1933 Act File No. 33-26915
1940 Act File No. 811-5762
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 24 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X
Amendment No. 25 X
STAR FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule
485.
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:
X filed the Notice required by that Rule on January 18,
1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2),
need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin,
L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of the Star
Funds, which is comprised of nine portfolios: (1) Star Prime
Obligations Fund, (2) Star Tax-Free Money Market Fund,
(3) Star Treasury Fund, (4) Star Relative Value Fund, (5) The
Stellar Fund, (a) Investment Shares and (b) Trust Shares,
(6) Star U.S. Government Income Fund, (7) Star Capital
Appreciation Fund, (8) Star Strategic Income Fund, and
(9) Star Growth Equity Fund, relates only to two of the
portfolios, Star Strategic Income Fund and Star Growth Equity
Fund, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-9) Cover Page.
Item 2. Synopsis (1-3) Synopsis; (1-9) Summary
of Fund Expenses.
Item 3. Condensed Financial
Information (1-6) Financial Highlights; (1-
9) Performance Information.
Item 4. General Description of
Registrant (4-9) General Information; (4-
9) Investment Information; (1-
3) Objective and Investment
Policies of Each Fund; (1-3)
Money Market Funds; (4-9)
Investment Objective(s); (4-9)
Investment Policies; (1-9)
Investment Limitations.
Item 5. Management of the Trust (1-9) Star Funds Information;
(1-9) Management of the Trust;
(1,2,3,4,6,7,8,9) Distribution
of Fund Shares; (5a)
Distribution of Investment
Shares; (5b) Distribution of
Trust Shares; (1-9)
Administrative Arrangements;
(1,2,3,4,5a,6,7,8,9)
Distribution Plan; (1-9)
Administration of the Fund(s);
(7,8,9) Shareholder Services
Plan; (5a) Expenses of the Fund
and Investment Shares; (5b)
Expenses of the Fund and Trust
Shares; (7-9) Expenses of the
Fund; (4-9) Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities (1-3) Dividends; (1-3) Capital
Gains; (4-9) Dividends and
Capital Gains; (1-9)
Shareholder Information; (1-9)
Voting Rights; (1-9)
Massachusetts Partnership Law;
(1-9) Effect of Banking Laws;
(1-9) Tax Information; (1-9)
Federal Income Tax; (2)
Additional Tax Information; (5)
Other Classes of Shares.
Item 7. Purchase of Securities
Being Offered (1-9) Net Asset Value;
(1,2,3,4,6,7,8,9) Investing in
the Fund; (5a) Investing in
Investment Shares; (5b)
Investing in Trust Shares; (1-
9) Share Purchases; (1-9)
Minimum Investment Required; (1-
9) What Shares Cost; (4,5a,6,7)
Systematic Investment Plan;
(4,5a,6,7) Reducing the Sales
Charge; (1-9) Exchanging
Securities for Fund Shares; (7)
Subaccounting Services; (1-9)
Certificates and Confirmations;
(1-9) Exchange Privilege.
Item 8. Redemption or Repurchase (1,2,3,4,6,7,8,9) Redeeming
Shares; (5a) Redeeming
Investment Shares; (5b)
Redeeming Trust Shares; (1-3)
Automatic Redemptions; (4-6)
Redemption Before Purchase
Instruments Clear; (4,5a,6,7)
Systematic Withdrawal Plan;
(1-9) By Telephone; (8,9)
Contingent Deferred Sales
Charge; (8,9) Elimination of
Contingent Deferred Sales
Charge; (7,8,9) By Mail;
(1-9) Accounts with Low
Balances;
(1,2,3,4,6) Redemption in Kind.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION.
Item 10. Cover Page (1-9) Cover Page.
Item 11. Table of Contents (1-9) Table of Contents.
Item 12. General Information and
History (1-9) General Information About
the Fund; (1-9) Investment
Limitations.
Item 13. Investment Objectives and
Policies (1-9) Investment Objective(s)
and Policies.
Item 14. Management of the Fund (1-9) Trust Management.
Item 15. Control Persons and Principal
Holders of Securities (1-9) Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-9) Investment Advisory
Services; (1-9) Administrative
Services; (1-9) Custodian.
Item 17. Brokerage Allocation (1-9) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered (1-9) Purchasing Shares; (1-9)
Exchange Privilege; (1-9)
Determining Net Asset Value;
(1-9) Redeeming Shares.
Item 20. Tax Status (1-9) Tax Status; (1-9) Yield;
(1-3) Effective Yield; (2) Tax-
Equivalent Yield; (4-9) Total
Return.
Item 21. Underwriters (1-9) Administrative
Arrangements;
(1,2,3,4,5a,6,7,8,9)
Distribution Plan.
Item 22. Calculation of Performance
Data (1-9) Performance Comparisons.
Item 23. Financial Statements (1-6) Filed in Part A; (7-9) To
be filed with 4-6 month update.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 15, 1994
STAR STRATEGIC INCOME FUND
(A Portfolio of the Star Funds)
Prospectus
The shares offered by this prospectus represent interests in Star
Strategic Income 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 generate high current
income. The Fund pursues this investment objective by investing at
least 40% of the Fund's assets in U.S. domestic fixed income
securities and the remainder of the Fund's assets in international
bonds, real estate investment trusts, domestic equity securities,
money market securities, and structured fixed income securities
such as mortgage-backed securities, collateralized mortgage
obligations ("CMOs"), adjustable rate mortgages ("ARMs"), and asset-
backed securities.
