(Star Funds Logo)
COMBINED
ANNUAL
REPORT
NOVEMBER 30, 1998
THE STELLAR INSURED TAX-FREE BOND FUND
STAR U.S. GOVERNMENT INCOME FUND
STAR STRATEGIC INCOME FUND
PRESIDENT'S MESSAGE
Dear Shareholder:
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. It was however a market that was
characterized by strength in the Treasury market with lower returns generated by
other fixed income securities.
Following you will find the results for the fixed income 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.
THE STELLAR INSURED TAX-FREE BOND FUND
This Fund just completed its first full fiscal year of operation and turned in a
very successful year. The Fund returned 7.20% or 2.40% adjusted for the sales
charge for the twelve-month reporting period.*<F1> This result was achieved
through the investment in high grade, primarily insured, municipal bonds.**<F2>
The decline in interest rates during the period helped to improve the overall
fund return. This remains a very good investment for individuals who are
seeking tax-free income through high quality investments.
STAR U.S. GOVERNMENT INCOME FUND
The Government Income Fund, A shares likewise had a very successful year by
returning 9.00% or 5.16% adjusted for the sales charge to its shareholders.*<F1>
Our emphasis on quality helped in this performance as investors flocked to the
safety of Treasury securities, while lower quality securities suffered. Again,
the decline in rates helped to buoy the overall fund performance. This is an
excellent Fund for investors who are seeking quality taxable income performance.
STAR STRATEGIC INCOME FUND
The Strategic Income Fund continued through the last twelve months to provide a
solid income return to investors by maintaining a stable dividend even as
interest rates on other investments fell. This was accomplished through the
unique combination of securities in which this Fund invests. Total return was
(2.16)% or (6.67)% adjusted for the maximum contingent deferred sales
charge.*<F1> For further details please see the following material on this
diversified Fund.
Again thank you for using the Star Funds for your fixed income 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> 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.
**<F2> Income may be subject to the federal alternative minimum tax and state
and local taxes.
INVESTMENT REVIEWS
THE STELLAR INSURED TAX-FREE BOND FUND
Q The Stellar Insured Tax-Free Bond Fund generated strong returns during the
1998 fiscal year. To what do you attribute the success of the Fund during this
period?
A The Stellar Insured Tax-Free Bond Fund finished the year in the top 35
percentile of its Lipper peer group. The Fund invests at least 65% of its
assets in municipal securities that are insured as to timely payment. In
practice, we have targeted a much higher proportion (over 85%) towards insured
bonds. The presence of insurance helps insulate the Fund from credit concerns
that may develop periodically, such as the recent "credit crunch". Also, our
outlook for 1998 envisioned lower interest rates due to the anticipation of good
inflation data and continued weakness in Asia. Indeed, the Consumer Price Index
remained under 2% for the entire year and interest rates declined. For
instance, the 10-year Treasury note yield fell over 100 basis points from 5.85%
to 4.72%. We lengthened the portfolio's average maturity early in the year to
take advantage of this opportunity and "lock-in" relatively high yields.
Q What is the advantage of insured bonds compared to uninsured?
A First, the designation "insured" only refers to assuring timely payment of
interest and principal over the life of the bond. It does not protect against
short-term market fluctuations in price due to changes in interest rates. Other
less obvious benefits include higher levels of liquidity, attractive pricing
compared to other "AAA" issues, and broader diversification. Thus, we
frequently find that purchasing insured bonds provides better yields, liquidity,
and more selection than a universe of high quality uninsured bonds.
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. In terms of bond yields, the fundamental outlook leans slightly
positive. We are anticipating a range bound bond market next year of 4.5% to
5.5%. 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.
STAR U.S. GOVERNMENT INCOME FUND
Q The U.S. Government Income Fund generated strong results and outperformed
the average of its Lipper peer group returns during the 1998 fiscal year. To
what do you attribute the success of the Fund during this period?
A The U.S. Government Income Fund finished the year in the top 41 percentile
of its Lipper peer group. The Fund is diversified across the fixed income
maturity spectrum and market segments. Our outlook for 1998 envisioned lower
interest rates due to the anticipation of good inflation data and continued
weakness in Asia. Indeed, the Consumer Price Index remained under 2% for the
entire year and interest rates declined. For instance, the 10-year Treasury
note yield fell over 100 basis points from 5.85% to 4.72%. We lengthened the
portfolio's average maturity early in the year to take advantage of this
opportunity and "lock-in" relatively high yields.
Q What about the wide differences in sector performances and how did the Fund
respond?
A While yields on Treasury securities reached new lows for this cycle, not all
market segments performed well. 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. Liquidity was
available, but only to the highest quality risks. A massive "flight to quality"
left all other fixed income assets with weak sponsorship and significant
underperformance. Investment grade corporate bond returns trailed Treasury
securities by about 250 basis points and "junk" bonds were even worse.
Mortgage-backed securities, devoid of credit risk, underperformed significantly.
Our decisions to limit exposure to higher risk asset classes, remain diversified
across industries, and closely monitor fundamental trends helped to limit
portfolio volatility. Also, the Fund is excluded from purchasing emerging
markets debt or "junk" bonds. We believe our longer term focus helps to reduce
volatility and leads to competitive long-term results.
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. In terms of bond yields, the fundamental outlook leans slightly
positive. We are anticipating a range bound bond market next year of 4.5% to
5.5%.
The U.S. agency, mortgage, and corporate sectors all ended the year with
significant underperformance compared to Treasury securities. With corporate
yield spreads close to the widest levels witnessed in 10 years, we believe these
sectors have reached a bottom and can improve over the next several months.
Why? Fundamentals appear fine as we expect earnings to remain positive in 1999,
the U.S. will likely avoid recession, and debt repayment measures remain
healthy. Long-term investors will likely be rewarded for focusing on high
quality, liquid issuers, and remaining highly diversified. We advocate a strong
overweight in agency notes as there is little credit risk and liquidity is
excellent. We also moderately overweight financial issuers (regional banks and
consumer finance in particular). In summary, the non-Treasury sectors offer
some of the best values seen in the past 10 years and could easily show top
performance results going into the new millennium.
STAR STRATEGIC INCOME FUND
Q The past year will be remembered as a period of notable surprises and
volatility. How well did the Fund perform in 1998?
A The investment objective for the Strategic Income Fund is to "generate high
current income." In each month in 1998, the Fund distributed $0.058 per share
despite market yields declining. For investors who purchased the Fund at the
beginning of the review period (11/30/97), income distributions totaled $0.738
for the year or 6.9%.
We accomplished this goal by uniquely investing the portfolio across five asset
classes: corporate bonds, mortgage-backed, international, equity and real estate
investment trusts (REIT's) securities. Within these broad asset types, the Fund
was highly diversified by issuer, geographic location, and industry. Over the
longer term, this high level of diversification serves to protect the portfolio
from market dislocations associated with a particular asset class. For
instance, the REIT market suffered from a combination of tax policy changes,
investor perceptions, and capacity concerns in some markets.
Q Can you explain the wide differences in sector performances in 1998 and how
the Fund responded?
A While yields on Treasury securities reached new lows for this cycle, not all
market segments performed well. 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. Liquidity was
available, but only to the highest quality risks. A massive "flight to
quality" left all other fixed income assets with weak sponsorship and
significant underperformance. Investment grade corporate bond returns trailed
Treasury securities by about 250 basis points and "junk" bonds were even worse.
Mortgage-backed securities, devoid of credit risk, underperformed significantly.
Our decisions to limit exposure to higher risk asset classes, remain diversified
across industries, and closely monitor fundamental trends helped to limit
portfolio volatility. Also, the Fund is excluded from purchasing emerging
markets debt or "junk" bonds. We believe our longer term focus helps to reduce
volatility and leads to competitive long-term results.
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.
The U.S. agency, mortgage, and corporate sectors all ended the year with
significant underperformance compared to Treasury securities. With corporate
yield spreads close to the widest levels witnessed in 10-years, we believe these
sectors have reached a bottom and can improve over the next several months.
Why? Fundamentals appear fine as we expect earnings to remain positive in 1999.
The U.S. will likely avoid recession, and debt repayment measures remain
healthy. Long-term investors will likely be rewarded for focusing on high
quality, liquid issuers, and remaining highly diversified.
Equity performance is expected to be generally positive as earnings growth
remains positive and lower interest rates support higher price/earnings
multiples. REIT markets offer some of the highest yields available to
investors. In addition, fundamentals remain strong given the valuation levels,
disciplined management, and growth potential exhibited in the real estate
market.
THE STELLAR INSURED TAX-FREE BOND FUND
GROWTH OF $10,000 INVESTED IN THE 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, 1998 COMPARED TO THE LEHMAN BROTHERS TEN YEAR
INSURED BOND INDEX(A)<F3> AND THE LIPPER INSURED MUNICIPAL DEBT FUND
AVERAGE(B)<F4>.
