/1/2018 1,110,000
3,200,000 Allegheny County, PA HDA Series B3,
Weekly VRDNs, Presbyterian
University Hospital, (NBD Bank LOC),
3.30%, 3/1/2018 3,200,000
4,000,000 Allegheny County, PA IDA, PCR Series
1992A, Mandatory Put Bond,
Duquesne Light Power Co., (Canadian
Imperial Bank of Commerce, Toronto
LOC), 3.85%, 1/28/1999 4,000,000
475,000 Allegheny County, PA HDA Series D,
Daily VRDNs, Presbyterian University
Health Systems, (MBIA INS), 3.30%,
3/1/2020 475,000
2,000,000 Allentown, PA Area Hospital Authority
Series B, Revenue Bonds Daily VRDNs,
Sacred Heart Hospital, (First Union
National Bank LOC), 3.30%, 7/1/2023 2,000,000
1,625,000 Butler County, PA IDA, Health, Hospital
Series B, Lutheran Welfare, (PNC
Bank, N.A. LOC), 2.95%, 11/1/1999 1,625,000
1,000,000 East Penn, PA IDA, IDR Weekly VRDNs,
Electronic Data Systems Corp.,
(Wachovia Bank of Georgia NA LOC),
3.15%, 12/31/2006 1,000,000
1,320,000 Pennsylvania Infrastructure Invitation
Authority Series A, Revenue Bonds,
6.90%, 9/1/1999 1,379,805
1,000,000 Temple University, Refunding Bonds
Series B, 4.50%, 5/14/1999 1,003,244
- ----------------------------------------------------------------------
Total 15,793,049
- ----------------------------------------------------------------------
TENNESSEE - 8.3%
1,000,000 Greenville, TN IDB, IDRB Weekly VRDNs,
Ball Corp., (Wachovia Bank of Georgia
LOC), 3.15%, 11/1/2011 1,000,000
3,700,000 Metropolitan Government Nashville &
Davidson County, TN HEFA,
Educational Facilities Revenue Bonds
Series 1997, Weekly VRDNs, Belmont
University Project, (SunTrust Bank,
Nashville LOC), 3.20%, 12/1/2022 3,700,000
3,100,000 Rutherford County, TN IDB Weekly
VRDNs, Square D Co., (Societe
Generale, Chicago, IL LOC),
3.15%, 4/1/2017 3,100,000
3,360,000 Sullivan County, TN Health Educational &
Housing Facilities Board, Revenue
Bonds Weekly VRDNs, Asbury Center,
(NationsBank, N.A., Charlotte LOC),
3.35%, 1/1/2010 3,360,000
- ----------------------------------------------------------------------
Total 11,160,000
- ----------------------------------------------------------------------
TEXAS - 6.8%
2,170,000 Bexar County, Health Facilities
Development Authority Weekly VRDNs,
Army Retirement Resources
Foundation, (Rabobank Nederland,
Utrecht LOC), 3.10%, 7/1/2011 2,170,000
2,300,000 Harris County, TX HFDC, Series 1994,
Daily VRDNs, Methodist Hospital,
Harris County, TX, 3.25%, 12/1/2025 2,300,000
900,000 Lone Star, Texas Airport Improvement
Authority Series B, Revenue Bonds
Weekly VRDNs, American Airlines Inc.,
(Royal Bank of Canada LOC),
3.25%, 12/1/2014 900,000
1,800,000 San Antonio, TX IDA Weekly VRDNs,
San Antonio River Center Associates,
(PNC Bank, N.A. LOC), 3.30%,
12/1/2012 1,800,000
2,000,000 Waller County, TX IDC, Industrial
Improvement Revenue Bonds Weekly
VRDNs, Tubular Steel, Inc., (Wachovia
Bank of Georgia NA LOC), 3.15%,
9/1/1999 2,000,000
- ----------------------------------------------------------------------
Total 9,170,000
- ----------------------------------------------------------------------
VIRGINIA - 1.3%
1,735,000 Rockbridge County, VA IDA, IDR Bonds
Mandatory Put, Safeway, Inc.,
(Bankers Trust Co. LOC),
3.65%, 2/1/1999 1,735,000
- ----------------------------------------------------------------------
TOTAL SHORT-TERM MUNICIPALS 133,236,073
- ----------------------------------------------------------------------
MUTUAL FUNDS - 0.2%
100,000 AIM Tax-Free Investments Co. 100,000
192,661 SEI Tax Exempt Money Market Fund 192,661
- ----------------------------------------------------------------------
TOTAL MUTUAL FUNDS 292,661
- ----------------------------------------------------------------------
TOTAL INVESTMENTS - 99.2% 133,528,734
- ----------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES - 0.8% 1,027,702
- ----------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $134,556,436
- ----------------------------------------------------------------------
(See Notes to Financial Statements.)