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
November ___, 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 November ____, 1994
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER
THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Domestic Fixed Income Securities
International Bonds
Real Estate Investment Trusts
Domestic Equity Securities
Money Market Securities
Structured Fixed Income Securities
Mortgage-Backed Securities
ARMs
CMOs
Asset-Backed Securities
Investment Risks of Mortgage-Backed and Asset-Backed Securities
Options Transactions
Futures and Options on Futures
Risks
Future Developments
Repurchase Agreements
Lending of Portfolio Securities
When-Issued and Delayed Delivery Transactions
Restricted and Illiquid Securities
Investing in Securities of Other Investment Companies
Leverage Through Borrowing
Short-Selling
Additional Risk Considerations
Foreign Securities
Foreign Companies
U.S. Government Policies
Real Estate Investment Trusts
Fixed Income Securities
STAR FUNDS INFORMATION
Management of the Trust
Board of Trustees
Investment Adviser
Advisory Fees
Adviser's Background
Distribution of Fund Shares
Distribution Plan
Administrative Arrangements
Administration of the Fund
Administrative Services
Shareholder Services Plan
Custodian
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Legal Counsel
Independent Public Accountants
Brokerage Transactions
Expenses of the Fund
NET ASSET VALUE
INVESTING IN THE FUND
Minimum Investment Required
What Shares Cost
Share Purchases
Through Star Bank
By Mail
Exchanging Securities for Fund Shares
Certificates and Confirmations
Dividends and Capital Gains
EXCHANGE PRIVILEGE
Star Funds
Exchanging Shares
Exchange-by-Telephone
REDEEMING SHARES
By Telephone
By Mail
Signatures
Contingent Deferred Sales Charge
Elimination of Contingent Deferred Sales Charge
Accounts with Low Balances
SHAREHOLDER INFORMATION
Voting Rights
Massachusetts Partnership Law
EFFECT OF BANKING LAWS
TAX INFORMATION
Federal Income Tax
State and Local Taxes
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price
or redemption proceeds, as applicable) (1) 5.00%
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 (2) 0.00%
Total Other Expenses 0.50%
Shareholder Services Fees (3) 0.00 %
Total Operating Expenses (4) 1.45%
(1) The contingent deferred sales charge is 5.00% in
the first year, declining to 1.00% in the fifth year, and 0.00%
thereafter. (See "Contingent Deferred Sales Charge.")
(2) As of the date of this prospectus, the Fund is
not paying or accruing 12b-1 fees. The Fund can pay up to
0.25% as a 12b-1 fee to the distributor. Trust and investment
agency clients of Star Bank or its affiliates will not be
affected by the Plan because the Plan will not be activated
unless and until a second "trust" class of shares of the Fund
(which would not have a Rule 12b-1 Plan) is created and trust
and investment agency clients' investments in the Fund are
converted to such Trust class.
(3) The maximum shareholder services fee is 0.25%.
There is no present intention to charge a shareholder services
fee.
(4)The Total Operating Expenses are estimated to be 1.70% ,
including the payment of the shareholder services fee, had this
plan been in effect, but does not include the maximum 12b-1 fee
as described in note 2 above.
*Expenses in this table are estimated based on average expenses
expected to be incurred during the fiscal year ending November 30,
1995. 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
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."
EXAMPLE 1 year 3 years
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 $67 $79
You would pay the following expenses on the same investment
assuming no redemption $15 $46
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, 1995.
GENERAL INFORMATION
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 Strategic Income 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 at least 40% of which consists of U.S. domestic fixed
income securities and the remainder of which consists of
international bonds, real estate investment trusts, domestic equity
securities, money market securities, and structured fixed income
securities such as mortgage-backed securities, CMOs, ARMs, and
asset-backed securities. 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.
In general, shares of the Fund are sold at net asset value and are
redeemed at net asset value. However, a contingent deferred sales
charge is imposed on Fund shares, other than Fund shares purchased
through reinvestment of dividends, which are redeemed within five
years of their purchase date. For a more complete description, see
"Redeeming Shares."
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to generate high current
income. The investment objective cannot be changed without
approval of shareholders. The Fund pursues this investment
objective by investing in a core asset group of U.S. government and
corporate fixed income securities, and the following satellite
categories: international bonds, real estate investment trusts,
domestic equity securities, money market securities, and structured
fixed income securities such as mortgage-backed securities, CMOs,
ARMs, and asset-backed securities. 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
The Fund pursues its investment objective by investing at least 40%
of its assets in U.S. government and corporate fixed income
securities, and 5%-20% of its assets in each of the satellite
categories listed above. The Fund's adviser believes that by
spreading the investment portfolio across multiple securities
categories, the Fund can reduce the impact of drastic market
movements affecting any one securities type. Other techniques
include, but are not limited to, the following: the employment of
fundamental and quantitative analysis when selecting equity
securities; use of ratings assigned by nationally recognized
statistical rating organizations (where applicable); credit
research; review of issuer's historical performance; examination of
issuer's dividend growth record; consideration of market trends;
and hedging through the use of options and futures.
Unless indicated otherwise, the investment policies of the Fund may
be changed by the Board of Trustees (the "Trustees") without the
approval of shareholders. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund
expects to invest primarily in the following:
DOMESTIC FIXED INCOME SECURITIES. The core asset group of the
Fund will include domestic corporate debt obligations,
obligations of the United States, and notes, bonds, and
discount notes of U.S. government agencies or
instrumentalities. Bonds are selected based on the outlook for
interest rates and their yield in relation to other bonds of
similar quality and maturity. The Fund will only invest in
bonds which are rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's"), or BBB or higher by Standard and
Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or which, if unrated, are deemed to be of comparable
quality by the investment adviser. In the event that a bond
which had an eligible rating when purchased in downgraded below
BBB or Baa, the Fund's adviser will promptly reassess whether
continued holding of the security is consistent with the Fund's
objective.
The types of 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 U.S. government agencies or
instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to
purchase certain obligations of agencies or
instrumentalities; or
o 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:
o Federal Home Loan Banks;
o Federal Home Loan Mortgage Corporation;
o Federal Farm Credit Banks;
o Student Loan Marketing Association; and
o Federal National Mortgage Association.
INTERNATIONAL BONDS. The international bond category of the
Fund will include fixed income securities of non-U.S. companies
and governments denominated in currencies other than U.S.
dollars (including American Depositary Receipts and
International Depositary Receipts) and will be rated investment
grade (i.e., Baa or better by Moody's or BBB or better by S&P)
or, if unrated, deemed by the Fund's investment adviser to be
of an equivalent quality to domestic bonds rated at least Baa
by Moody's or BBB by S&P. In the event that an international
security which had an eligible rating is downgraded below Baa
or BBB, the Fund's investment 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 securities described above.