[GRAPH APPEARS HERE-SEE APPENDIX]
AVERAGE ANNUAL TOTAL RETURN(D)<F6> FOR THE PERIOD ENDED NOVEMBER 30, 1998
One Year 2.40%
Start of Performance (12/30/96) 4.82%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
(a)<F3> 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.
(b)<F4> The Lipper Insured Municipal Debt 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.
(c)<F5> 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 Insured Municipal Debt Fund
Average have been adjusted to reflect reinvestment of dividends on
securities in the index and average. The index is unmanaged.
(d)<F6> Total return quoted reflects all applicable sales charges.
STAR U.S. GOVERNMENT INCOME FUND -- A SHARES
GROWTH OF $10,000 INVESTED IN STAR U.S. GOVERNMENT INCOME FUND -- A SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE STAR
U.S. GOVERNMENT INCOME FUND -- A SHARES (THE "FUND") FROM JANUARY 5, 1993 (START
OF PERFORMANCE) TO NOVEMBER 30, 1998 COMPARED TO THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE TOTAL INDEX(A)<F7> AND THE LIPPER U.S. GOVERNMENT FUND
AVERAGE(B)<F8>.
[GRAPH APPEARS HERE-SEE APPENDIX]
AVERAGE ANNUAL TOTAL RETURN(D)<F10> FOR THE PERIOD ENDED NOVEMBER 30, 1998
One Year 5.16%
Start of Performance (1/5/93) 5.83%
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.
(a)<F7> 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.
(b)<F8> 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.
(c)<F9> 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.
(d)<F10> Total return quoted reflects all applicable sales charges.
STAR U.S. GOVERNMENT INCOME FUND -- B SHARES
GROWTH OF $10,000 INVESTED IN STAR U.S. GOVERNMENT INCOME FUND -- B SHARES
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE STAR
U.S. GOVERNMENT INCOME FUND -- B SHARES (THE "FUND") FROM APRIL 27, 1998 (START
OF PERFORMANCE) TO NOVEMBER 30, 1998 COMPARED TO THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE TOTAL INDEX(A)<F11> AND THE LIPPER U.S. GOVERNMENT FUND
AVERAGE(B).<F12>
[GRAPH APPEARS HERE-SEE APPENDIX]
AVERAGE ANNUAL TOTAL RETURN(D)<F14> FOR THE PERIOD ENDED NOVEMBER 30, 1998
Start of Performance (4/27/98) (cumulative) 1.71%
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.
(a)<F11> 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.
(b)<F12> 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.
(c)<F13> Represents a hypothetical investment of $10,000 in the Fund. The
ending value of the Fund reflects a 5.00% contingent deferred sales
charge on any redemption less than one year from the purchase date.
The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman 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.
(d)<F14> Total return quoted reflects all applicable contingent deferred sales
charges.
STAR STRATEGIC INCOME FUND
GROWTH OF $10,000 INVESTED IN STAR STRATEGIC INCOME FUND
THE GRAPH BELOW ILLUSTRATES THE HYPOTHETICAL INVESTMENT OF $10,000 IN THE STAR
STRATEGIC INCOME FUND (THE "FUND") FROM DECEMBER 12, 1994 (START OF PERFORMANCE)
TO NOVEMBER 30, 1998 COMPARED TO THE LEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL
INDEX.(A)<F15>
[GRAPH APPEARS HERE-SEE APPENDIX]
AVERAGE ANNUAL TOTAL RETURN(C)<F17> FOR THE PERIOD ENDED NOVEMBER 30, 1998
One Year (6.67)%
Start of Performance (12/12/94) 6.14%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
(a)<F15> 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.
(b)<F16> 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.
(c)<F17> Total return quoted reflects all applicable contingent deferred sales
charges.
PORTFOLIOS OF INVESTMENTS
------------------------------
The Stellar Insured Tax-Free Bond Fund November 30, 1998
- -------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
LONG-TERM MUNICIPALS - 97.7%
- -------------------------------------------------------------------------------
ALABAMA - 5.9%
$1,750,000 Alabama Water PCA, Revenue Bonds,
(AMBAC INS), 6.70%, 8/15/2006 $1,881,547
2,500,000 Alabama Water PCA, Revenue Bonds,
(AMBAC INS), 5.50%, 8/15/2012 2,668,700
2,500,000 Bessemer, AL Water Revenue,
Revenue Bonds, (AMBAC INS),
5.75%, 7/1/2016 2,713,475
1,500,000 Jefferson County, AL, Sewer,
Revenue Bonds, (MBIA INS),
5.65%, 9/1/2008 1,639,575
- -------------------------------------------------------------------------------
Total 8,903,297
- -------------------------------------------------------------------------------
ARIZONA - 3.5%
2,000,000 Mesa, AZ, Revenue Bonds, (FGIC INS),
5.375%, 7/1/2015 2,105,640
3,000,000 Mesa, AZ, Revenue Bonds, (FGIC INS),
5.25%, 7/1/2016 3,112,140
- -------------------------------------------------------------------------------
Total 5,217,780
- -------------------------------------------------------------------------------
COLORADO - 0.9%
1,250,000 Colorado Post-Secondary Education
Facilities, Revenue Bonds, Auraria
Foundation Project, (FSA INS),
5.75%, 9/1/2010 1,358,975
- -------------------------------------------------------------------------------
CONNECTICUT - 1.4%
2,000,000 Connecticut State Transportation
Infrastructure Authority,
Revenue Bonds, (FGIC INS),
5.25%, 10/1/2014 2,107,280
- -------------------------------------------------------------------------------
FLORIDA - 1.9%
1,280,000 Florida State Department of
Transportation, Revenue Bonds,
(FGIC INS), 5.125%, 7/1/2013 1,333,184
1,500,000 Orlando & Orange County Expressway
Authority, FL, Revenue Bonds,
(AMBAC INS), 5.375%, 7/1/2008 1,597,890
- -------------------------------------------------------------------------------
Total 2,931,074
- -------------------------------------------------------------------------------
ILLINOIS - 13.6%
1,100,000 Chicago, IL, GO UT, (MBIA INS),
5.375%, 1/1/2013 1,183,468
2,000,000 Chicago, IL Park District, GO UT,
(MBIA INS), 5.60%, 1/1/2014 2,137,340
1,500,000 Cook County, IL, GO UT, (MBIA INS),
5.375%, 11/15/2012 1,578,090
2,500,000 Illinois Health Facilities Authority,
Revenue Bonds, Advocate Health
Care Network, (MBIA INS),
5.80%, 8/15/2016 2,723,525
2,225,000 Illinois State, GO UT, (MBIA INS),
6.10%, 2/1/2017 2,442,894
1,410,000 Illinois State, GO UT, (MBIA INS),
5.75%, 5/1/2021 1,512,366
2,400,000 McHenry County, IL Community
Unit School District No. 200,
Series A, GO UT, (FSA INS),
5.85%, 1/1/2016 2,613,768
1,000,000 Northern Illinois University,
Revenue Bonds, (FGIC INS),
5.70%, 4/1/2016 1,066,470
2,500,000 Regional Transportation Authority
Series A, Revenue Bonds,
(AMBAC INS), 6.00%, 6/1/2009 2,760,125
2,500,000 Will County, IL Forest Preservation
District, GO UT, (AMBAC INS),
6.00%, 12/1/2006 2,691,875
- -------------------------------------------------------------------------------
Total 20,709,921
- -------------------------------------------------------------------------------
INDIANA - 1.4%
2,000,000 Indiana Transportation Finance
Authority, Airport Lease, Revenue
Bonds Series A, (AMBAC INS),
5.00%, 11/1/2007 2,127,880
- -------------------------------------------------------------------------------
KENTUCKY - 1.7%
2,500,000 Jefferson County, KY HFDA,
Revenue Bonds, University
Medical Center, Inc., (MBIA INS),
5.50%, 7/1/2017 2,643,000
- -------------------------------------------------------------------------------
LOUISIANA - 3.8%
2,030,000 Baton Rouge, LA Sales & Use
Tax Public Improvements
Series A, (FGIC INS),
5.25%, 8/1/2015 2,124,679
1,000,000 Jefferson Parish, LA, Revenue Bonds,
(AMBAC INS), 5.00%, 11/1/2011 1,046,050
1,500,000 Louisiana PFA, Revenue Bonds,
Tulane University, (MBIA INS),
5.10%, 11/15/2014 1,544,160
1,000,000 Terrebonne Parish, LA Hospital
Service District No. 1, Revenue
Bonds, Terrebonne General Medical
Center, (AMBAC INS), 5.25%, 4/1/2014 1,028,780
- -------------------------------------------------------------------------------
Total 5,743,669
- -------------------------------------------------------------------------------
MAINE - 2.8%
4,000,000 Maine Municipal Board Series D,
(AMBAC INS), 5.35%, 11/1/2017 4,192,760
- -------------------------------------------------------------------------------