STAR OHIO TAX-FREE MONEY MARKET FUND November 30, 1998
- ----------------------------------------------------------------------
PRINCIPAL AMOUNT AMORTIZED COST
- ----------------------------------------------------------------------
OHIO SHORT-TERM INVESTMENTS - 100.7%
- ----------------------------------------------------------------------
OHIO SHORT-TERM MUNICIPALS - 94.7%
$1,460,000 Allen County, OH Health Care Facilities
Series 1998, Weekly VRDNs,
Mennonite Home, (Norwest Bank
Minnesota, N.A. LOC), 3.25%,
2/1/2018 $1,460,000
535,000 Barberton, OH, Sewer System
Revenue Bonds, 3.70%, 12/1/1998 535,000
500,000 Butler County, OH, GO LT BANs,
3.50%, 3/19/1999 500,587
225,000 Butler County, OH, GO LT BANs,
4.00%, 3/19/1999 225,257
200,000 Centerville, OH Weekly VRDNs,
Bethany Lutheran Village,
(PNC Bank, Ohio, N.A. LOC),
3.30%, 5/1/2008 200,000
500,000 Clermont County, OH, GO LT BANs,
4.125%, 12/17/1998 500,047
1,500,000 Cleveland, OH Income Tax Rev CP,
(Toronto-Dominion Bank LOC),
3.15%, 1/13/1999 1,500,000
1,000,000 Columbus, OH, GO UT Weekly VRDNs,
3.00%, 12/1/2017 1,000,000
100,000 Columbus, OH Electrical Systems,
Electric, Light & Power Improvement
Revenue Bonds Monthly VRDNs,
(Union Bank of Switzerland, Zurich
LOC), 3.10%, 9/1/2009 100,144
1,000,000 Columbus, OH Sewer System, Revenue
Bonds Series 1994, Weekly VRDNs,
3.05%, 6/1/2011 1,000,000
1,500,000 Cuyahoga County, OH, Hospital Revenue
Bonds Weekly VRDNs, Cleveland
Clinic, 3.15%, 1/1/2024 1,500,000
7,635,000 Cuyahoga County, OH, Hospital Authority
Series B Weekly VRDNs, Cleveland
Clinic, 3.15%, 1/1/2025 7,635,000
500,000 Erie County, OH, GO LT BANs,
4.25%, 6/1/1999 501,199
1,300,000 Franklin County, OH Health System
Revenue Bonds Weekly VRDNs,
Franciscan Sister, (Chase Manhattan
Bank LOC), 3.15%, 7/1/2015 1,300,000
2,500,000 Franklin County, OH Hospital Facility
Authority Series A, Weekly VRDNs,
U.S. Health Corp. of Columbus,
(Morgan Guaranty Trust Co., New
York LOC), 3.15%, 12/1/2021 2,500,000
4,650,000 Hamilton County, OH Health System,
Weekly VRDNs, West Park Community,
(Fifth Third Bank, Cincinnati LOC),
3.15%, 7/1/2017 4,650,000
2,500,000 Hamilton County, OH Hospital Facilities
Authority Series 1997A, Weekly
VRDNs, Children's Hospital Medical
Center, (PNC Bank, Ohio, N.A. LOC),
3.35%, 5/15/2017 2,500,000
1,000,000 Hamilton County, OH, Weekly VRDNs,
General Protestant Orphan Home,
(Fifth Third Bank, Cincinnati LOC),
3.43%, 12/1/2017 1,000,000
700,000 Hamilton County, OH Hospital Facilities
Authority Series A, Revenue Bonds
Weekly VRDNs, Health Alliance of
Greater Cincinnati, (MBIA Insurance
Corporation INS), 3.10%, 1/1/2018 700,000
2,100,000 Hamilton County, OH Hospital Facilities
Authority Series B, Revenue Bonds
Weekly VRDNs, Health Alliance of
Greater Cincinnati, (MBIA Insurance
Corporation INS), 3.35%, 1/1/2018 2,100,000
1,500,000 Hamilton, OH Multifamily Series A,
Revenue Bonds Weekly VRDNs,
Knollwood VLG, (Bank One Indiana
N.A. LOC), 3.20%, 1/1/2030 1,500,000
400,000 Mariemont, OH, BANs, 4.28%,
8/27/1999 401,076
1,080,000 Marion County, OH Hospital Authority
Series 1991, Weekly VRDNs, Marion
County, OH Pooled Hospital Program,
(Bank One, Ohio, N.A. LOC),