REAL ESTATE INVESTMENT TRUSTS. This category will include
equity or mortgage real estate investment trusts integrated to
capture income. A real estate investment trust is a managed
portfolio of real estate investments. Real estate of domestic
issuers will not be considered domestic equity securities for
purposes of the asset allocation policy described above. Real
estate investment trust holdings will be diversified by sector
(shopping malls, apartment building complexes, and health care
facilities) and geographic location. An equity real estate
investment trust holds equity positions in real estate, and it
seeks to provide its shareholders with income from the leasing
of its properties and with capital gains from any sales of
properties. A mortgage real estate investment trust
specializes in lending money to developers of properties, and
passes any interest income it may earn to its shareholders.
DOMESTIC EQUITY SECURITIES. The equity category will consist
of high-dividend common and preferred stocks of U.S. companies
which are listed on the New York or American Stock Exchange or
traded in the over-the-counter market and have a history of
stable earnings and/or growing dividends. As part of the
equity category, the Fund may also invest in warrants and
securities convertible into common stocks of these U.S.
companies.
MONEY MARKET SECURITIES. The Fund may invest in U.S. and
foreign short-term money market instruments, including:
o 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;
o 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 ("BIF"), which is
administered by the Federal Deposit Insurance Corporation
("FDIC"), or the Savings Association Insurance Fund ("SAIF"),
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");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments which are not rated but are
determined by the Fund's investment adviser to be of
comparable quality to the other obligations in which the Fund
may invest.
STRUCTURED FIXED INCOME SECURITIES. This category will include:
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
are securities that directly or indirectly represent a
participation in, or are secured by and payable from,
mortgage loans on real property. There are currently
three basic types of mortgage-backed securities:
(i) those issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA"), and the
Federal Home Loan Mortgage Corporation ("FHLMC");
(ii) those issued by private issuers that represent an
interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or
one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in
or are collateralized by whole loans or mortgage-backed
securities without a government guarantee but usually
having some form of private credit enhancement.
ARMs. ARMs are mortgage-backed securities representing
interests in adjustable rather than fixed interest rate
mortgages. The Fund invests in ARMs issued by GNMA,
FNMA, and FHLMC, and by non-government and private
entities and are actively traded. The underlying
mortgages which collateralize ARMs issued by GNMA are
fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMs
issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting
size and maturity constraints.
Unlike conventional bonds, ARMs pay back principal over
the life of the ARMs rather than at maturity. Thus, a
holder of the ARMs, such as the Fund, would receive
monthly scheduled payments of principal and interest, and
may receive unscheduled principal payments representing
payments on the underlying mortgages. At the time that a
holder of the ARMs reinvests the payments and any
unscheduled prepayments of principal that it receives,
the holder may receive a rate of interest which is
actually lower than the rate of interest paid on the
existing ARMs. As a consequence, ARMs may be a less
effective means of "locking in" long-term interest rates
than other types of U.S. government securities.
Not unlike other U.S. government securities, the market
value of ARMs will generally vary inversely with changes
in market interest rates. Thus, the market value of ARMs
generally declines when interest rates rise and generally
rises when interest rates decline.
CMOs. CMOs are debt obligations collateralized by
mortgage loans or mortgage-backed securities. Typically,
CMOs are collateralized by GNMA, FNMA, or FHLMC
certificates, but may be collateralized by whole loans or
private mortgage-backed securities.
securi
securities; (c) privately issued securities in which the
proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality
of the U.S. government; or (d) collateralized by pools of
mortgages without a government guarantee as to payment of
principal and interest, but which have some form of
credit enhancement.
ASSET-BACKED SECURITIES. Asset-backed securities have
structural characteristics similar to mortgage-backed
securities but have underlying assets that generally are
not mortgage loans or interests in mortgage loans. The
Fund may invest in asset-backed securities rated AAA or
higher by a nationally recognized statistical rating
organization including, but not limited to, interests in
pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables,
equipment leases, manufactured housing (mobile home)
leases, or home equity loans. These securities may be in
the form of pass-through instruments or asset-backed
bonds. The securities are issued by non-governmental
entities and carry no direct or indirect government
guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED
SECURITIES. Mortgage-backed and asset-backed securities
generally pay back principal and interest over the life
of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal
received, the Fund may receive a rate of interest which
is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and
asset-backed securities are subject to higher prepayment
risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or
the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities tend to increase during
periods of declining mortgage interest rates because many
borrowers refinance their mortgages to take advantage of
the more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as
the frequency with which people sell their homes or elect
to make unscheduled payments on their mortgages.
Although asset-backed securities generally are less
likely to experience substantial prepayments than are
mortgage-backed securities, certain of the factors that
affect the rate of prepayments on mortgage-backed
securities also affect the rate of prepayments on asset-
backed securities.
While mortgage-backed
securities generally entail less risk of a decline during
periods of rapidly rising interest rates, mortgage-backed
securities may also have less potential for capital
appreciation than other similar investments (e.g.,
investments with comparable maturities) because as
interest rates decline, the likelihood increases that
mortgages will be prepaid. Furthermore, if mortgage-
backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may
result in some loss of a holder's principal investment to
the extent of the premium paid. Conversely, if mortgage-
backed securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total
returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed
to shareholders.
Asset-backed securities
present certain risks that are not presented by mortgage-
backed securities. Primarily, these securities do not
have the benefit of the same security interest in the
related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to
retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there
is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-
backed securities. Further, if a vehicle is registered
in one state and is then reregistered because the owner
and obligor moves to another state, such reregistration
could defeat the original security interest in the
vehicle in certain cases. In addition, because of the
large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by
automobile receivables may not have a proper security
interest in all of the obligations backing such
receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some
cases, be available to support payments on these
securities.
OPTIONS TRANSACTIONS. The Fund may purchase and sell options both
to increase total return and to hedge against the effect of changes
in the value of portfolio securities due to anticipated changes in
interest rates. The Fund may write (i.e., sell) covered call and
put options to the extent of 20% of the value of its net assets at
the time such option contracts are written. 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 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 manage price volatility (or
risk). In addition, the Fund will attempt 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 invest up to 5% of its assets, represented by the
premium paid, in the purchase of call and put options in respect of
specific securities (or groups or "baskets" of specific securities)
in which the Fund may invest. 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 will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of
the Fund are qualified for offer and sale. The Fund will write put
options only on securities which the Fund wishes to have in its
portfolio and where the Fund has determined, as an investment
consideration, that it is willing to pay the exercise price 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 future contract is an agreement to which two parties agree
to take or make delivery of an amount of cash equal to the
difference 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 hedges against rising purchase prices of
portfolio securities. The Fund will use these transaction 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 futures 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 if 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 depends on this secondary market.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities
in the area of options and futures contracts and options on futures
contracts and any other derivative investment which are not
presently contemplated for use by the Fund or which are not
currently available but which may be developed, to the extent such
opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. Before entering
into such transactions or making such investment, the Fund will
provide appropriate disclosure in its prospectus.