MASSACHUSETTS - 2.4%
1,000,000 Marthas Vineyard, MA Series A,
Revenue Bonds, (FSA INS),
5.125%, 5/1/2018 1,019,200
2,500,000 Massachusetts Water Resources
Authority, Revenue Bonds, (FGIC INS),
5.40%, 11/1/2011 2,675,125
- -------------------------------------------------------------------------------
Total 3,694,325
- -------------------------------------------------------------------------------
MICHIGAN - 9.6%
1,000,000 Clarkston Community Schools, MI,
GO UT,(MBIA INS), 5.25%, 5/1/2017 1,027,690
2,450,000 Dearborn, MI Economic Development
Corp., Revenue Bonds, Oakwood
Obligated Group, (FGIC INS),
5.75%, 11/15/2015 2,660,210
1,200,000 Haslett, MI Public School District, GO UT,
(MBIA INS), 5.70%, 5/1/2016 1,287,684
1,000,000 Lanse Creuse, MI Public School District,
(AMBAC INS), 5.25%, 5/1/2016 1,030,480
1,500,000 Lansing, MI Sewer Disposal System,
Revenue Bonds, (MBIA INS),
6.25%, 5/1/2007 1,618,860
2,500,000 Michigan State Comprehensive
Transportation Board, Revenue
Bonds, 5.75%, 5/15/2004 2,689,875
1,065,000 Richmond, MI Community School District,
GO UT, School Improvements,
(AMBAC INS), 5.60%, 5/1/2018 1,120,668
1,000,000 Wyoming, MI, Revenue Bonds,
(MBIA INS), 5.25%, 5/1/2018 1,024,910
2,000,000 Ypsilanti, MI School District, GO UT,
(FGIC INS), 5.60%, 5/1/2012 2,157,780
- -------------------------------------------------------------------------------
Total 14,618,157
- -------------------------------------------------------------------------------
MONTANA - 1.7%
2,550,000 Montana State Health Facilities Authority,
Revenue Bonds, Sisters of Charity,
Leavenworth, (MBIA INS), 5.125%,
12/1/2018 2,580,983
- -------------------------------------------------------------------------------
NEBRASKA - 0.8%
1,000,000 Omaha, NE Public Power District
Series B, Electric Revenue Bonds,
(ETM), 6.00%, 2/1/2007 1,130,340
- -------------------------------------------------------------------------------
NEVADA - 5.4%
1,000,000 Clark County, NV, Revenue Bonds,
(MBIA INS), 5.90%, 6/1/2009 1,105,490
2,500,000 Clark County, NV School District, GO UT,
(FGIC INS), 5.75%, 6/15/2010 2,741,850
2,500,000 Clark County, NV School District, GO UT,
(MBIA INS), 5.80%, 6/15/2011 2,741,975
1,500,000 Washoe County, NV School District,
GO UT, (MBIA INS), 5.75%, 6/1/2011 1,630,110
- -------------------------------------------------------------------------------
Total 8,219,425
- -------------------------------------------------------------------------------
OHIO - 17.0%
2,555,000 Clermont County, OH, GO UT,
(AMBAC INS), 6.00%, 5/15/2007 2,772,124
2,500,000 Cleveland, OH Waterworks, Improvement
Revenue Bonds, Series H, (MBIA INS),
5.75%, 1/1/2016 2,799,701
1,000,000 Columbus, OH Sewer System,
Revenue Bonds, 6.25%, 6/1/2008 1,088,660
3,000,000 Columbus, OH Water System,
Revenue Bonds, 6.375%, 11/1/2010 3,253,290
3,500,000 Greater Cleveland Regional
Transportation Authority, OH, GO UT,
(FGIC INS), 5.65%, 12/1/2016 3,753,715
1,000,000 Hamilton County, OH Hospital
Facilities Authority, Revenue Bonds,
Children's Hospital Medical Center,
Cincinnati, (FGIC INS), 5.20%,
5/15/2009 1,070,010
2,000,000 Montgomery County, OH, Water
Revenue Bonds, Greater Moraine-Beaver
Creek, (FGIC INS), 6.25%, 11/15/2012 2,198,540
1,000,000 Ohio State Building Authority, Adult
Correctional Facilities Revenue Bonds,
Adult Correctional Facilities, (MBIA INS),
5.70%, 10/1/2006 1,099,390
1,000,000 Ohio State Building Authority,
Revenue Bonds, State Facilities -
Administration Building, (MBIA INS),
6.00%, 10/1/2008 1,114,000
1,225,000 Ohio State Building Authority,
Revenue Bonds, State Facilities -
Administration Building, (MBIA INS),
6.00%, 10/1/2009 1,368,043
1,000,000 Ohio State Turnpike Commission Series A,
(MBIA INS), 5.70%, 2/15/2013 1,089,620
2,000,000 Ohio State Water Development Authority,
Pollution Control Revenue Bonds,
(MBIA INS), 5.25%, 12/1/2009 2,124,880
1,000,000 Ohio State Water Development Authority,
Revenue Bonds, (AMBAC INS),
5.80%, 12/1/2011 1,135,910
1,000,000 Sylvania, OH City School District, GO UT,
(FGIC INS), 5.80%, 12/1/2015 1,084,610
- -------------------------------------------------------------------------------
Total 25,952,493
- -------------------------------------------------------------------------------
PENNSYLVANIA - 4.8%
1,000,000 Bucks County, PA Water & Sewer
Authority, Revenue Bonds, (FGIC INS),
5.55%, 12/1/2017 1,054,310
2,000,000 Chester Upland School Authority, PA,
Revenue Bonds Series A, (FSA INS),
5.25%, 9/1/2017 2,058,500
1,000,000 Pennsylvania State Higher Education
Facilities Authority, Revenue Bonds
Series A, University of Pennsylvania -
Health Services, 5.25%, 1/1/2012 1,050,280
1,000,000 Pennsylvania State Higher Education
Facilities Authority, Revenue Bonds
Series 1, Temple University, (MBIA INS),
5.25%, 4/1/2017 1,035,820
2,000,000 Somerset County, PA General Authority,
Commonwealth Lease, Revenue Bonds,
(FGIC INS), 6.60%, 10/15/2002 2,161,760
- -------------------------------------------------------------------------------
Total 7,360,670
- -------------------------------------------------------------------------------
TEXAS - 5.3%
2,500,000 Harris County, TX HFDC, Revenue Bonds,
Memorial Hospital System,
(MBIA INS), 5.75%, 6/1/2019 2,693,075
2,500,000 Port Houston Authority, TX Harris County,
Revenue Bonds, (MBIA INS),
6.50%, 5/1/2005 2,687,450
2,500,000 Texas Water Development Board,
Revenue Bonds, 5.50%, 7/15/2010 2,685,575
- -------------------------------------------------------------------------------
Total 8,066,100
- -------------------------------------------------------------------------------
UTAH - 3.5%
2,500,000 Davis County, UT School District, GO UT,
(MBIA INS), 5.70%, 6/1/2007 2,713,700
2,400,000 Jordan, UT School District, GO UT,
5.90%, 6/15/2004 2,592,888
- -------------------------------------------------------------------------------
Total 5,306,588
- -------------------------------------------------------------------------------
VIRGINIA - 0.7%
1,000,000 Chesapeake Bay Bridge & Tunnel
District, VA, Revenue Bonds,
(FGIC INS), 5.60%, 7/1/2007 1,098,950
- -------------------------------------------------------------------------------
WASHINGTON - 4.3%
2,500,000 Seattle, WA Municipal Lighting & Power,
Revenue Bonds, 6.10%, 7/1/2005 2,809,175
2,500,000 Tacoma, WA Electric System,
Revenue Bonds, (AMBAC INS),
6.15%, 1/1/2008 2,707,100
1,000,000 Tacoma, WA Water, Revenue Bonds,
(FGIC INS), 5.25%, 12/1/2017 1,030,780
- -------------------------------------------------------------------------------
Total 6,547,055
- -------------------------------------------------------------------------------
WISCONSIN - 5.3%
1,000,000 Beloit, WI School District, GO UT,
(MBIA INS), 6.125%, 10/1/2007 1,066,890
2,460,000 Wisconsin Health and Educational
Facilities Authority, Revenue Bonds,
Aurora Medical Group, (FSA INS),
5.60%, 11/15/2016 2,605,288
2,000,000 Wisconsin Health and Educational
Facilities Authority, Revenue Bonds,
Meriter Hospital, Inc., (MBIA INS),
6.00%, 12/1/2017 2,197,220
2,095,000 Wisconsin State, GO UT, (FGIC INS),
5.50%, 5/1/2010 2,264,025
- -------------------------------------------------------------------------------
Total 8,133,423
- -------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $139,654,374) 148,644,145
- -------------------------------------------------------------------------------
MUTUAL FUNDS - 1.6%
2,288,697 SEI Tax Exempt Money Market Fund 2,288,697
179,031 Tax- Free Inv. Co. 179,031
- -------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS (IDENTIFIED COST $2,467,728) 2,467,728
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.3%
(IDENTIFIED COST $142,122,102) 151,111,873
- -------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES - 0.7% 1,119,599
- -------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $152,231,472
- -------------------------------------------------------------------------------
(See Notes to Financial Statements.)
