STAR CAPITAL APPRECIATION FUND
(A PORTFOLIO OF THE STAR FUNDS)
PROSPECTUS
The shares offered by this prospectus represent interests in the Star Capital
Appreciation Fund (the "Fund"), which is a diversified investment portfolio in
the Star Funds (the "Trust"), an open-end management investment company (a
mutual fund).
The investment objective of the Fund is to maximize capital appreciation. The
Fund pursues this investment objective by investing primarily in equity
securities of U.S. companies.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF STAR
BANK, N.A., OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY STAR BANK,
N.A., OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AND MAY INVOLVE SALES CHARGES AND OTHER FEES.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated May 16,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information or make inquiries about the Fund by
writing to the Fund or calling 1-800-677-FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 16, 1994
(Revised September 20, 1994)
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Domestic Equity Securities 2
Domestic Debt Securities 2
International Securities 3
Money Market Instruments 3
Convertible Securities 3
Zero Coupon Securities 3
U.S. Government Securities 4
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Investing in Securities of Other
Investment Companies 4
Lending of Portfolio Securities 4
Restricted and Illiquid Securities 4
Foreign Securities Risks 5
Foreign Companies 5
Options Transactions 5
Futures and Options on Futures 6
Risks 6
Investment Limitations 6
STAR FUNDS INFORMATION 7
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Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Fund Shares 7
Distribution Plan 8
Administrative Arrangements 8
Administration of the Fund 8
Administrative Services 8
Shareholder Services Plan 9
Custodian 9
Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services 9
Legal Counsel 9
Independent Public Accountants 9
Brokerage Transactions 9
Expenses of the Fund 9
NET ASSET VALUE 9
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INVESTING IN THE FUND 9
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Minimum Investment Required 9
What Shares Cost 10
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 11
Reinvestment Privilege 11
Concurrent Purchases 11
Systematic Investment Plan 11
Share Purchases 11
Through Star Bank 11
By Mail 12
Exchanging Securities for Fund Shares 12
Certificates and Confirmations 12
Dividends and Capital Gains 12
EXCHANGE PRIVILEGE 12
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Star Funds 12
Exchanging Shares 12
Exchange-by-Telephone 13
REDEEMING SHARES 13
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By Telephone 13
By Mail 14
Signatures 14
Systematic Withdrawal Plan 14
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
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Voting Rights 14
Massachusetts Partnership Law 15
EFFECT OF BANKING LAWS 15
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TAX INFORMATION 15
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Federal Income Tax 15
PERFORMANCE INFORMATION 16
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees......................................................................................... 0.95%
12b-1 Fees (1).......................................................................................... 0.00%
Total Other Expenses (2)................................................................................ 0.85%
Shareholder Services Fees (3)........................................................... 0.00%
Total Fund Operating Expenses (4)............................................................. 1.80%
</TABLE>
(1) Under the Fund's Rule 12b-1 distribution plan, the Fund can pay the
distributor up to 0.25% as a 12b-1 fee. The 12b -1 fee was reduced to
reflect the waiver of compensation by the distributor. The distributor can
terminate this voluntary waiver at any time at its sole discretion. The
distributor has no present intention of collecting a 12b-1 fee.
(2) Total Other Expenses are estimated to be 1.23% absent the voluntary waiver
by the administrator and transfer agent.
(3) The maximum shareholder services fee is 0.25%. There is no present intention
to charge a shareholder services fee.
(4) The Total Fund Operating Expenses are estimated to be 2.68% absent the
voluntary waivers by the administrator and transfer agent and the payment of
the shareholder services and distribution fees, had these plans been in
effect.
* Expenses in this table are estimated based on average expenses expected to
be incurred during the fiscal year ending November 30, 1994. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF SHARES OF THE FUND WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "STAR FUNDS INFORMATION" AND "INVESTING IN THE FUND."
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period................................................ $62 $99
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1994.
GENERAL INFORMATION
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Star Funds was established as a Massachusetts business trust under a Declaration
of Trust dated January 23, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. This prospectus relates only to that portfolio of
the Trust known as the Star Capital Appreciation Fund.
The Fund is designed primarily for customers of StarBanc Corporation and its
subsidiaries as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio consisting primarily of equity
securities of U.S. companies. A minimum initial investment of $1,000 ($25 for
Star Bank Connections Group banking customers and Star Bank employees and
members of their immediate family) is required.