3.20%, 11/1/2021 1,080,000
605,000 Marysville, OH, GO UT BANs,
3.91%, 3/19/1999 605,449
500,000 Mason City, OH, BANs, 3.95%,
12/17/1998 500,032
250,000 Mason, OH City School District Series A
BANs, 4.02%, 2/18/1999 250,219
1,000,000 Mason, OH EDA Weekly VRDNs, Cedar
Village Project, (Fifth Third Bank,
Cincinnati LOC), 3.20%, 12/1/2017 1,000,000
498,787 Mercer County, OH, GO LT BANs,
3.90%, 10/21/1999 500,496
1,000,000 Middleburg Heights, OH Hospital
Improvement Revenue Bonds
Weekly VRDNs, (KeyBank N.A. LOC),
3.25%, 8/15/2022 1,000,000
545,000 Middletown, OH, BANs,
4.40%, 12/15/1998 545,100
500,000 Milford, OH, GO LT BANs,
4.11%, 5/19/1999 500,578
3,200,000 Montgomery County, OH Health
Facilities Authority Series A, Daily
VRDNs, Miami (OH) Valley Hospital,
3.15%, 11/15/2022 3,200,000
200,000 North Ridgeville, OH, BANs,
4.375%, 6/2/1999 200,361
1,655,000 Ohio State Air Quality Development
Authority Series B, Revenue Bonds
CP, Duquesne Light Co., (First
National Bank Chicago LOC),
3.20%, 1/29/1999 1,655,000
600,000 Ohio State Air Quality Development
Authority Series A, Revenue Bonds
Daily VRDNs, Cincinnati Gas & Electric,
(ABN Amro Bank N.A. LOC),
3.25%, 9/1/2030 600,000
100,000 Ohio State IDR Weekly VRDNs,
Cincinnati Riverfront Coliseum, Inc.,
(PNC Bank, Ohio, N.A. LOC),
3.30%, 6/1/1999 100,000
2,000,000 Ohio State University CP,
3.20%, 1/7/1999 2,000,000
1,500,000 Ohio State Water Development
Authority, Pollution Control Series
1997, Revenue Bonds Weekly VRDNs,
Philip Morris Cos., Inc., 3.30%,
9/1/2018 1,500,000
600,000 Scioto County, OH Hospital Authority
Series D, Weekly VRDNs, Volunteer
Hospitals of America, 3.20%,
12/1/2025 600,000
800,000 Southwest Regional Water District,
OH, BANs, 4.10%, 8/19/1999 801,653
615,000 Springboro, OH, GO LT BANs,
4.05%, 7/29/1999 615,971
500,000 Summit County, OH Series B,
GO LT BANs, 3.625%, 11/18/1999 503,395
1,000,000 Summit County, OH Civic Facility
Weekly VRDNs, Young Mens
Christian Association (KeyBank, N.A.
LOC), 3.25%, 12/1/2017 1,000,000
800,000 Tiffin, OH, GO LT, 3.95%, 7/8/1999 801,163
1,000,000 Warren County, OH Health Care Facilities
Series A, Weekly VRDNs, Otterbein
Homes, (Fifth Third Bank, Cincinnati
LOC), 3.40%, 7/1/2021 1,000,000
730,000 Worthington City, OH City School
District Series 1998, BANs,
4.00%, 1/15/1999 730,173
- ----------------------------------------------------------------------
TOTAL OHIO SHORT-TERM MUNICIPALS 54,597,900
- ----------------------------------------------------------------------
OHIO MONEY MARKET MUTUAL FUNDS - 6.0%
896,779 Midwest Ohio Tax-Free Fund 896,779
2,531,516 Vanguard Ohio Tax-Exempt Money
Market Fund 2,531,516
- ----------------------------------------------------------------------
TOTAL OHIO MONEY MARKET MUTUAL FUNDS 3,428,295
- ----------------------------------------------------------------------
TOTAL INVESTMENTS - 100.7% 58,026,195
- ----------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS - (0.7%) (412,546)
- ----------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $57,613,649
- ----------------------------------------------------------------------
(See Notes to Financial Statements.)