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.
LENDING OF PORTFOLIO SECURITIES. Pursuant to a fundamental policy,
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 adviser has determined are creditworthy
under guidelines established by the Trustees and where the Fund
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may
purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time.
The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement
date.
The Fund may dispose of a commitment prior to settlement if the
adviser deems it appropriate to do so. In addition, the Fund may
enter in transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The
Fund may realize short-term profits or losses upon the sale of such
commitments.
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.
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.
LEVERAGE THROUGH BORROWING. The Fund may borrow for investment
purposes pursuant to a fundamental policy. This borrowing, which
is known as leveraging, generally will be unsecured, except to the
extent the Fund enters into the reverse repurchase agreements
described below. The Investment Company Act of 1940 requires the
Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the
Fund may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint
to sell securities at that time.
Borrowing by the Fund creates an opportunity for increased net
income but, at the same time, creates special risk considerations.
For example, leveraging may exaggerate the effect on net asset
value of any increase or decrease in the market value of the Fund's
portfolio. To the extent the income derived from securities
purchased with borrowed funds exceeds the interest the Fund will
have to pay, the Fund's net income will be greater than if
borrowing were not used. Conversely, if the income from the assets
retained with borrowed funds is not sufficient to cover the cost of
borrowing, the net income of the Fund will be less than if
borrowing were not used, and, therefore, the amount available for
distribution to shareholders as dividends will be reduced. The
Fund also may be required to maintain minimum average balances in
connection with such borrowing or to pay a commitment or other fee
to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
Among the forms of borrowing in which the Fund may engage is the
entry into reverse repurchase agreements with banks, brokers or
dealers. These transactions involve the transfer by the Fund of an
underlying debt instrument in return for cash proceeds based on a
percentage of the value of the security. The Fund retains the
right to receive interest and principal payments on the security.
At an agreed upon future date, the Fund repurchases the security at
an agreed-upon price. In certain types of agreements, there is no
agreed upon repurchase date, and interest payments are calculated
daily, often based on the prevailing U.S. government securities or
other high-quality liquid debt securities at least equal to the
aggregate amount of its reverse repurchase obligations, plus
accrued interest, in certain cases, in accordance with releases
promulgated by the Securities and Exchange Commission. The
Securities and Exchange Commission views reverse repurchase
transactions as collateralized borrowings by the Fund. These
agreements, which are treated as if reestablished each day, are
expected to provide the Fund with a flexible borrowing tool.
SHORT-SELLING. The Fund may make short sales pursuant to a
fundamental policy. Short sales are transactions in which the Fund
sells a security it does not own in anticipation of a decline in
the market value of that security. To complete such a transaction,
the Fund must borrow the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. The
price at such time may be more or less than the price at which the
security was sold by the Fund. Until the security is replaced, the
Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan.
To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The
proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short
position is closed out.
Until the Fund replaces a borrowed security in connection with a
short sale, the Fund will be required to: (a) maintain daily a
segregated account, containing cash or U.S. government securities,
at such a level that (i) the amount deposited in the account plus
the amount deposited with the broker as collateral will at all
times equal to at least 100% of the current value of the security
sold short and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be
less that the market value of the security at the time it was sold
short; or (b) otherwise cover its short position.
The Fund will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security;
conversely, the Fund will realize a gain if the security declines
in price between those dates. This result is the opposite of what
one would expect from a cash purchase of a long position in a
security. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium or amounts in
lieu of interest the Fund may be required to pay in connection with
a short sale.
The Fund may purchase call options to provide a hedge against an
increase in the price of a security sold short by the Fund. When
the Fund purchases a call option, it has to pay a premium to the
person writing the option and a commission to the broker selling
the option. If the option is exercised by the Fund, the premium
and the commission paid may be more than the amount of the
brokerage commission charged if the security were to be purchased
directly. See "Options Transactions" above.
The Fund anticipates that the frequency of short sales will vary
substantially under different market conditions, and it does not
intend that any specified portion of its assets, as a matter of
practice, will be in short sales. However, as an operating policy
which may be changed without shareholder approval, no securities
will be sold short if, after effect is given to any such short
sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not
sell short the securities of any single issuer listed on a national
securities exchange to the extent of more than 5% of the value of
the Fund's net assets. The Fund may not sell short the securities
of any class of an issuer to the extent, at the time of the
transaction, of more than 5% of the outstanding securities of that
class.
In addition to the short sales discussed above, the Fund also may
make short sales "against the box," a transaction in which the Fund
enters into a short sale of a security which the Fund owns. The
proceeds of the short sale are held by a broker until the
settlement date, at which time the Fund delivers the security to
close the short position. The Fund receives the net proceeds from
the short sale. The Fund at no time will have more than 15% of the
value of its net assets in deposits on short sales against the box.
ADDITIONAL RISK CONSIDERATIONS
FOREIGN SECURITIES. Investing in foreign securities can carry
higher returns and risks than 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 considered separate securities categories
for purposes of the Fund's investment policies, the Fund's
investment in money market securities issued by foreign banks and
international bonds could result in up to 40% of the Fund's net
assets being invested in securities of foreign issuers.
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:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to
foreign companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign
securities exchanges, brokers, listed companies, and banks;
o generally lower foreign securities market volume;
o the likelihood that foreign securities may be less liquid or more
volatile;
o generally higher foreign brokerage commissions;
o possible difficulty in enforcing contractual obligations or
obtaining court judgments abroad because of differences in the
legal systems;
o unreliable mail service between countries; and
o political or financial changes which adversely affect investments
in some countries.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies
have discouraged or restricted certain investments abroad by
investors such as the Fund. Although the Fund is unaware of any
current restrictions which would materially adversely affect its
ability to meet its investment objective and policies, investors
are advised that these U.S. government policies could be
reinstituted.