Except as otherwise noted in this prospectus, shares of the Fund are sold at net
asset value plus an applicable sales charge and redeemed at net asset value.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize capital appreciation. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in equity securities of
U.S. companies. The Fund may also invest in domestic debt securities,
international securities, U.S. government securities, and money market
instruments. The Fund's investment adviser selects securities and attempts to
maintain an acceptable level of risk largely through the use of automated
quantitative measurement techniques. This quantitative model includes, but is
not limited to, price/earnings ratios, historical and projected earnings growth
rates, historical sales growth rates, historical return on equity, market
capitalization, average daily trading volume, and credit rankings based on
nationally recognized statistical rating organizations (where applicable). The
quantitative model is used in conjunction with the investment adviser's economic
forecast and assessment of the risk and volatility of the company's industry.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include the
following:
DOMESTIC EQUITY SECURITIES. The domestic equity securities of the Fund will
usually consist of U.S. common and preferred stocks of companies with
between $200 million and $2 billion in equity and which are listed on the
New York or American Stock Exchange or traded in the over-the-counter
market and warrants of such companies.
DOMESTIC DEBT SECURITIES. The Fund may also invest in notes, zero coupon
bonds, and convertible securities of the U.S. companies described above,
all of which are rated investment grade, i.e., Baa or better by Moody's
Investors Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's
Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch") (or, if
unrated, are deemed to be of comparable quality by the Fund's investment
adviser). The Fund may also invest in securities issued and/or guaranteed
as to the payment of principal and interest by the U.S. government or its
agencies or instrumentalities. It should be noted that securities receiving
the lowest investment grade rating are considered to have some speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds. In the event that a bond which had an
eligible rating when purchased is downgraded below Baa or BBB, the Fund's
adviser will promptly reassess whether continued holding of the security is
consistent with the Fund's objective.
INTERNATIONAL SECURITIES. The Fund may invest in equity securities of
non-U.S. companies and corporate and government fixed income securities
denominated in currencies other than U.S. dollars. The international equity
securities in which the Fund may invest include international stocks traded
domestically or abroad through various stock exchanges, American Depositary
Receipts ("ADRs"), and International Depositary Receipts ("IDRs"). The
international fixed income securities will include ADRs, IDRs, and
government securities of other nations and will be rated investment-grade
(i.e., Baa or better by Moody's or BBB or better by S&P) or deemed by the
investment adviser to be of an equivalent quality. In the event that an
international security which had an eligible rating when purchased is
downgraded below Baa or BBB, the Fund's adviser will promptly reassess
whether continued holding of the security is consistent with the Fund's
objective. The Fund may also invest in shares of open-end and closed-end
management investment companies which invest primarily in international
equity securities described above. The Fund will not invest more than 10%
of its assets in international securities.
MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100% of
total assets) and to maintain liquidity (up to 35% of total assets), the
Fund may invest in U.S. and foreign short-term money market instruments,
including:
commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch, and Europaper (dollar-denominated commercial
paper issued outside the United States) rated A-1, A-2, Prime-1, or
Prime-2. In the case where commercial paper or Europaper has received
different ratings from different rating services, such commercial paper
or Europaper is an acceptable temporary investment so long as at least
one rating is in the two highest rating categories of the nationally
recognized statistical rating organizations described above;
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the Bank Insurance Fund, which is administered
by the Federal Deposit Insurance Corporation ("FDIC"), or the Savings
Association Insurance Fund, which is also administered by the FDIC. These
instruments may include Eurodollar Certificates of Deposit ("ECDs"),
Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar Time
Deposits ("ETDs");
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements;
securities of other investment companies; and
other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
obligations in which the Fund may invest.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities which
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon bonds and zero coupon
convertible securities. The Fund may invest in zero coupon bonds in order to
receive the rate of return through the appreciation of the bond. This
application is extremely attractive in a falling rate environment as the price
of the bond rises rapidly in value as opposed to regular coupon bonds. A zero
coupon bond makes no periodic interest payments and the entire obligation
becomes due only upon maturity.
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity.
Generally, the price of zero coupon securities are more sensitive to
fluctuations in interest than are conventional bonds and convertible securities.
Additionally, federal tax law requires the holder of a zero coupon security to
recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate cash to
satisfy these distribution requirements.