ABBREVIATIONS TO PORTFOLIOS OF INVESTMENTS
The following abbreviations are used in these portfolios:
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
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
TANs -- Tax and Revenue Anticipation Notes
UT -- Unlimited Tax
VRDNs -- Variable Rate Demand Notes
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1998
<TABLE>
Star Star Ohio
Tax-Free Tax-Free
Star Money Money
Treasury Market Market
Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in repurchase agreements $1,079,245,000 -- --
Investments in securities, at amortized cost 660,717,376 $133,528,734 $58,026,195
- -------------------------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost 1,739,962,376 133,528,734 58,026,195
- -------------------------------------------------------------------------------------------------------------------
Cash -- 529,307 --
Income receivable 7,500,030 873,957 324,400
- -------------------------------------------------------------------------------------------------------------------
Total assets 1,747,462,406 134,931,998 58,350,595
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 74,860,243 -- --
Income distribution payable 5,748,419 274,885 110,181
Payable to Affiliates 1,224,599 89,711 12,241
Payable to Bank 47,047 -- 583,661
Accrued expenses 8,613 10,966 30,863
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 81,888,921 375,562 736,946
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,665,573,485 $134,556,436 $57,613,649
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS:
C Shares $542,429,973 $134,556,436 $57,613,649
Y Shares 1,123,143,512 -- --
- -------------------------------------------------------------------------------------------------------------------
Total net assets $1,665,573,485 $134,556,436 $57,613,649
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
C Shares 542,429,973 134,556,436 57,613,649
Y Shares 1,123,143,512 -- --
- -------------------------------------------------------------------------------------------------------------------
Total shares outstanding 1,665,573,485 134,556,436 57,613,649
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
C Shares $1.00 $1.00 $1.00
Y Shares $1.00 -- --
- -------------------------------------------------------------------------------------------------------------------
Investments, at identified cost $1,739,962,376 $133,528,734 $58,026,195
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Investments, at tax cost $1,739,962,376 $133,528,734 $58,026,195
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Financial Statements.)
STATEMENTS OF OPERATIONS
Period Ended November 30, 1998
<TABLE>
Star Star Ohio
Tax-Free Tax-Free
Star Money Money
Treasury Market Market
Fund Fund Fund(a)<F3>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $73,555,596 $4,357,538 $1,252,542
EXPENSES:
Investment advisory fees 6,734,607 676,387 195,781
Shareholder services fees 3,366,730 304,679 89,270
Administration fees 1,561,120 142,356 46,932
Custodian fees 333,730 28,745 10,199
Transfer and dividend disbursing
agent fees and expenses 227,785 27,302 15,368
Trustees' fees 13,095 2,178 2,427
Auditing fees 15,265 24,434 10,000
Legal fees 6,010 5,444 3,655
Portfolio accounting fees 150,501 41,675 50,818
Distribution services fees -- C Shares 664,915 -- --
Federal and state registration fees 57,682 16,283 35,116
Printing and postage 36,538 15,721 15,352
Miscellaneous 38,239 5,542 5,327
- --------------------------------------------------------------------------------------------------
Total expenses 13,206,217 1,290,746 480,245
- --------------------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------------------------------
Waiver of investment advisory fees -- (122,979) (142,326)
Waiver of administration fees -- -- (18,871)
Waiver of shareholder services fees (2,695,019) (246,089) (71,572)
- --------------------------------------------------------------------------------------------------
Total Waivers (2,695,019) (369,068) (232,769)
- --------------------------------------------------------------------------------------------------
Net Expenses 10,511,198 921,678 247,476
- --------------------------------------------------------------------------------------------------
Net investment income $63,044,398 $3,435,860 $1,005,066
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(a)<F3> Reflects operations for the period from December 2, 1997 (date of
initial public investment) to November 30, 1998.