REAL ESTATE INVESTMENT TRUSTS. Risks associated with real estate
investments include the fact that equity and mortgage real estate
investment trusts are dependent upon management skill, are not
diversified, and are, therefore, subject to the risk of financing
single projects or a limited number of projects. They are also
subject to heavy cash flow dependency, defaults by borrowers, and
self-liquidation.
Additionally, equity real estate investment trusts may be affected
by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected
by the quality of any credit extended. The investment adviser
seeks to mitigate these risks by selecting real estate investment
trusts diversified by sector (shopping malls, apartment building
complexes, and health care facilities) and geographic location.
FIXED INCOME SECURITIES. The prices of fixed income securities
fluctuate inversely in relation to the direction of interest rates.
The prices of longer-term bonds fluctuate more widely in response
to market interest rate changes. Bonds rated BBB by S&P or Fitch
or Baa by Moody's have more 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.
STAR FUNDS INFORMATION
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 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 its 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.
Kirk F. Mentzer is a Fixed Income Manager for the Capital
Management Division of Star Bank. He has managed the domestic
and structured fixed income components of the Fund since its
inception. Mr. Mentzer joined Star Bank in May, 1989, as a
micro systems analyst and has served as an investment analyst
since June, 1990. From 1989 through June, 1990, Mr. Mentzer
was employed by Star Bank as a systems analyst. From May,
1988, through 1989, Mr. Mentzer was employed by Great American
Insurance as a management trainee.
B. Randolph Bateman is Senior Vice President and Chief
Investment Officer of Star Bank's Trust Financial Services
Group and Manager of its Capital Asset Management Division.
Mr. Bateman has managed the international bonds component of
the Fund since its inception. Mr. Bateman joined Star Bank in
1988.
Peter P. Baden has been employed by Star Bank as an Equity
Analyst since March, 1992, and has been responsible for
managing the real estate investment trust component of the Fund
since its inception. From 1987 through March, 1992, Mr. Baden
was a Vice President of Pacholder Associates, an investment
adviser located in Cincinnati, Ohio.
Donald L. Keller has served as a Vice President and the
Director of Research of the Capital Management Division of Star
Bank since October, 1993, and has managed the domestic equity
securities component of the Fund since its inception. From
February, 1989, through October, 1993, Mr. Keller served as
Director of Portfolio Management of Star Bank.
Cynthia E. Henderson is a Fund Manager for the Capital
Management Division of Star Bank. She has managed the money
market instruments component of the Fund since its inception.
Ms. Henderson joined Star Bank in September, 1990, as an
Internal Auditor, moving to Trust Capital Management in
January, 1994, as a Research Analyst. Prior to joining Star
Bank, Ms. Henderson was earning her degree at Miami University.
She also holds the Certified Public Accountant designation.
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
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 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%
of average net assets of the Fund. Any fees paid for these
services by the distributor will be reimbursed by the Adviser.
Payments made pursuant to these arrangements are in addition to any
payments made under the Fund's Rule 12b-1 Distribution Plan or the
Fund's Shareholder Services Plan.
The distributor will periodically uniformly offer to pay cash, or
promotional incentives in the form of trips to sales seminars at
luxury resorts, tickets, or other items, to all dealers selling
shares of the Fund. Such payments will be predicated upon the
amount of shares of the Fund that are sold by the dealer.
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:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Trust
.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
The administrative fee received during any fiscal year shall be at
least $50,000 per Fund. Federated Administrative Services may
choose to 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.
a
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, L.L.P., 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. There is no sales charge imposed by the Fund at
the time of purchase.
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; or (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Shares,"
shareholders may be charged a contingent deferred sales charge by
the distributor at the time Fund shares are redeemed.
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 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 Strategic Income
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 daily and paid monthly. Capital gains
realized by the Fund, if any, will be distributed once every 12
months. Dividends and capital gains will be automatically
reinvested in additional shares of the Fund on payment dates at 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 Capital
Appreciation Fund, Star Growth Equity 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 certain 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 any fund in the Star Funds which imposes a contingent deferred
sales charge. Shareholders who exercise this exchange privilege
must exchange Fund 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.
A contingent deferred sales charge is not assessed in connection
with an exchange of Fund shares for shares of Star Funds that
impose contingent deferred sales charges. However, if the
shareholder redeems shares within five years of the original
purchase, a contingent deferred sales charge will be imposed. For
purposes of computing the contingent deferred sales charge, the
length of time the shareholder has owned shares will be measured
from the date of original purchase and will not be affected by the
exchange.
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, less any
applicable contingent deferred sales charge, next determined after
Star Bank receives the redemption request. (See "Contingent
Deferred Sales Charge.") 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:
o a trust company or
commercial bank whose deposits are insured by the BIF, which
is administered by the FDIC;
o a member of the New York,
American, Boston, Midwest, or Pacific Stock Exchange;
o a savings bank or savings
and loan association whose deposits are insured by the SAIF,
which is administered by the FDIC; or
o 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.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from the Fund within five full years
of the purchase date will be charged a contingent deferred sales
charge by the Fund's distributor. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net
asset value of the redeemed shares at the time of purchase or the
net asset value of the redeemed shares at the time of redemption in
accordance with the following schedule:
Year of RedemptionContingent Deferred
After Purchase Sales Charge
Year 1 5.00%
Year 2 4.00%
Year 3 3.00%
Year 4 2.00%
Year 5 1.00%
Year 6 0.00%
The contingent deferred sales charge will not be charged with
respect to: (1) shares acquired through the reinvestment of
dividends or distributions of short-term or long-term capital gains
and (2) shares held for more than five full years from the date of
purchase. Redemptions will be processed in a manner intended to
maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of
contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) shares of the Fund acquired
through the reinvestment of dividends and long-term capital gains;
(2) shares of the Fund held for more than five full years from the
date of purchase; and (3) shares of the Fund held for fewer than
five full years on a first-in, first-out basis. A contingent
deferred sales charge is not assessed in connection with an
exchange of shares of the Fund for shares of certain other Star
Funds that are also subject to contingent deferred sales charges as
described in this prospectus under the section entitled "Exchanging
Shares." Moreover, the contingent deferred sales charge will be
eliminated with respect to certain redemptions. (See "Elimination
of Contingent Deferred Sales Charge.")