U.S. GOVERNMENT SECURITIES. The types of U.S. government securities in which the
Fund may invest generally include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes, and bonds) and obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies, but it will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of its total assets in any one investment company, and invest no more than
10% of its total assets in investment companies in general. The Fund will invest
in other investment companies primarily for the purpose of investing short-term
cash which has not yet been invested in other portfolio instruments. It should
be noted that investment companies incur certain expenses such as management
fees and, therefore, any investment by a fund in shares of another investment
company would be subject to such duplicate expenses. The investment adviser will
waive its investment advisory fee on assets invested in securities of such
investment companies.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities up to one-third of the value of its total
assets, on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned at all times.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
FOREIGN SECURITIES RISKS. Investing in foreign securities carries substantial
risks in addition to those associated with domestic investments. Foreign
securities may be denominated in foreign currencies. Therefore, the value in
U.S. dollars of the Fund's assets and income may be affected by changes in
exchange rates and regulations. Although the Fund values its assets daily in
U.S. dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. When the Fund converts its holdings to another currency, it may
incur currency conversion costs. Foreign exchange dealers realize a profit on
the difference between the prices at which they buy and sell currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign companies;
the lack of uniform financial accounting standards applicable to foreign
companies;
less readily available market quotations on foreign companies;
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
generally lower foreign stock market volume;
the likelihood that foreign securities may be less liquid or more
volatile;
generally higher foreign brokerage commissions;
possible difficulty in enforcing contractual obligations or obtaining
court judgments abroad because of differences in the legal systems;
unreliable mail service between countries; and
political or financial changes which adversely affect investments in some
countries.
OPTIONS TRANSACTIONS. To increase total return, the Fund may write (i.e., sell)
covered call and put options. By writing a call option, the Fund becomes
obligated during the term of the option to deliver the securities underlying the
option upon payment of the exercise price. By writing a put option, the Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised. The Fund
may also write straddles (combinations of covered puts and calls on the same
underlying security).
The Fund may only write "covered" options. This means that, so long as the Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or have the right to obtain such securities
without payment of further consideration (or have segregated cash in the amount
of any additional consideration).
The Fund will be considered "covered" with respect to a put option it writes if,
so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option. The principal
reason for writing call or put options is to obtain, through a receipt of
premiums, a greater current return than would be realized on the underlying
securities alone. The Fund receives a premium from writing a call or put option
which it retains whether or not the option is exercised. By writing a call
option, the Fund might lose the potential for gain on the underlying security
while the option is open, and by writing a put option, the Fund might become
obligated to purchase the underlying security for more than its current market
price upon exercise.
The Fund may purchase call and put options for the purpose of offsetting
previously written call and put options of the same series. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Put options may also be purchased to protect against price movements
in particular securities in the Fund's portfolio. A put option gives the Fund,
in return for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's investment adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures contracts
to hedge against the effect of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions. Futures
contracts call for the delivery of particular debt instruments at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract, and the buyer agrees to take delivery of
the instrument at the specified future time.
Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value. When the Fund writes a call option on a futures contract, it
is undertaking the obligation of selling a futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on futures
contracts as a hedge against rising purchase prices of portfolio securities. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular furtures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged. When the Fund sells
futures contracts, it will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors such as stock price movements. In these events, the Fund may lose
money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
STAR FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank,
N.A., the Fund's investment adviser (the "Adviser" or "Star Bank"), subject to
direction by the Trustees. The Adviser continually conducts investment research
and supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.95 of 1% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by other mutual funds with similar
objectives and policies. The Adviser may voluntarily choose to waive a
portion of its fee or reimburse the Fund for certain operating expenses.
The Adviser can terminate this voluntary waiver of its advisory fee at any
time at its sole discretion. The Adviser has undertaken to reimburse the
Fund, up to the amount of the advisory fee, for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Star Bank, a national bank, was founded in 1863 and
is the largest bank and trust organization of StarBanc Corporation. As of
December 31, 1993, Star Bank had an asset base of $7.6 billion. Star Bank's
expertise in trust administration, investments, and estate planning ranks
it among the most predominant trust institutions in Ohio, with assets of
$12.5 billion as of December 31, 1993. Star Bank has managed commingled
funds since 1957. As of December 31, 1993, it manages 12 common trust funds
and collective investment funds having a market value in excess of $394
million. Additionally, Star Bank has advised the portfolios of the Trust
since 1989.
As part of their regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Star Bank. The lending relationship will not be a factor in the
selection of securities.