(See Notes to Financial Statements.)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
Star Star Ohio
Star Tax-Free Tax-Free
Treasury Money Market Money Market
Fund Fund Fund
------------------------- ------------------------- -------------
Year Ended Year Ended Year Ended Year Ended Period Ended
November 30, November 30, November 30, November 30, November 30,
1998 1997 1998 1997 1998 (a)<F4>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $63,044,398 $47,717,951 $3,435,860 $4,103,115 $1,005,066
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net
investment income
C Shares (20,969,988) (29,726,806) (3,435,860) (4,103,115) (1,005,066)
Y Shares (42,074,410) (17,991,145) -- -- --
- --------------------------------------------------------------------------------------------------
Change in net assets from
distributions to
shareholders (63,044,398) (47,717,951) (3,435,860) (4,103,115) (1,005,066)
- --------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS--
Proceeds from sales
of shares 9,879,339,361 6,634,149,054 490,492,605 529,216,899 137,909,771
Net asset value of
shares issued to
shareholders in payment
of distributions declared 433,873 469,381 5,730 5,547 3,259
Cost of shares redeemed (9,342,895,476)(6,335,181,799)(482,289,434) (556,130,618) (80,299,381)
- --------------------------------------------------------------------------------------------------
Change in net assets from
share transactions 536,877,758 299,436,636 8,208,901 (26,908,172) 57,613,649
- --------------------------------------------------------------------------------------------------
Change in net assets 536,877,758 299,436,636 8,208,901 (26,908,172) 57,613,649
- --------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,128,695,727 829,259,091 126,347,535 153,255,707 --
- --------------------------------------------------------------------------------------------------
End of period $1,665,573,485 $1,128,695,727 $134,556,436 $126,347,535 $57,613,649
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
(a)<F4> Reflects operations from December 2, 1997 (date of initial public investment) to November 30, 1998.
</TABLE>
(See Notes to Financial Statements.)
FINANCIAL HIGHLIGHTS
STAR FUNDS
(For a share outstanding throughout each period)
<TABLE>
RATIOS TO AVERAGE NET ASSETS
NET ASSET DISTRIBUTION ---------------------------------------- NET ASSETS
VALUE, NET FROM NET NET ASSET NET EXPENSE END OF
PERIOD ENDED BEGINNING INVESTMENT INVESTMENT VALUE, END TOTAL INVESTMENT WAIVER/ PERIOD
NOVEMBER 30, OF PERIOD INCOME INCOME OF PERIOD RETURN (A)<F5> EXPENSES INCOME REIMBURSEMENT (B)<F6>(000 OMITTED)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STAR TREASURY FUND
C SHARES
1994 $1.00 0.03 (0.03) $1.00 3.30% 0.70% 3.24% 0.20% $358,766
1995 $1.00 0.05 (0.05) $1.00 5.23% 0.71% 5.14% 0.20% $654,963
1996 $1.00 0.05 (0.05) $1.00 4.80% 0.70% 4.69% 0.20% $829,259
1997 $1.00 0.05 (0.05) $1.00 4.85% 0.73% 4.73% 0.20% $469,400
1998 $1.00 0.05 (0.05) $1.00 4.69% 0.88% 4.58% 0.20% $542,430
Y SHARES
1997(c)<F7> $1.00 0.03 (0.03) $1.00 3.37% 0.72%(d)<F8> 4.87%(d)<F8> 0.20%(d)<F8> $659,296
1998 $1.00 0.05 (0.05) $1.00 4.84% 0.73% 4.73% 0.20% $1,123,144
STAR TAX-FREE MONEY MARKET FUND
C SHARES
1994 $1.00 0.02 (0.02) $1.00 2.15% 0.65% 2.12% 0.35% $135,427
1995 $1.00 0.03 (0.03) $1.00 3.32% 0.66% 3.26% 0.35% $167,356
1996 $1.00 0.03 (0.03) $1.00 2.91% 0.70% 2.87% 0.31% $153,256
1997 $1.00 0.03 (0.03) $1.00 3.02% 0.69% 2.96% 0.30% $126,348
1998 $1.00 0.03 (0.03) $1.00 2.83% 0.75% 2.79% 0.30% $134,556
STAR OHIO TAX-FREE MONEY MARKET FUND
C SHARES
1998(e)<F9> $1.00 0.03 (0.03) $1.00 2.61% 0.69%(d)<F8> 2.81%(d)<F8> 0.65%(d)<F8> $57,614
- ------------------------------------------------------------------------------------------------------------------------------------
(a)<F5> Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
(b)<F6> This voluntary expense decrease is reflected in both the expense and net investment income ratios.
(c)<F7> Reflects operations for the period from March 25, 1997 (date of initial public investment) to November 30, 1997.