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with
respect to the following redemptions: (1) redemptions following
the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended, of a shareholder;
(2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a
shareholder who has attained the age of 70-1/2; and (3) involuntary
redemptions by the Fund of shares in shareholder accounts that do
not comply with the minimum balance requirements. The exemption
from the contingent deferred sales charge for Individual Retirement
Accounts or other retirement plans does not extend to account
transfers, rollovers, and other redemptions made for purposes of
reinvestment.
Shares of the Fund purchased by the following entities are not
subject to the contingent deferred sales charge to the extent that
no payment was advanced for purchases made by such entities: (a)
private banking or Star Bank Connections Group banking customers of
StarBanc Corporation and its subsidiaries; (b) 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 any correspondent bank of Star Bank and members of their
families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired
employees; (c) trust customers of StarBanc Corporation and its
subsidiaries and correspondent banks of Star Bank when investing
non-trust assets; (d) certain non-trust customers of correspondent
banks of Star Bank; and (e) non-trust customers of financial
advisers.
The Fund reserves the right to discontinue elimination of the
contingent deferred sales charge. Shareholders will be notified of
such elimination. Any shares of the Fund purchased prior to the
termination of such waiver would have the contingent deferred sales
charge eliminated as provided in the Fund's prospectus at the time
of purchase of Fund shares. If a shareholder making a redemption
qualified for an elimination of the contingent deferred sales
charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that the shareholder is entitled to
such elimination.
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.
STATE AND LOCAL TAXES
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 non-
recurring charges, such as the contingent deferred sales charge,
which, if excluded, would increase the total return and yield.
From time to time the Fund may advertise its performance using
certain financial publications and/or compare its performance to
certain indices.
ADDRESSES
Star Strategic Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
STAR STRATEGIC INCOME FUND
Prospectus
November ____, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED
SEPTEMBER 15, 1994
STAR STRATEGIC INCOME FUND
(A Portfolio of the Star Funds)
Statement of Additional Information
This Statement of Additional Information should be read with
the prospectus of the Star Strategic Income Fund (the "Fund")
dated November ___, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write to the
Fund or call 1-800-677-FUND.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated November ___, 1994
STAR BANK, N.A.
Investment Adviser
FEDERATED SECURITIES CORP.
Distributor
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Warrants
Convertible Securities
Collateralized Mortgage Obligations ("CMOs")
When-Issued and Delayed Delivery Transactions
Repurchase Agreements
Lending of Portfolio Securities
Restricted and Illiquid Securities
Futures and Options Transactions
Futures Contracts
"Margin" in Futures Transactions
Put Options on Financial Futures Contracts
Call Options on Financial Futures Contracts
Stock Index Options
Over-the-Counter Options
Reverse Repurchase Agreements
Portfolio Turnover
INVESTMENT LIMITATIONS
TRUST MANAGEMENT
Officers and Trustees
The Funds
Fund Ownership
Trustee Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
ADMINISTRATIVE SERVICES
CUSTODIAN
BROKERAGE TRANSACTIONS
PURCHASING SHARES
Distribution Plan
Administrative Arrangements
Shareholder Services Plan
Conversion to Federal Funds
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
Trading in Foreign Securities
EXCHANGE PRIVILEGE
Requirements for Exchange
Making an Exchange
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Foreign Taxes
Shareholders' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of the Star Funds (the "Trust"). The
Trust 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. On May 1, 1993, the
Board of Trustees (the "Trustees") approved changing the name
of the Trust, effective May 1, 1993, from Losantiville Funds
to Star Funds.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to generate high current
income. The investment objective cannot be changed without
the approval of shareholders. Unless indicated otherwise, the
policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified
before any material change in these policies becomes
effective.
WARRANTS
The Fund may invest in warrants. Warrants are basically
options to purchase common stock at a specific price (usually
at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. In addition,
if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to
the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in
the market price of the optioned common stock. The Fund will
not invest more than 5% of the value of its total assets in
warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges.
Warrants required in units or attached to securities may be
deemed to be without value for purposes of this policy.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment
characteristics of fixed income securities until they have
been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the
fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that
can be used, in whole or in part, customarily at full face
value, in lieu of cash to purchase the issuer's common stock.
When owned as part of a unit along with warrants, which are
options to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before
the bond's maturity. Convertible securities are senior to
equity securities and, therefore, have a claim to assets of
the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of
the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream
of income with generally higher yields than common stocks, but
lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities
held in its portfolio into shares of the underlying common
stock in instances in which, in the adviser's opinion, the
investment characteristics of the underlying common shares
will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible
securities. In selecting convertible securities for the Fund,
the adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument and the
investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with
respect to a particular convertible security, the adviser
considers numerous factors, including the economic and
political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and
practices.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs")
The following example illustrates how mortgage cash flows are
prioritized in the case of CMOs--most of the CMOs in which the
Fund invests use the same basic structure:
(1) Several classes of securities are issued against a pool
of mortgage collateral. The most common structure
contains four tranches of securities: the first three
(A, B, and C bonds) pay interest at their stated rates
beginning with the issue date and the final tranche (Z
bonds) typically receives any excess income from the
underlying investments after payments are made to the
other tranches and receives no principal or interest
payments until the shorter maturity tranches have been
retired, but then receives all remaining principal and
interest payments.
(2) The cash flows from the underlying mortgages are applied
first to pay interest and then to retire securities.
(3) The tranches of securities are retired sequentially. All
principal payments are directed first to the shortest-
maturity tranche (or A bonds). When those securities are
completely retired, all principal payments are then
directed to the next-shortest-maturity tranche (or B
bonds). This process continues until all of the tranches
have been paid off.
Because the cash flow is distributed sequentially instead of
pro rata, as with pass-through securities, the cash flows and
average lives of CMOs are more predictable, and there is a
period of time during which the investors in the longer-
maturity classes receive no principal paydowns. One or more
of the tranches often bear interest at an adjustable rate.
The interest portion of these payments is distributed by the
Fund as income, and the principal portion is reinvested.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be
an advantageous price and yield for the Fund. Settlement
dates may be a month or more after entering into these
transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment
for the securities to be purchased are segregated on the
Fund's records at the trade date. These securities are marked
to market daily and are maintained until the transaction has
been settled.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the
securities subject to repurchase agreements, and these
securities will be marked to market daily. 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. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the
Fund's portfolio securities subject to repurchase agreements,
a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks
and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the
Trustees.