----------------------------------
Star U.S. Government Income Fund November 30, 1998
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR CONTRACTS VALUE
- -------------------------------------------------------------------------------
CORPORATE BONDS - 29.5%
- -------------------------------------------------------------------------------
BANKING - 4.1%
$1,500,000 Citicorp, 8.625%, 12/1/2002 $1,662,991
3,000,000 Citigroup, Inc., 9.50%, 3/1/2002 3,361,569
1,000,000 NationsBank Corp., 5.75%, 3/15/2001 1,007,511
- -------------------------------------------------------------------------------
Total 6,032,071
- -------------------------------------------------------------------------------
CHEMICALS - 0.8%
1,116,209 Dow Chemical Co., 7.60%, 1/2/2002 1,152,576
- -------------------------------------------------------------------------------
DEFENSE - 1.4%
2,000,000 Martin Marietta Corp., 6.50%, 4/15/2003 2,078,464
- -------------------------------------------------------------------------------
FINANCE - 8.8%
2,000,000 Associates Corp. of North America,
7.25%, 5/22/2006 2,177,898
500,000 Ford Motor Credit Corp.,
6.11%, 12/28/2001 510,755
1,500,000 General Electric Global Insurance
Holding Corp., 7.00%, 2/15/2026 1,683,984
3,750,000 International Lease Finance Corp.,
6.25%, 10/15/2000 3,792,075
250,000 International Lease Finance Corp.,
8.375%, 12/15/2004 282,032
1,000,000 Lehman Brothers, Inc.,
7.125%, 7/15/2002 1,018,071
1,500,000 Sears Roebuck Acceptance Corp.,
7.00%, 6/15/2007 1,612,841
2,000,000 Texaco Capital, Inc., 6.00%,
6/15/2005 2,076,716
- -------------------------------------------------------------------------------
Total 13,154,372
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.7%
1,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 1,068,849
- -------------------------------------------------------------------------------
INTERNATIONAL - 1.9%
2,000,000 TransCanada PipeLines Ltd.,
9.125%, 4/20/2006 2,317,060
430,000 TransCanada PipeLines Ltd.,
8.625%, 5/15/2012 525,512
- -------------------------------------------------------------------------------
Total 2,842,572
- -------------------------------------------------------------------------------
OIL - 3.5%
1,000,000 Ashland, Inc., 7.90%, 8/5/2006 1,097,013
850,000 Chevron Capital USA, Inc.,
7.45%, 8/15/2004 899,620
3,000,000 Occidental Petroleum Corp.,
8.50%, 11/9/2001 3,185,532
- -------------------------------------------------------------------------------
Total 5,182,165
- -------------------------------------------------------------------------------
REAL ESTATE - 4.0%
1,000,000 Highwoods Forsyth LP, 7.19%, 6/15/2004 993,238
1,000,000 Irvine Apartment Communities, Inc.,
7.00%, 10/1/2007 936,660
2,000,000 Meditrust Corp., 7.82%, 9/10/2026 1,897,852
1,000,000 Post Apartment Homes LP,
7.30%, 4/1/2004 1,045,945
1,000,000 United Dominion Realty Trust, Inc.,
7.95%, 7/12/2006 1,070,736
- -------------------------------------------------------------------------------
Total 5,944,431
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.1%
1,500,000 GTE Corp., 7.83%, 5/1/2023 1,641,006
- -------------------------------------------------------------------------------
UTILITIES - ELECTRIC - 3.2%
4,250,000 Georgia Power Co., 6.625%, 4/1/2003 4,312,662
500,000 Northern Illinois Gas, 7.26%, 10/15/2025 524,097
- -------------------------------------------------------------------------------
Total 4,836,759
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $42,772,712) 43,933,265
- -------------------------------------------------------------------------------
GOVERNMENT AGENCIES - 44.8%
- -------------------------------------------------------------------------------
FANNIE MAE - 30.1%
5,000,000 5.49%, 8/18/2000 5,047,195
10,000,000 4.39%, 10/13/2000 9,910,200
2,000,000 5.86%, 11/7/2000 2,035,226
1,500,000 5.36%, 2/16/2001 1,514,453
1,000,000 6.74%, 5/13/2004 1,076,922
4,000,000 6.82%, 8/23/2005 4,398,072
5,500,000 6.14%, 11/25/2005 5,856,570
1,250,000 6.50%, 11/25/2007, REMIC,
Series 1993-118-H 1,271,313
5,000,000 6.00%, 2/25/2011, REMIC,
Series 1996-21-PK 4,972,023
333,586 6.00%, 8/1/2013 333,095
4,042,000 7.25%, 1/17/2021, REMIC,
Series G94-6-PE 4,132,167
4,250,000 6.50%, 4/25/2023, REMIC,
Series 1993-210-PL 4,367,054
- -------------------------------------------------------------------------------
Total 44,914,290
- -------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK - 3.4%
1,000,000 5.79%, 5/27/2003 1,023,836
3,000,000 5.575%, 9/2/2003 3,044,733
1,000,000 5.038%, 10/14/2008 979,462
- -------------------------------------------------------------------------------
Total 5,048,031
- -------------------------------------------------------------------------------
FREDDIE MAC - 11.3%
1,000,000 8.14%, 9/29/2004 1,024,904
2,000,000 7.585%, 9/19/2006 2,124,008
6,000,000 5.125%, 10/15/2008 5,916,420
7,500,000 6.50%, 2/15/2023, REMIC,
Series 1669-G 7,739,867
- -------------------------------------------------------------------------------
Total 16,805,199
- -------------------------------------------------------------------------------
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $64,907,621) 66,767,520
- -------------------------------------------------------------------------------
U.S. TREASURIES - 23.4%
- -------------------------------------------------------------------------------
U.S. TREASURY BONDS - 22.0%
500,000 4.75%, 11/15/2008 498,984
6,425,000 7.50%, 11/15/2016 8,049,324
1,500,000 9.00%, 11/15/2018 2,174,062
3,500,000 8.125%, 8/15/2019 4,709,688
7,400,000 7.125%, 2/15/2023 9,189,875
6,811,000 6.75%, 8/15/2026 8,220,026
- -------------------------------------------------------------------------------
Total 32,841,959
- -------------------------------------------------------------------------------
U.S. TREASURY NOTE - 1.4%
2,000,000 7.75%, 11/30/1999 2,059,376
- -------------------------------------------------------------------------------
TOTAL U.S. TREASURIES (IDENTIFIED COST $31,772,240) 34,901,335
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 1.7%
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.7%
$2,533,000 Donaldson, Lufkin and Jenrette
Securities Corp., 5.32%,
dated 11/30/98, due 12/1/98,
repurchase price $2,533,374
(Collateralized by U.S.
Government Securities) 2,533,000
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENT (IDENTIFIED COST $2,533,000) 2,533,000
- -------------------------------------------------------------------------------
OPTIONS PURCHASED - 0.0%
100 Put option on Chicago Board Options
Exchange 30-Year Treasury Bond Index,
expires 12/19/98, strike @ 47.50
- -------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED (IDENTIFIED COST $18,210) 1,876
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.4%
(IDENTIFIED COST $142,003,783) $148,136,996
- -------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES - 0.6% 940,630
- -------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $149,077,626
- -------------------------------------------------------------------------------
(See Notes to Financial Statements.)