(d)<F8> Computed on an annualized basis.
(e)<F9> Reflects operations for the period from December 2, 1997 (date of initial public investment) to November 30, 1998.
</TABLE>
(See Notes to Financial Statements.)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
(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
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:
PORTFOLIO NAME INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------
Star Treasury Fund Stability of principal and current
("Treasury Fund") income consistent with stability of
principal.
Star Tax-Free Money Current income exempt from
Market Fund ("Tax-Free federal regular income tax
Money Market Fund") consistent with stability of principal.
Star Ohio Tax-Free Money Current income exempt from federal
Market Fund ("Ohio Tax-Free regular income tax and the
Money Market Fund") *<F10> personal income taxes imposed
by the state of Ohio and Ohio
municipalities with stability of
principal.
*<F10>The Ohio Tax-Free Money Market Fund became effective on November 19, 1997
and had public investment as of December 2, 1997.
The financial statements of the Stock Funds and the Bond Funds 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, (C Shares and Y Shares,
formerly, Investment Shares and Trust Shares, respectively); Tax-Free Money
Market Fund offers one class of shares (C Shares); and Ohio Tax-Free Money
Market Fund offers one class of shares (C 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
The Funds' use of the amortized cost method which approximates market, to value
their portfolio securities is in accordance with Rule 2a-7 under the Act.
Investments in other open-end investment companies are valued at net asset
value.
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. Net investment income other than
class specific expenses, and realized and unrealized gains and losses are
allocated daily to each class of shares based upon the relative net asset value
of outstanding shares (or the value of dividend-eligible shares, as appropriate)
of each class of shares at the beginning of the day (after adjusting for the
current day's capital share activity of the respective class). 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 Internal Revenue
Code, as amended 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, revenues and expenses 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, 1998, capital paid-in for Treasury Fund, Tax-Free Money Market Fund
and Ohio Tax-Free Money Market Fund aggregated $1,665,573,485, $134,556,436, and
$57,613,649, respectively. Transactions in Fund shares were as follows:
TREASURY FUND
--------------------------------------
YEAR PERIOD
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
Y SHARES 1998 1997*<F11>
- ------------------------------ ----------------- -----------------
Shares sold 5,673,502,702 2,057,044,184
Shares issued to shareholders
in payment of distributions
declared 294,269 81,573
Shares redeemed (5,209,949,047) (1,397,830,169)
--------------------------------------
Net change resulting from
Y Share transactions 463,847,924 659,295,588
--------------------------------------
*<F11>Reflects operations for the period from March 25, 1997 (date of initial
public investment) to November 30, 1997.
TREASURY FUND
--------------------------------------
YEAR YEAR
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
C SHARES 1998 1997
- ------------------------------ ----------------- -----------------
Shares sold 4,205,836,659 4,577,104,870
Shares issued to shareholders
in payment of distributions
declared 139,604 387,808
Shares redeemed (4,132,946,429) (4,937,351,630)
--------------------------------------
Net change resulting from
C Share transactions 73,029,834 (359,858,952)
--------------------------------------
TAX-FREE MONEY
MARKET FUND
--------------------------------------
YEAR YEAR
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
C SHARES 1998 1997
- ------------------------------ ----------------- -----------------
Shares sold 490,492,605 529,216,899
Shares issued to shareholders
in payment of distributions
declared 5,730 5,547
Shares redeemed (482,289,434) (556,130,618)
--------------------------------------
Net change resulting from
C Share transactions 8,208,901 (26,908,172)
--------------------------------------
OHIO TAX-FREE
MONEY MARKET
----------------
FUND
PERIOD ENDED
NOVEMBER 30,
C SHARES 1998**<F12>
- ----------------------------------------- ----------------
Shares sold 137,909,771
Shares issued to shareholders in payment of
distributions declared 3,259
Shares redeemed (80,299,381)
----------------
Net change resulting from
C Share transactions 57,613,649
----------------
**<F12> Reflects operations for the period from December 2, 1997 (date of
initial public investment) to November 30, 1998.
(4) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A. GENERAL
Certain officers, directors or trustees of Star Bank, N.A., Firstar Mutual Fund
Services, LLC, Federated Administrative Services and Federated Services Company
serve or did serve as officers and Trustees of the Trust. Star Bank, N.A. and
Firstar Mutual Fund Services, LLC are related by virtue of each being a
subsidiary of Firstar Corporation.
B. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
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:
FUND NAME ANNUAL RATE
- ----------------------------------------------------
Treasury Fund 0.50%
Tax-Free Money Market Fund 0.55%
Ohio Tax-Free Money Market Fund 0.55%
- ----------------------------------------------------
The Adviser may voluntarily choose to waive a portion of its fee. The Adviser
may modify or terminate this voluntary waiver of its advisory fees at any time
at its sole discretion.
C. ADMINISTRATIVE FEES
Effective October 1, 1998, Firstar Mutual Fund Services, LLC ("Firstar")
provides the Funds with certain administrative personnel and services. Firstar
receives a fee at an annual rate of 0.11% of the average daily net assets of
each Fund for the period.
Prior to October 1, 1998, Federated Administrative Services ("FAS") provided the
Funds with certain administrative personnel and services. FAS received a fee at
an annual rate of 0.12% of the average daily net assets of the Trust for the
period. The administrative fee received by FAS during any fiscal year was at
least $50,000 per fund. Prior to January 1, 1998, the FAS fee was based on the
level of aggregate average daily net assets of the Trust for the period.
D. DISTRIBUTION SERVICES FEES
Pursuant to the provisions of a distribution plan adopted in accordance with the
Investment Company Act Rule 12b-1 (the "Plan"), C Shares of the Trust may pay to
the distributor of the Funds an amount computed at an annual rate of 0.25% of
the average daily net asset value of shares to finance any activity which is
principally intended to result in the sale of shares subject to the Plan.
Effective October 1, 1998, B.C. Ziegler and Company became the distributor of
the Funds. Prior to that date, Federated Securities Corp. served as the
distributor of the Funds.
Currently, only the Treasury Fund is accruing and paying 12b-1 fees. The Tax-
Free Money Market Fund and the Ohio Tax-Free Money Market Fund will not accrue
or pay any distribution expenses pursuant to the Plan until a "Y" class of
shares has been registered with the Securities and Exchange Commission.
E. SHAREHOLDER SERVICES FEES
Under the terms of a Shareholder Services Agreement with Star Bank, N.A., each
Fund may pay Star Bank, N.A. up to 0.25% of average daily net assets of the
Funds for the period. Star Bank, N.A. limited 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.
F. TRANSFER AND DIVIDEND DISBURSING AGENT FEES
Effective March 9, 1998, Star Bank, N.A. serves as transfer and dividend
disbursing agent for the Funds. The fee paid to Star Bank, N.A. is based on the
size, type and number of accounts and transactions made by shareholders.
Prior to March 9, 1998, Federated Services Company ("FServ") served as the
Funds' transfer and dividend disbursing agent and received for its services a
fee based on the size, type and number of accounts and transactions made by
shareholders.
G. PORTFOLIO ACCOUNTING FEES
Effective October 1, 1998, Firstar became the Funds' accounting services agent.
Firstar is responsible for maintaining 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, subject to an annual minimum of $39,000 per Fund,
plus out-of-pocket expenses.
Prior to October 1, 1998, FServ was the Funds' accounting services agent.
H. 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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
of the Star Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Star Treasury Fund, Star Tax-Free Money
Market Fund, and Star Ohio Tax-Free Money Market Fund (three of the portfolios
constituting the Star Funds, a Massachusetts business trust) as of November 30,
1998, the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Star
Treasury Fund, Star Tax-Free Money Market Fund, and Star Ohio Tax-Free Money
Market Fund of the Star Funds as of November 30, 1998, and the results of their
operations for the period then ended, the changes in their net assets for the
two years in the period then ended, and their financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
January 8, 1999.
TRUSTEES OFFICERS
Thomas L. Conlan Jr. Daniel B. Benhase
PRESIDENT
Dr. Alfred Gottschalk Joseph C. Neuberger
VICE PRESIDENT
Dr. Robert J. Hill Michael T. Karbouski
TREASURER
Dawn M. Hornback Elaine E. Richards
SECRETARY
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
risks, including the possible loss of principal. Although money market funds
seek to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Trust's prospectus which contains facts
concerning its objectives and policies, management fees, expenses and other
information.
STAR BANK, N.A.
Investment Adviser
B.C. ZIEGLER AND COMPANY
Distributor
Cusip 85491104
Cusip 854911849
Cusip 854911302
Cusip 854911781