LENDING OF PORTFOLIO SECURITIES
As a fundamental policy of the Fund, the Fund may lend
portfolio securities. The collateral received when the Fund
lends portfolio securities must be valued daily and, should
the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower
pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of
the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing
broker. The Fund would not have the right to vote securities
on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the
investment.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of
the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and
is generally sold to institutional investors, such as the
Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing
liquidity.
The ability of the Trustees to determine the liquidity of
certain restricted securities is permitted under a Securities
and Exchange Commission (the "SEC") staff position set forth
in the adopting release for Rule 144A under the Securities Act
of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving
registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to
further enhance the liquidity of the secondary market for
securities eligible for resale under the Rule. The Fund
believes that the staff of the SEC has left the question of
determining the liquidity of all restricted securities to the
Trustees. The Trustees may consider the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the
security and the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace
trades.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of
shares of the Fund, the Fund may attempt to hedge all or a
portion of its portfolio by buying and selling financial
futures contracts, buying put options on portfolio securities
and put options on financial futures contracts, and writing
call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to
increase its current income. The Fund will maintain its
positions in securities, options rights, and segregated cash
subject to puts and calls until the options are exercised,
closed, or have expired. An option position on financial
futures contracts may be closed out over-the-counter or on a
nationally recognized exchange which provides a secondary
market for options of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to
hedge against the effects of changes in the value of portfolio
securities due to anticipated changes in interest rates and
market conditions without necessarily buying or selling the
securities. The Fund also may purchase and sell stock index
futures to hedge against change in prices. The Fund will not
engage in futures transactions for speculative purposes.
buy
buyer who agrees to take delivery of the security ("going
long") at a certain time in the future. For example, in the
fixed income securities market, prices move inversely to
interest rates. A rise in the rate means a drop in the price.
In order to hedge its holdings of fixed income securities
against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price
(i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would
"go long" (agree to purchase securities in the future at a
predetermined price) to hedge against a decline in market
interest rates.
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.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not
pay or receive money upon the purchase or sale of a futures
contract. Rather, the Fund is required to deposit an amount
of "initial margin" in cash or U.S. Treasury bills with its
custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from
that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing
of funds by the Fund to finance the transactions. Initial
margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark to market its open futures
positions.
The Fund is also required to deposit and maintain margin when
it writes call options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures
contracts to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipates
increase in interest rates. Unlike entering directly into a
futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in
value during the term of an option, the related futures
contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally
close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon
the sales of the second option will be large enough to offset
both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close
out the position. To do so, it would simultaneously enter
into a futures contract of the type underlying the option (for
a price less than the strike price of the option) and exercise
the option. The Fund would then deliver the futures contract
in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and only
the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund
may write listed and over-the-counter call options on
financial futures contracts to hedge its portfolio against an
increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during
the life of the option if the option is exercised. As stock
prices fall or market interest rates rise, causing the prices
of futures to go down, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down
below the strike price, the buyer of the option has no reason
to exercise the call, so that the Fund keeps the premium
received for the option. This premium can substantially
offset the drop in value off the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the option
by buying an identical option. If the hedge is successful,
the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease
in value of the hedged securities.
The Fund will not maintain open positions in futures contracts
it has sold or call options it has written on futures
contracts if, in the aggregate, the value of the open
positions (marked to market) exceeds the current market value
of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation
of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number
of open contracts to bring its open futures and options
positions within this limitation.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on
national securities exchanges or traded in the over-the-
counter market. A stock index fluctuates with changes in the
market value of the stocks included in the index.
The effectiveness of purchasing stock index options will
depend upon the extent to which price movements in the Fund's
portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss
from the purchase of the option on an index depends upon
movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry
or market segment, rather than movements in the price of a
particular
stock. Accordingly, successful use by the Fund of options on
stock indices will be subject to the availability of the
Fund's adviser to predict correctly movements in the
directions of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the prices of individual stocks.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the
buyers or writers of the options when options on the portfolio
securities held by the Fund are not traded on an exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements
pursuant to a fundamental policy. These transactions are
similar to borrowing cash. In a reverse repurchase agreement,
the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market
value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by
remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements
may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does
not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of
the Fund in a dollar amount sufficient to make payment for the
obligations to be purchased are segregated at the trade date.
These securities are marked to market daily and are maintained
until the transaction is settled.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of
seeking short-term profits, securities in its portfolio will
be sold whenever the Fund's adviser believes it is appropriate
to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 75%.
INVESTMENT LIMITATIONS
BUYING ON MARGIN
The Fund will not purchase securities on margin, but may
obtain such short-term credits as are necessary for
clearance of transactions, except that the Fund may make
margin payments in connection with its use of financial
futures contracts or related options and transactions.
BORROWING MONEY
The Fund will not issue senior securities, except that (a)
the Fund may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the
value of its total assets, including the amount borrowed,
either (i) as a temporary, extraordinary, or emergency
measure or to facilitate management of the Fund by
enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be
inconvenience or disadvantageous, or (ii) for investment
purposes. The Fund will not purchase any securities for
the purpose stated under clause "(i)" above while any
borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. For
purposes of this limitation, the following will not be
deemed to be pledges of the Fund's assets: (a) the
deposit of assets in escrow in connection with the writing
of covered put or call options and the purchase of
securities on a when-issued or delayed delivery basis; and
(b) collateral arrangement with respect to (i) the
purchase and sale of stock options (and options on stock
indices) and (ii) initial or variation margin for futures
contracts. Margin deposits for the purchase and sale of
futures contracts and related options are not deemed to be
a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities
issued by any one issuer (other than cash, cash items, or
securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets
would be invested in the securities of that issuer, or if
it would own more than 10% of the outstanding voting
securities of that issuer.
UNDERWRITING
The Fund will not underwrite any issue of securities,
except as it may be deemed to be an underwriter under the
Securities Act of 1933 in connection with the sale of
securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including
limited partnership interests, although it may invest in
the securities of companies whose business involves the
purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the
extent that the Fund may engage in transactions involving
financial futures contracts or options on financial
futures contracts.