Donald L. Keller joined Star Bank's Capital Management Division in 1983 and
has served as a Vice President and the Director of Research since October,
1993. He served as Director of Portfolio Management from February, 1989,
through October, 1993. Mr. Keller has supported the domestic and
international equity and fixed income securities components of the Fund
since its inception. Mr. Keller holds a Bachelor of Business Administration
Degree in Finance and Accounting from the University of Cincinnati. He also
earned his Masters in Finance from Xavier University.
Scott H. Dooley joined Star Bank in 1988 and is an Equity Fund Manager and
Trust Investment Officer for the Capital Management Division. Mr. Dooley
has managed the domestic and international equity and fixed income
securities components of the Fund since its inception. Mr. Dooley holds a
Bachelor of Business Administration Degree in Accounting from the
University of Cincinnati and earned his Chartered Financial Analyst
designation in 1992.
Fred A. Brink joined Star Bank in 1991 and is a Fund Manager and Trust
Investment Officer for the Capital Management Division. Mr. Brink has
managed the money market instruments component of the Fund since its
inception. Mr. Brink graduated from the University of Cincinnati in 1991
with a Bachelor of Business Administration Degree in Finance.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the distributor for shares of the Fund. It is a
Pennsylvania corporation organized on November 14, 1969, and is the distributor
for a number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund may
pay to Federated Securities Corp. an
amount computed at an annual rate of up to 0.25 of 1% of the average daily net
assets to finance any activity which is principally intended to result in the
sale of shares subject to the Plan.
Federated Securities Corp. may from time to time, and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and support services as agents for their clients or customers who
beneficially own shares of the Fund. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include distributing prospectuses and other
information, providing accounting assistance, and communicating or facilitating
purchases and redemptions of Fund's shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares of the Fund owned by their clients or customers. The fees are
calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. The current annual rate of such fees is up to
0.30 of 1% for the Fund. Any fees paid for these services by the distributor
will be reimbursed by the Adviser. Payments made here are in addition to any
payments made under the Fund's Rule 12b-1 Distribution Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with
certain administrative personnel and services necessary to operate the Fund,
such as legal and accounting services. Federated Administrative Services
provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may voluntarily waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the
"Services Plan") with respect to shares of the Fund. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support and personal services
to their customers who from time to time may be owners of record or beneficial
owners of shares of the Fund. In return for providing these support services, a
financial institution may receive payments from the Fund at a rate not exceeding
0.25 of 1% of the average daily net assets of shares of the Fund beneficially
owned by the financial institution's customers for whom it is holder of record
or with whom it has a servicing relationship.
CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities
and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is transfer agent and dividend disbursing agent for the
Fund. It also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington,
D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Fund
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
These expenses include, but are not limited to, the cost of: Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund, and shares of
the Fund with federal and state securities commissions; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; distribution fees; insurance premiums;
association membership dues; and such nonrecurring and extraordinary items as
may arise. However, the Adviser may voluntarily reimburse some expenses and has,
in addition, undertaken to reimburse the Fund, up to the amount of the advisory
fee, the amount by which operating expenses exceed limitations imposed by
certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000 ($25 for
Star Bank Connections Group banking customers and Star Bank employees and
members of their immediate family). Subsequent investments may be in any
amounts. For customers of Star Bank, an institutional investor's minimum
investment will be calculated by combining all mutual fund accounts it maintains
with Star Bank and invests with the Fund.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge, as follows:
<TABLE>
<S> <C> <C>
SALES CHARGE AS A SALES CHARGE AS
PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shareholders who are private banking or Star
Connections Group banking customers of StarBanc Corporation and its subsidiaries
are exempt from sales charges. In addition, the following persons may purchase
shares of the Fund at net asset value, without a sales charge: employees and
retired employees of Star Bank, Federated Securities Corp., or their affiliates,
or of any bank or investment dealer who has a sales agreement with Federated
Securities Corp. with regard to the Fund, or of any correspondent bank of Star
Bank, and members of the families (including parents, grandparents, siblings,
spouses, children, aunts, uncles, and in-laws) of such employees or retired
employees; trust customers of StarBanc Corporation and its subsidiaries and
correspondent banks of Star Bank when investing non-trust assets; certain
non-trust customers of correspondent banks of Star Bank; and non-trust customers
of financial advisers.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, Star Bank or any
authorized dealer will normally receive up to 89% of the applicable sales
charge. Any portion of the sales charge which is not paid to Star Bank or a
dealer will be retained by the distributor. However, the distributor will,
periodically, uniformly offer to pay additional amounts in the form of cash, or
promotional incentives consisting of trips to sales seminars at luxury resorts,
tickets or other items, to all dealers selling shares of the Fund. Such
payments, all or a portion of which may be paid from the sales charge the
distributor normally retains or any other source available to it, will be
predicated upon the amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through Star Bank or registered
broker/dealers will be retained by the distributor. The distributor may pay fees
to banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Fund shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table,
larger purchases reduce the sales charge paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the net asset value of $90,000 and
he purchases $10,000 more at the current net asset value, the sales charge on
the additional purchase according to the schedule now in effect would be 3.75%,
not 4.50%.