--------------------------------------------
Star Strategic Income Fund November 30, 1998
- -------------------------------------------------------------------------------
SHARES OR PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------
DOMESTIC EQUITY - 7.4%
- -------------------------------------------------------------------------------
COMMON STOCKS - 2.4%
- -------------------------------------------------------------------------------
BANKING - 0.5%
15,000 BankAmerica Corp. $977,813
- -------------------------------------------------------------------------------
CHEMICALS - 0.1%
70,000 Lyondell Chemical Co. 186,250
- -------------------------------------------------------------------------------
ELECTRIC - 1.0%
70,000 Kansas City Power & Light Co. 2,078,125
- -------------------------------------------------------------------------------
INDUSTRIAL - 0.0%
500 Weyerhaeuser Co. 25,063
- -------------------------------------------------------------------------------
INSURANCE - 0.4%
20,000 Ohio Casualty Corp. 810,000
- -------------------------------------------------------------------------------
PHOTO EQUIPMENT & SUPPLIES - 0.4%
10,000 Eastman Kodak Co. 725,625
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST $4,927,598) 4,802,876
- -------------------------------------------------------------------------------
PREFERRED STOCKS - 5.0%
- -------------------------------------------------------------------------------
ENERGY - 1.1%
88,200 Enron Capital Trust, Pfd., $2.08 2,293,200
- -------------------------------------------------------------------------------
FINANCE - 3.5%
80,000 Citigroup Capital Trust I, Pfd., $2.00 2,090,000
40,000 Merrill Capital Trust V, Pfd., $1.82 1,030,000
136,500 PLC Capital Trust I, Pfd., Series B, $2.06 3,566,063
10,000 Sears, Roebuck Acceptance Corp.,
Pfd., $1.74 249,375
- -------------------------------------------------------------------------------
Total 6,935,438
- -------------------------------------------------------------------------------
UTILITIES - 0.4%
15,000 Alabama Power Capital Trust II,
Pfd., $1.90 388,125
17,500 Detroit Edison Co., Pfd., $1.84 436,406
- -------------------------------------------------------------------------------
Total 824,531
- -------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $9,932,438) 10,053,169
- -------------------------------------------------------------------------------
TOTAL DOMESTIC EQUITY (IDENTIFIED COST $14,860,036) 14,856,045
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 18.2%
20,000 American Health Properties, Inc. 453,750
20,000 Camden Property Trust 513,750
166,700 Capstead Mortgage Corp. 552,194
262,300 Dynex Capital, Inc. 1,229,531
110,625 Glimcher Realty Trust 1,866,797
30,000 Health Care Property Investors, Inc. 946,875
84,637 Healthcare Realty Trust, Inc. 1,946,651
45,800 Highwoods Properties, Inc. 1,245,188
23,000 Highwoods Properties, Inc., Pfd., $2.00 546,250
50,000 Hospitality Properties Trust 1,300,000
186,600 IMPAC Mortgage Holdings, Inc. 933,000
21,000 IndyMac Mortgage Holdings, Inc. 202,125
40,000 IRT Property Co. 400,000
42,100 Kimco Realty Corp., Cumulative Pfd., $2.13 1,078,813
157,319 LTC Properties, Inc. 2,635,093
21,000 Lexington Corporate Properties Trust 275,625
155,973 Meditrust Corp. 2,368,840
80,000 National Health Investors, Inc. 2,120,000
20,000 Nationwide Health Properties, Inc. 447,500
156,100 Omega Healthcare Investors 4,741,538
84,356 Pennsylvania Real Estate Investment Trust 1,687,120
45,000 Public Storage, Inc., Pfd., Series F, $2.44 1,265,625
80,000 RFS Hotel Investors, Inc. 1,145,000
60,000 Realty Income Corp. 1,515,000
87,706 Thornburg Mortgage Asset Co. 767,428
143,600 Town & Country Trust 2,171,950
40,000 United Dominion Realty Trust, Inc.,
Cumulative Pfd., $2.15 1,007,500
15,000 United Dominion Realty Trust, Inc.,
Pfd., Series A, $2.31 375,937
114,000 Winston Hotels, Inc. 1,068,750
- -------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(IDENTIFIED COST $50,320,815) 36,807,830
- -------------------------------------------------------------------------------
CORPORATE BONDS - 41.5%
- -------------------------------------------------------------------------------
BANKS & SAVINGS INSTITUTIONS - 1.9%
$500,000 Capital Holding Corp., 9.25%, 5/7/2001 543,299
3,000,000 Citicorp, 7.25%, 10/15/2011 3,323,544
- -------------------------------------------------------------------------------
Total 3,866,843
- -------------------------------------------------------------------------------
COMPUTERS - 1.8%
3,500,000 Dell Computer Corp.,
7.10%, 4/15/2028 3,624,943
- -------------------------------------------------------------------------------
DIVERSIFIED ENERGY - 2.3%
1,943,000 Occidental Petroleum Corp.,
10.125%, 9/15/2009 2,435,348
2,000,000 Occidental Petroleum Corp.,
10.69%, 7/27/2000 2,141,308
- -------------------------------------------------------------------------------
Total 4,576,656
- -------------------------------------------------------------------------------
ELECTRONICS - 0.6%
1,000,000 Loral Corp., 7.625%, 6/15/2025 1,134,207
- -------------------------------------------------------------------------------
ENERGY - 3.4%
750,000 Ashland, Inc., Series F, 7.90%, 8/5/2006 822,760
1,500,000 Ashland, Inc., 7.78%, 9/19/2016 1,615,198
2,000,000 Atlantic Richfield Co., Series B, 8.60%, 5/15/2012 2,456,756
500,000 Chevron Capital USA, Inc., 7.45%, 8/15/2004 529,187
1,000,000 Coastal Corp., 9.625%, 5/15/2012 1,277,628
289,000 Duke Energy Corp., 7.875%, 5/1/2024 301,758
- -------------------------------------------------------------------------------
Total 7,003,287
- -------------------------------------------------------------------------------
ENERGY - OIL EXPLORATION - 1.5%
2,900,000 Noble Affiliates, Inc., 8.00%, 4/1/2027 3,159,507
- -------------------------------------------------------------------------------
FINANCE - 10.1%
1,500,000 Associates Corp. of North America,
Medium Term Note, 7.25%, 5/22/2006 1,633,423
4,000,000 Banc One Corp., 8.00%, 4/29/2027 4,814,408
2,000,000 Highwoods Forsyth LP, 7.19%, 6/15/2004 1,986,476
1,500,000 International Lease Finance Corp.,
8.375%, 12/15/2004 1,692,190
3,500,000 Lehman Brothers Holdings, Inc., 7.25%, 10/15/2003 3,580,700
2,000,000 Lehman Brothers, Inc., 6.625%, 2/15/2008 1,970,164
4,150,000 NationsBank Capital Trust IV, 8.25%, 4/15/2027 4,848,686
- -------------------------------------------------------------------------------
Total 20,526,047
- -------------------------------------------------------------------------------
GROCERY STORE - RETAIL - 1.1%
2,000,000 Safeway, Inc., Medium Term Note, 8.57%, 4/1/2003 2,204,742
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.1%
2,000,000 Procter & Gamble Co., 7.375%, 3/1/2023 2,137,698
- -------------------------------------------------------------------------------
INDUSTRIAL - 3.2%
2,200,000 Fort James Corp., 6.625%, 9/15/2004 2,266,880
2,000,000 Lockheed Martin Corp., 7.875%, 3/15/2023 2,157,910
2,000,000 Weyerhaeuser Co., 7.50%, 3/1/2013 2,237,368
- -------------------------------------------------------------------------------
Total 6,662,158
- -------------------------------------------------------------------------------
INSURANCE - 1.1%
2,000,000 Ohio National Life Insurance Co., 8.875%, 7/15/2004 2,253,894
- -------------------------------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT - 1.3%
2,450,000 International Business Machines Corp.,
6.50%, 1/15/2028 2,594,109
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 5.9%
1,125,000 Irvine Apartment Communities, Inc.,
7.00%, 10/1/2007 1,053,743
200,000 Meditrust Corp., 7.60%, 7/15/2001 194,522
1,000,000 Post Apartment Homes LP, 7.30%, 4/1/2004 1,045,945
5,000,000 Spieker Properties, Inc., 8.00%, 7/19/2005 5,193,435
4,175,000 United Dominion Realty Trust, Inc.,
7.25%, 1/15/2007 4,369,668
- -------------------------------------------------------------------------------
Total 11,857,313
- -------------------------------------------------------------------------------
RETAIL & APPAREL - 2.1%
1,000,000 Federated Department Stores, Inc.,
7.45%, 7/15/2017 1,095,193
1,050,000 Penney (J.C.) Co., Inc., 9.45%, 7/15/2002 1,108,913
1,000,000 Penney (J.C.) Co., Inc., 7.95%, 4/1/2017 1,119,124
725,000 Sears, Roebuck & Co., 8.66%, 10/2/2006 841,339
- -------------------------------------------------------------------------------
Total 4,164,569
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.9%
3,500,000 GTE Corp., 7.83%, 5/1/2023 3,829,014
- -------------------------------------------------------------------------------
TRANSPORTATION - 0.7%
1,250,000 Norfolk Southern Corp., 7.70%, 5/15/2017 1,438,624
- -------------------------------------------------------------------------------
TOBACCO - 0.5%
1,017,000 Philip Morris Cos., Inc. 7.125%, 8/15/2002 1,063,819
- -------------------------------------------------------------------------------
UTILITIES - 1.0%
2,000,000 Northern Illinois Gas Co., 7.26%, 10/15/2025 2,096,386
- -------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $81,155,341) 84,193,816
- -------------------------------------------------------------------------------
INTERNATIONAL SECURITIES - 11.9%
- -------------------------------------------------------------------------------
CLOSED-END INVESTMENT COMPANIES - 2.1%
220,000 First Commonwealth Fund Inc. $2,392,500
265,000 Kleinwort Benson Australian Income Fund 1,888,125
- -------------------------------------------------------------------------------
Total 4,280,625
- -------------------------------------------------------------------------------
ELECTRONICS - 0.6%
1,100,000 Philips Electronics N.V., 8.375%, 9/15/2006 1,261,151
- -------------------------------------------------------------------------------
FINANCE - 6.2%
3,700,000 ABN-AMRO Bank NV, New York, 7.75%, 5/15/2023 4,007,133
3,000,000 Societe Generale, New York, 7.40%, 6/1/2006 3,214,272
4,500,000 Zurich Capital Trust, 8.376%, 6/1/2037 5,193,306
- -------------------------------------------------------------------------------
Total 12,414,711
- -------------------------------------------------------------------------------
INTERNATIONAL OIL - 3.0%
154,300 TransCanada PipeLines Ltd., Pfd., $2.13 4,031,088
1,645,000 TransCanada PipeLines Ltd., 9.875%, 1/1/2021 2,115,009
- -------------------------------------------------------------------------------
Total 6,146,097
- -------------------------------------------------------------------------------
TOTAL INTERNATIONAL SECURITIES
(IDENTIFIED COST $24,438,679) 24,102,584
- -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 18.3%
- -------------------------------------------------------------------------------
FANNIE MAE - 4.5%
56,806 10.00%, REMIC, 12/25/2018 57,616
95,291 9.40%, REMIC, 6/25/2019 96,164
384,050 8.40%, REMIC, 8/25/2019 398,093
2,225,206 7.50%, REMIC, 9/25/2019 2,236,165
838,613 9.00%, REMIC, 11/25/2019 876,445
2,200,000 7.50%, REMIC, 5/25/2020 2,226,249
1,002,848 9.50%, REMIC, 6/25/2020 1,060,046
2,000,000 7.75%, REMIC, 5/25/2021 2,039,874
- -------------------------------------------------------------------------------
Total 8,990,652
- -------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK - 1.0%
107,832 11.00%, 4/1/2003 111,616
595,330 9.00%, 5/1/2021 633,317
1,284,401 8.50%, 6/1/2024 1,359,635
- -------------------------------------------------------------------------------
Total 2,104,568
- -------------------------------------------------------------------------------
FREDDIE MAC - 6.2%
670,000 10.00%, REMIC, 12/15/2020 727,590
2,000,000 10.00%, REMIC, 1/15/2021 2,175,167
2,203,466 7.50%, REMIC, 7/15/2021 2,227,899
3,250,000 7.00%, REMIC, 1/15/2022 3,331,526
2,000,000 7.50%, REMIC, 5/20/2024 2,062,644
2,000,000 6.50%, REMIC, 3/15/2026 2,009,572
- -------------------------------------------------------------------------------
Total 12,534,398
- -------------------------------------------------------------------------------
GINNIE MAE - 6.6%
124,748 9.00%, 7/15/2016 134,294
374,459 9.00%, 1/15/2022 401,164
4,000,000 7.50%, REMIC, 5/16/2023 4,116,996
2,097,020 8.00%, 8/20/2026 2,173,231
579,375 8.00%, 11/20/2026 600,431
912,673 7.50%, 12/15/2026 944,008
1,604,174 7.50%, 2/20/2027 1,650,748
3,173,593 7.50%, 6/15/2027 3,283,505
- -------------------------------------------------------------------------------
Total 13,304,377
- -------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $36,755,303) 36,933,995
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT - 1.0%
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.0%
2,116,000 Donaldson, Lufkin and Jenrette
Securities Corp., 5.32%, dated
11/30/1998, due 12/1/1998,
repurchase price $2,116,313
(Collateralized by U.S.
Government Securities) 2,116,000
- -------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENT
(IDENTIFIED COST $2,116,000) 2,116,000
- -------------------------------------------------------------------------------
OPTIONS PURCHASED - 0.1%
150 Put option on Capstead Mortgage Corp.,
expires 3/20/1999, strike @ 5 30,000
50 Put option on Capstead Mortgage Corp.,
expires 3/20/1999, strike @ 7.5 20,000
100 Put option on Chicago Board Options
Exchange 30-Year Treasury Bond
Index, expires 12/19/1998, strike @ 47.5 1,875
35 Put option on Coca-Cola, expires
1/16/1999, strike @ 40 438
200 Put option on Dow Jones Index,
expires 12/19/1998, strike @ 93 51,250
30 Put option on Exxon, expires 1/16/1999,
strike @ 35 563
- -------------------------------------------------------------------------------
TOTAL OPTIONS PURCHASED (IDENTIFIED COST $106,455) 104,126
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST $209,752,629) - 98.4% 199,114,396
- -------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES - 1.6% 3,239,182
- -------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.0% $202,353,578
- -------------------------------------------------------------------------------
CONTRACTS
- -------------------------------------------------------------------------------
SCHEDULE OF CALL OPTIONS WRITTEN
200 American Health Properties, Inc.,
expires 1/16/1999,
exercise price $22.50 13,750
250 Hospitality Properties Trust,
expires 12/19/1998,
exercise price $30.00 6,250
200 Meditrust Corp., expires 12/19/1998,
exercise price $17.50 3,750
200 Meditrust Corp., expires 1/16/1999,
exercise price $12.50 58,750
100 Meditrust Corp., expires 1/16/1999,
exercise price $15.00 14,375
- -------------------------------------------------------------------------------
TOTAL CALL OPTIONS WRITTEN
(PREMIUMS RECEIVED $131,198) 96,875
- -------------------------------------------------------------------------------
SCHEDULE OF PUT OPTIONS WRITTEN
100 Mobile, expires 1/16/1999,
exercise price $65.00 3,125
50 Mobile, expires 1/16/1999,
exercise price $70.00 3,438
- -------------------------------------------------------------------------------
TOTAL PUT OPTIONS WRITTEN
(PREMIUMS RECEIVED $15,963) 6,563
- -------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $147,161) $103,438
- -------------------------------------------------------------------------------
ABBREVIATIONS TO PORTFOLIOS OF INVESTMENTS
The following abbreviations are used in these portfolios:
AMBAC -- American Municipal Bond Assurance Corporation
ETM -- Escrowed to Maturity
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GO -- General Obligation
HFDA -- Health Facility Development Authority
HFDC -- Health Facility Development Corporation
INS -- Insured
LP -- Limited Partnership
MBIA -- Municipal Bond Investors Assurance
PCA -- Pollution Control Authority
PFA -- Public Facility Authority
REMIC -- Real Estate Mortgage Investment Conduit
UT -- Unlimited Tax
(See Notes to Financial Statements.)