To receive the sales charge reduction, Star Bank or the distributor must be
notified by the shareholder in writing at the time the purchase is made that
Fund shares are already owned or that purchases are being combined. The Fund
will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of Fund
shares over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 4.50% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The 4.50% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. Star
Bank or the distributor must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to eliminate a sales charge.
If the shareholder redeems his shares in the Fund, there may be tax
consequences. Shareholders contemplating such transactions should consult their
own tax advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, Star Bank or the distributor must be
notified by the shareholder in writing at the time the concurrent purchases are
made. The Fund will reduce the sales charge after it confirms the purchases.
SYSTEMATIC INVESTMENT PLAN
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this plan, funds may be
withdrawn periodically from the shareholder's checking account and invested in
Fund shares at the net asset value next determined after an order is received by
Star Bank, plus the applicable sales charge. A shareholder may apply for
participation in this plan through Star Bank.
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business.
A customer of Star Bank may purchase shares of the Fund through Star Bank. Texas
residents must purchase Fund shares through Federated Securities Corp. at
1-800-356-2805. In connection with the sale of Fund shares, the distributor may
from time to time offer certain items of nominal value to any shareholder or
investor. The Fund reserves the right to reject any purchase request.
THROUGH STAR BANK. To place an order to purchase shares of the Fund, a customer
of Star Bank may telephone Star Bank at 1-800-677-FUND or place the order in
person. Purchase orders given by telephone may be electronically recorded.
Payment may be made to Star Bank either by check or federal funds. When payment
is made with federal funds, the order is considered received when federal funds
are received by Star Bank. Purchase orders must be telephoned to Star Bank by
3:30 p.m. (Eastern time) and payment by federal funds must be received by Star
Bank before 3:00 p.m. (Eastern time) on the following day. Orders are considered
received after payment by check is converted into federal funds. This is
normally the next business day after Star Bank receives the check.
For purchases by employees, individual investors, or through registered
broker/dealers, requests must be received by Star Bank by 3:30 p.m. (Eastern
time) and payment is normally required in five business days.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed or on federal holidays restricting wire transfers.
BY MAIL. To purchase shares of the Fund by mail, individual investors may send a
check made payable to Star Capital Appreciation Fund to Star Funds Shareholder
Services, Star Bank, N.A., 425 Walnut Street, ML 7135, Cincinnati, Ohio 45202.
Orders by mail are considered received after payment by check is converted by
Star Bank into federal funds. This is normally the next business day after Star
Bank receives the check.
EXCHANGING SECURITIES FOR FUND SHARES
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, must be liquid, and must
not be subject to restrictions on resale. The Fund acquires the exchanged
securities for investment and not for resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least $25,000.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the Fund
will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.
Detailed confirmations of each purchase or redemption are sent to each
shareholder and dividend confirmations are sent to each shareholder to report
dividends paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Capital gains realized by the Fund,
if any, will be distributed at least once every 12 months. Dividends and capital
gains will be automatically reinvested in additional shares on payment dates at
the ex-dividend date net asset value, unless cash payments are requested by
writing to the Fund or Star Bank.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
STAR FUNDS
All shareholders of the Fund are shareholders of the Star Funds. Star Funds
currently consists of the Fund, Star Prime Obligations Fund, Star Treasury Fund,
Star Relative Value Fund, Star Tax-Free Money Market Fund, Star U.S. Government
Income Fund, and The Stellar Fund. Until further notice, through a telephone
exchange program, shareholders invested in the money market funds can exchange
only among the other money market funds of the Trust, and shareholders invested
in the non-money market funds can exchange only among the other non-money market
funds of the Trust. Each portfolio in the Star Funds is advised by Star Bank and
distributed by Federated Securities Corp.