STATEMENTS OF ASSETS AND LIABILITIES
November 30, 1998
<TABLE>
THE STELLAR STAR U.S. STAR
INSURED GOVERNMENT STRATEGIC
TAX-FREE INCOME INCOME
BOND FUND FUND FUND
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
ASSETS:
Total investments in securities, at value $151,111,873 $148,136,996 $199,114,396
Income receivable 2,295,161 1,630,080 2,333,786
Receivable for investments sold -- 501,440 3,974,205
Receivable for Fund shares sold 45,000 99,150 325,504
Other assets 2,309 -- 19,665
- -----------------------------------------------------------------------------------------------------------------
Total assets 153,454,343 150,367,666 205,767,556
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,015,133 1,000,068 3,016,953
Payable to affiliates 113,584 120,064 223,599
Payable for Fund shares redeemed 85,000 36,607 37,854
Accrued expenses 9,154 9,404 14,922
Payable to Bank -- 16,437 17,212
Options written, at value -- -- 103,438
Income distribution payable -- 107,460 --
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,222,871 1,290,040 3,413,978
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS $152,231,472 $149,077,626 $202,353,578
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $142,962,669 $143,280,160 $218,026,141
Undistributed net investment income 112,256 116,722 --
Undistributed accumulated net realized gain (loss)
on investments and options 166,776 (452,469) (5,078,053)
Net unrealized appreciation (depreciation) on
investments and options 8,989,771 6,133,213 (10,594,510)
- -----------------------------------------------------------------------------------------------------------------
Total net assets $152,231,472 $149,077,626 $202,353,578
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
A Shares $152,231,472 $148,772,523 --
B Shares -- 305,103 $202,353,578
- -----------------------------------------------------------------------------------------------------------------
Total net assets $152,231,472 $149,077,626 $202,353,578
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING:
A Shares 14,513,830 14,607,503 --
B Shares -- 29,959 21,045,804
- -----------------------------------------------------------------------------------------------------------------
Total shares outstanding 14,513,830 14,637,462 21,045,804
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE:
A Shares $10.49 $10.18 --
B Shares -- $10.18 $9.62
- -----------------------------------------------------------------------------------------------------------------
OFFERING PRICE PER SHARE:
A Shares $10.98(a)<F18> $10.55(b)<F19> --
B Shares -- $10.18 $9.62
- -----------------------------------------------------------------------------------------------------------------
REDEMPTION PROCEEDS PER SHARE:
A Shares $10.49 $10.18 --
B Shares -- $9.67(c)<F20> $9.14(c)<F20>
- -----------------------------------------------------------------------------------------------------------------
Investments, at identified cost $142,122,102 $142,003,783 $209,752,629
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Investments, at tax cost $142,122,102 $142,004,721 $212,198,397
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a)<F18> Computation of Offering price: 100/95.5 of net asset value.
(b)<F19> Computation of Offering price: 100/96.5 of net asset value.
(c)<F20> Computation of Redemption Proceeds: 95/100 of net asset value.
(See Notes to Financial Statements.)
STATEMENTS OF OPERATIONS
Period Ended November 30, 1998
<TABLE>
THE STELLAR STAR U.S. STAR
INSURED GOVERNMENT STRATEGIC
TAX-FREE INCOME INCOME
BOND FUND FUND FUND
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income $7,419,829 $8,629,824 $9,856,230
Dividend Income -- -- 6,747,693
- -----------------------------------------------------------------------------------------------------------------
Total income 7,419,829 8,629,824 16,603,923
- -----------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 1,065,733 806,064 1,865,171
Shareholder services fees 355,467 335,894 491,097
Administration fees 156,834 156,618 211,546
Portfolio accounting fees 62,456 40,199 80,023
Custodian fees 34,664 41,986 49,083
Transfer and dividend disbursing agent fees and expenses 33,995 48,131 75,811
Federal and state registration fees 17,732 21,827 34,019
Printing and postage 15,379 10,225 13,319
Auditing fees 12,568 24,779 27,802
Legal fees 2,932 1,415 947
Trustees' fees 2,563 2,202 4,093
Miscellaneous 5,341 3,921 15,283
- -----------------------------------------------------------------------------------------------------------------
Total expenses 1,765,664 1,493,261 2,868,194
- -----------------------------------------------------------------------------------------------------------------
Waivers--
Waiver of investment advisory fees (355,244) -- --
Waiver of shareholder services fees (284,418) (268,722) (392,930)
- -----------------------------------------------------------------------------------------------------------------
Total waivers (639,662) (268,722) (392,930)
- -----------------------------------------------------------------------------------------------------------------
Net expenses 1,126,002 1,224,539 2,475,264
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,293,827 7,405,285 14,128,659
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND OPTIONS:
Net realized gain (loss) on investments and options 166,776 1,754,333 (5,003,385)
Net change in unrealized appreciation (depreciation)
on investments and options 3,424,446 2,658,356 (14,077,724)
- -----------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND OPTIONS 3,591,222 4,412,689 (19,081,109)
- -----------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $9,885,049 $11,817,974 $(4,952,450)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Financial Statements.)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
STAR U.S.
THE STELLAR INSURED GOVERNMENT STAR STRATEGIC
TAX-FREE BOND FUND INCOME FUND INCOME FUND
------------------------- ------------------------- --------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1998 1997(A)<F21> 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $6,293,827 $5,136,452 $7,405,285 $8,037,714 $14,128,659 $10,087,926
Net realized gain (loss) on
investments and options 166,776 324,276 1,754,333 477,834 (5,003,385) 2,538,513
Net change in net unrealized
appreciation/depreciation on
investments and options 3,424,446 5,565,325 2,658,356 75,785 (14,077,724) 571,178
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 9,885,049 11,026,053 11,817,974 8,591,333 (4,952,450) 13,197,617
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment
income
A Shares (6,255,253) (5,062,770) (7,416,798) (8,046,199) -- --
B Shares -- -- (7,290) -- (14,227,658) (10,071,575)
Distributions from net realized
gain on investments and options
A Shares (324,276) -- -- -- -- --
B Shares -- -- -- -- (1,593,824) --
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net assets from
distributions to shareholders (6,579,529) (5,062,770) (7,424,088) (8,046,199) (15,821,482) (10,071,575)
- ----------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS--
Proceeds from sales of shares 36,272,222 139,447,600 39,578,764 24,040,035 83,977,189 76,800,372
Net asset value of shares issued to
shareholders in payment of
distributions declared 108,994 10,086 2,917,392 2,889,975 5,175,549 3,169,146
Cost of shares redeemed (16,046,687) (16,829,546) (35,257,729) (28,903,412) (45,437,959) (14,457,644)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net assets from share
transactions 20,334,529 122,628,140 7,238,427 (1,973,402) 43,714,779 65,511,874
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net assets 23,640,049 128,591,423 11,632,313 (1,428,268) 22,940,847 68,637,916
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 128,591,423 -- 137,445,313 138,873,581 179,412,731 110,774,815
- ----------------------------------------------------------------------------------------------------------------------------------
End of period $152,231,472 $128,591,423 $149,077,626 $137,445,313 $202,353,578 $179,412,731
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment
income included in net assets
at end of period $112,256 $73,682 $116,722 $20,298 -- $302,263
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)<F21> Reflects operations for the period from December 30, 1996 (date of
initial public investment) to November 30, 1997.
(See Notes to Financial Statements.)
Financial Highlights
STAR FUNDS
(For a share outstanding throughout each period)
<TABLE>
NET REALIZED
AND DISTRIBUTIONS DISTRIBUTIONS
NET ASSET UNREALIZED DISTRIBUTIONS FROM NET IN EXCESS OF
VALUE, NET GAIN (LOSS) ON TOTAL FROM FROM NET REALIZED GAIN NET REALIZED GAIN
PERIOD ENDED BEGINNING INVESTMENT INVESTMENT INVESTMENT INVESTMENT ON INVESTMENTS ON INVESTMENTS
NOVEMBER 30, OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME AND OPTIONS AND OPTIONS(D)<F25>
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
THE STELLAR INSURED TAX-FREE BOND FUND
A SHARES
1997(a)<F22> $10.00 0.44 0.24 0.68 (0.43) -- --
1998 $10.25 0.46 0.26 0.72 (0.46) (0.02) --
STAR U.S. GOVERNMENT INCOME FUND
A SHARES
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) -- --
1998 $9.87 0.56 0.30 0.86 (0.55) -- --
B SHARES
1998(c)<F24> $9.89 0.36 0.29 0.65 (0.36) -- --
STAR STRATEGIC INCOME FUND
B SHARES
1995(b)<F23> $10.00 0.69 0.55 1.24 (0.67) (0.04) (0.00)(h)<F29>
1996 $10.53 0.73 (0.04) 0.69 (0.72) -- --
1997 $10.50 0.73 0.18 0.91 (0.74) -- --
1998 $10.67 0.72 (0.94) (0.22) (0.73) (0.10) --
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------- NET ASSETS,
NET ASSET NET EXPENSE END PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT WAIVER/ OF PERIOD TURNOVER
DISTRIBUTIONS OF PERIOD RETURN(E)<F26> EXPENSES INCOME REIMBURSEMENT(G)<F28> (000 OMITTED) RATE
<C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
(0.43) $10.25 6.91% 0.79%(f) 4.66%(f)<F27> 0.45%(f)<F27> $128,591 15%
(0.48) $10.49 7.20% 0.79% 4.43% 0.45% $152,231 14%
(0.66) $9.24 (3.53%) 0.97% 5.87% 0.23% $87,924 148%
(0.60) $9.98 14.90% 0.92% 6.23% 0.20% $109,666 236%
(0.57) $9.83 4.46% 0.92% 5.88% 0.20% $138,874 158%
(0.57) $9.87 6.46% 0.89% 5.88% 0.20% $137,445 140%
(0.55) $10.18 9.00% 0.91% 5.51% 0.20% $148,773 88%
(0.36) $10.18 6.71% 0.91%(f)<F27> 5.51%(f)<F27> 0.20%(f)<F27> $305 88%
(0.71) $10.53 12.71% 1.47%(f)<F27> 7.41%(f)<F27> 0.30%(f)<F27> $47,513 258%
(0.72) $10.50 6.99% 1.36% 7.26% 0.20% $110,775 201%
(0.74) $10.67 9.02% 1.26% 7.13% 0.20% $179,413 142%
(0.83) $9.62 (2.16%) 1.26% 7.19% 0.20% $202,354 146%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)<F22> Reflects operations for the period from December 30, 1996 (date of
initial public investment) to November 30, 1997.
(b)<F23> Reflects operations for the period from December 12, 1994 (date of
initial public investment) to November 30, 1995.
(c)<F24> Reflects operations for the period from April 27, 1998 (date of
initial public investment) to November 30, 1998.
(d)<F25> 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)<F26> Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge if applicable.
(f)<F27> Computed on an annualized basis.
(g)<F28> This voluntary expense decrease is reflected in both the expense and
net investment income ratios.
(h)<F29> Less than one cent per share.
(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
- -----------------------------------------------------------------------
The Stellar Insured Tax- Provide current income which is
Free Bond Fund exempt from federal income tax.
("Stellar Tax-Free Bond
Fund")
Star U.S. Government Provide current income.
Income Fund ("U.S.
Government Income Fund")
Star Strategic Income Fund Generate high current income.
("Strategic Income Fund")
The financial statements of the Stock Funds and Money Market 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 Stellar Tax-Free Bond Fund issues one class of shares (A Shares); U.S.
Government Income Fund offers two classes of shares, (A Shares and B Shares);
and Strategic Income Fund issues one class of shares (B 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
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 (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, 1998, the U.S. Government Income Fund and Strategic 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.
TOTAL TAX-LOSS
FUND CARRYFORWARD
- -----------------------------------------------------------------------
U.S. Government Income Fund $451,531
Strategic Income Fund $2,632,285
Pursuant to the Code, the capital loss carryforward for the U.S. Government
Income Fund of $451,531 will expire in the year 2004 and the capital loss
carryforward for the Strategic Income Fund of $2,632,285 will expire in the year
2006.
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. The Strategic 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 Fund 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,
1998, Strategic Income Fund had net realized loss on options contracts both
written and purchased of $(46,051).
The U.S. Government Income Fund had no written option transactions during the
period.
The following is a summary of the Strategic Income Fund options activity:
STRATEGIC INCOME FUND
-----------------------------
NUMBER OF
CONTRACTS PROCEEDS*<F30>
-----------------------------
Outstanding at November 30,1997 405 $133,487
Contracts opened 6,601 1,037,325
Contracts expired (1,763) (163,245)
Contracts exercised (1,428) (299,605)
Contracts closed (2,715) (560,801)
-----------------------------
Outstanding at November 30, 1998 1,100 $147,161
-----------------------------
*<F30> 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, revenues and expenses 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>
STELLAR TAX-FREE BOND FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
A SHARES NOVEMBER 30, 1998 NOVEMBER 30, 1997*<F31>
<S> <C> <C>
- ----------------------------------------------------- -------------------------------------------
Shares sold 3,500,206 14,215,030
Shares issued to shareholders
in payment of distributions declared 10,504 995
Shares redeemed (1,545,029) (1,667,876)
-------------------------------------------
Net change resulting from A Share transactions 1,965,681 12,548,149
-------------------------------------------
*<F31> For the period from December 30, 1996 (date of initial public investment) to November 30, 1997.
</TABLE
</TABLE>
<TABLE>
U.S. GOVERNMENT INCOME FUND
-------------------------------------------------------
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------------- ------------------------
A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- ----------------------------------------------------- ------- -------- -------- ---------
Shares sold 3,907,526 $39,183,622 2,492,225 $24,040,035
Shares issued to shareholders in payment
of distributions declared 290,731 2,911,014 299,335 2,889,975
Shares redeemed (3,518,765) (35,148,883) (2,995,364) (28,903,412)
-------------------------------------------------------
Net change resulting from A Share transactions 679,492 $6,945,753 (203,804) $(1,973,402)
-------------------------------------------------------
</TABLE
</TABLE>
<TABLE>
U.S. GOVERNMENT
INCOME FUND
-----------------------
PERIOD ENDED
NOVEMBER 30, 1998**<F32>
-----------------------
B SHARES SHARES DOLLARS
<S> <C> <C>
- ------------------------------------------------------- ---------- --------
Shares sold 40,004 $395,142
Shares issued to shareholders in payment
of distributions declared 630 6,378
Shares redeemed (10,675) (108,846)
-----------------------
Net change resulting from B Share transactions 29,959 $292,674
-----------------------
Net change resulting from Fund Share transactions 709,451 $7,238,427
-----------------------
**<F32> For the period from April 27, 1998 (date of initial public investment) to November 30, 1998.
</TABLE
</TABLE>
<TABLE>
STRATEGIC INCOME FUND
-------------------------------------------
YEAR ENDED YEAR ENDED
B SHARES NOVEMBER 30, 1998 NOVEMBER 30, 1997
<S> <C> <C>
- ----------------------------------------------------- -------------------------------------------
Shares sold 8,201,112 7,353,514
Shares issued to shareholders in payment
of distributions declared 509,914 304,065
Shares redeemed (4,485,446) (1,383,953)
-------------------------------------------
Net change resulting from B Share transactions 4,225,580 6,273,626
-------------------------------------------
</TABLE>
(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
Star Bank, N.A., the Trust's investment adviser (the "Adviser"), receives for
its services an annual investment advisory fees based on a percentage of each
Fund's average daily net assets as follows:
FUND ANNUAL RATE
- -----------------------------------------
Stellar Tax-Free Bond Fund 0.75%
U.S. Government Income Fund 0.60%
Strategic Income Fund 0.95%
- -----------------------------------------
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 average aggregate 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"), A Shares and B Shares of the
Trust may pay to the distributor an amount computed at an annual rate of up to
0.25% of the average daily net assets, in each case 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.
The Stellar Tax-Free Bond Fund, U.S. Government Income Fund and Strategic Income
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 the 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.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended November 30, 1998, were as follows:
PURCHASES SALES
-----------------------------------------------------
Stellar Tax-Free Bond Fund $36,296,900 $18,989,877
U.S. Government Income Fund 123,865,436 115,995,302
Strategic Income Fund 327,400,018 279,603,781
-----------------------------------------------------
<TABLE>
NET UNREALIZED GROSS GROSS
COST OF APPRECIATION UNREALIZED UNREALIZED
INVESTMENTS (DEPRECIATION) APPRECIATION DEPRECIATION
FOR FEDERAL FOR FEDERAL FOR FEDERAL FOR FEDERAL
STAR FUNDS TAX PURPOSES TAX PURPOSES TAX PURPOSES TAX PURPOSES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stellar Tax-Free Bond Fund $142,122,102 $8,989,771 $8,989,771 $ 0
Star U.S. Government Income Fund 142,004,721 6,132,275 6,555,419 423,144
Star Strategic Income Fund 212,198,397 (13,040,278) 5,115,725 18,156,003
</TABLE>
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 Stellar Insured Tax-Free Bond Fund, Star
U.S. Government Income Fund, and Star Strategic Income 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 The
Stellar Insured Tax-Free Bond Fund, Star U.S. Government Income Fund, and Star
Strategic Income Fund of the Star Funds as of November 30, 1998, and the results
of their operations for the year 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.
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 854911856
Cusip 854911500
Cusip 854911765
Cusip 854911880
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 Insured Municipal Debt 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 $10,945 on 11/30/98 as compared to $11,615 and
$11,472 for the LBTYIBI and LMBFA, respectively for the same period. The "x"
axis reflects annual computation periods from 12/30/96 to 11/30/98. 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.
STAR U.S. GOVERNMENT INCOME FUND - A 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
U.S. Government Income Fund - A Shares (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 $13,969 on 11/30/98 as compared to $15,762 and
$14,408 for the LBGCTI and LUSGFA, respectively for the same period. The "x"
axis reflects annual computation periods from 1/5/93 to 11/30/98. 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
$16,000.
STAR U.S. GOVERNMENT INCOME FUND - B 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
U.S. Government Income Fund - B Shares (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 4/27/98,
would have a reinvested total worth of $10,171 on 11/30/98 as compared to
$10,703 and $10,599 LBGCTI and LUSGFA, respectively for the same period. The
"x" axis reflects annual computation periods from 4/27/98 to 11/30/98. 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 $10,000 to
$12,000.
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 $12,670 on 11/30/98 as compared to $14,805 for the
LBGCTI for the same period. The "x" axis reflects annual computation periods
from 12/12/94 to 11/30/98. 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.