EXCHANGING SHARES
Shareholders of the Fund may exchange shares of the Fund for shares of the other
funds in the Star Funds. In addition, shares of the Fund may also be exchanged
for certain other funds distributed by Federated Securities Corp. that are not
advised by Star Bank, N.A. ("Federated Funds"). For further information on the
availability of Federated Funds for exchanges, call Star Bank at 1-800-677-FUND.
Shareholders who exercise this exchange privilege must exchange Shares having a
total net asset value of at least $1,000. Prior to any exchange, the shareholder
must receive a copy of the current prospectus of the fund into which an exchange
is to be effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales charge (if any) already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales charge would be at net asset
value.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value.
Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be terminated at any time. Shareholders
will be notified of the termination of the exchange privilege. A shareholder may
obtain further information on the exchange privilege by calling Star Bank at
1-800-677-FUND.
EXCHANGE-BY-TELEPHONE
Instructions for exchanges between funds which are part of the Star Funds may be
given by telephone to Star Bank at 1-800-677-FUND or to the distributor. Shares
may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded.
Telephone exchange instructions must be received before 3:30 p.m. (Eastern time)
in order for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination. Shareholders of the Fund may have
difficulty in making exchanges by telephone through brokers, banks, or other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker, bank, or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Star Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Requests for redemption can be made in person, by
telephone through Star Bank, or by mail.
BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem shares of
the Fund by telephoning Star Bank at 1-800-677-FUND. Redemption requests given
by telephone may be electronically recorded. For calls received by Star Bank
before 3:30 p.m. (Eastern time), proceeds will normally be wired the following
day to the shareholder's account at Star Bank or a check will be sent to the
address of record. In no event will proceeds be wired or a check mailed more
than seven days after a proper request for redemption has been received. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified. An authorization
form permitting the Fund to accept telephone requests must first be completed.
Authorization forms and information on this service are available from Star
Bank.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may also redeem Fund shares by sending a written request
to Star Funds Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135,
Cincinnati, Ohio 45202. The
written request must include the shareholder's name, the Fund name, the account
number, and the share or dollar amount requested. Shareholders may call the Fund
for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, accounts may arrange for regular monthly or
quarterly fixed withdrawal payments. Each payment must be at least $100 and may
be as much as 1.50% per month or 4.50% per quarter of the total net asset value
of the shares in the account when the Systematic Withdrawal Plan is opened.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid with respect to Fund shares, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this plan should not be considered as yield or income on the shareholder's
investment in the Fund. Due to the fact that shares are sold with a sales
charge, it is not advisable for shareholders to be purchasing shares of the Fund
while participating in this plan.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that only shares of the Fund are
entitled to vote on matters affecting only the Fund. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's or
the Fund's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders of the Trust at a
special meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect shareholders,
the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument the Trust or
its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required, by the Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end management investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling, or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment adviser, transfer agent, or custodian to
such an investment company or from purchasing shares of such a company as agent
for and upon the order of their customer. The Fund's investment adviser, Star
Bank, is subject to such banking laws and regulations.
Star Bank believes that it may perform the investment advisory services for the
Fund contemplated by its advisory agreements with the Trust without violating
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of present or future
statutes and regulations, could prevent Star Bank from continuing to perform all
or a part of the above services for its customers and/or the Fund. In such
event, changes in the operation of the Fund may occur, including the possible
alteration or termination of any automatic or other Fund share investment and
redemption services then being provided by Star Bank, and the Trustees would
consider alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser with equivalent abilities to
Star Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. The Fund will provide detailed tax information for
reporting purposes.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information normally reflects the effect of the maximum sales
load which, if excluded, would increase the total return and yield.
Occasionally, performance information which does not reflect the effect of the
sales load may be quoted in advertising.
From time to time the Fund may advertise its performance using certain financial
publications and/or compare its performance to certain indices.
ADDRESSES
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<TABLE>
<S> <C> <C>
Star Capital Appreciation Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
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Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
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Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
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</TABLE>
PROSPECTUS
A Diversified Portfolio
of the Star Funds,
an Open-End Management
Investment Company
May 16, 1994
(Revised September 20, 1994)
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STAR BANK, N.A.
Investment Adviser
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FEDERATED SECURITIES CORP.
Distributor
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4041408A (9/94)
4741TR
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