SELLING SHORT
The Fund will not sell securities short unless (1) it
owns, or has a right to acquire, an equal amount of such
securities or (2) if it does not own the securities, it
has segregated an amount of its other assets equal to the
lesser of the market value of the securities sold short or
the amount required to acquire such securities. While in
a short position, the Fund will retain the securities,
rights, or segregated assets.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total
assets. This shall not prevent the Fund from purchasing
or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other
debt securities, entering into repurchase agreements, or
engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations or
the Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its
total assets in any one industry (other than securities
issued by the U.S. government, its agencies or
instrumentalities).
The above investment limitations cannot be changed without
shareholder approval. The following investment limitations
may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in
these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of issuers with records of less
than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY
OFFICERS AND TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust or the
Fund's investment adviser owning individually more than
1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment
companies to no more than 3% of the total outstanding
voting stock of any investment company, invest no 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 purchase
securities of investment companies only in open-market
transactions involving only customary broker's
commissions. However, these limitations are not
applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its
total assets in securities subject to restrictions on
resale under the Securities Act of 1933, except for
commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted
securities which meet the criteria for liquidity as
established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its
net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven
days after notice, non-negotiable fixed time deposits with
maturities over seven days, over-the-counter options, and
certain restricted securities not determined by the
Trustees to be liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases,
although it may invest in the securities of issuers which
invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the
purpose of exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its
net assets in warrants. No more than 2% of this 5% may be
warrants which are not listed on the New York Stock
Exchange or the American Stock Exchange.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio and
not more than 5% of the value of the Fund's total assets
would be invested in premiums on put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless
the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of
any further payment.
Except with respect to borrowing money, if a percentage
limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change
in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Fund
considers certificates of deposit and demand and time deposits
issued by a U.S. branch of a domestic bank or savings and loan
association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash
items."
As operating policies of the Fund, which may be changed
without shareholder approval, (a) no securities will be sold
short if, after effect is given to any such short sale, the
total market value of all securities sold short would exceed
25% of the value of the Fund's net assets; (b) the Fund may
not sell short the securities of any single issuer listed on a
national securities exchange to the extent of more than 5% of
the value of the Fund's net assets; (c) the Fund may not sell
short the securities of any class of an issuer to the extent,
at the time of the transaction, of more than 5% of the
outstanding securities of that class; and (d) the Fund at no
time will have more than 15% of the value of its net assets in
deposits on short sales against the box.
To comply with registration requirements in certain states,
the Fund will limit the aggregate value of the assets
underlying covered call options or put options written by the
Fund to not more than 25% of its net assets.
TRUST MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, present
positions with the Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp.; Chairman, Passport
Research, Ltd.; Director, AEtna Life and Casualty Company;
Chief Executive Officer and Director, Trustee, or Managing
General Partner of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-
President, John R. Wood and Associates, Inc., Realtors;
President, Northgate Village Development Corporation; Partner
or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker,
Inc.; Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman and Director, PNC Bank, N.A.,
and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
Director, Trustee, or Managing General Partner of the Funds;
formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Professor of Medicine and Trustee,
University of Pittsburgh; Director of Corporate Health,
University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds;
formerly, Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors;
Vice President and Treasurer, Federated Advisers, Federated
Management, Federated Research, Federated Research Corp., and
Passport Research, Ltd.; Executive Vice President, Treasurer,
and Director, Federated Securities Corp.; Trustee, Federated
Services Company and Federated Shareholder Services; Chairman,
Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of
Massachusetts; Director, Trustee, or Managing General Partner
of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation and Trustee, Lahey
Clinic Foundation, Inc.
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation,
Online Computer Library Center, Inc., and U.S. Space
Foundation; Chairman, Czecho Slovak Management Center;
Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or
Managing General Partner of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors;
Director, Federated Research Corp.; Chairman and Director,
Federated Securities Corp.; President or Vice President of
some of the Funds; Director or Trustee of some of the Funds.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice
President and Assistant Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee,
Federated Investors; Vice President, Secretary, and Trustee,
Federated Advisers, Federated Management, and Federated
Research; Vice President and Secretary, Federated Research
Corp. and Passport Research, Ltd.; Trustee, Federated Services
Company; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and Trustee,
Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and
Secretary of the Funds.
* This Trustee is deemed to be an "interested person" as
defined in the Investment Company Act of 1940, as
amended.
@ Member of the Executive Committee. The Executive
Committee of the Board of Trustees handles the
responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment
companies: American Leaders Fund, Inc.; Annuity Management
Series; Automated Cash Management Trust; Automated Government
Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government
Bond Fund; First Priority Funds; Fixed Income Securities,
Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fund for U.S. Government Securities, Inc.; Government
Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; The Medalist Funds; Money
Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's
outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees
are not liable for errors of judgment or mistakes of fact or
law. However, they are not protected against any liability to
which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their
office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Star Bank, N.A. ("Star Bank"
or "Adviser"). Star Bank is a wholly-owned subsidiary of
StarBanc Corporation. Because of internal controls maintained
by Star Bank to restrict the flow of non-public information,
Fund investments are typically made without any knowledge of
Star Bank's or its affiliates' lending relationships with an
issuer.
Star Bank shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained
in the purchase, holding, or sale of any security, or for
anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its
contract with the Trust.
ADVISORY FEES
For its advisory services, Star Bank receives an annual
investment advisory fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Fund has undertaken to comply with the expense
limitations established by certain states for investment
companies whose shares are registered for sale in those
states. If the Fund's normal operating expenses
(including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million
of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed
this limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the
amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and
may be amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated
Investors, provides administrative personnel and services to
the Fund for a fee as described in the prospectus.
CUSTODIAN
Star Bank is custodian for the securities and cash of the
Fund. Under the Custodian Agreement, Star Bank holds the
Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. The
custodian receives an annual fee equal to 0.025 of 1% of the
Fund's average daily net assets.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished
directly to the Fund or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in
selecting brokers who offer brokerage and research services to
execute securities transactions. It determines in good faith
that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research
services provided.
Research services provided by brokers and dealers may be used
by the Adviser in advising the Fund and other accounts. To the
extent that receipt of these services may supplant services
for which the Adviser might otherwise have paid, it would tend
to reduce its expenses.
PURCHASING SHARES
Except under certain circumstances described in the
prospectus, shares of the Fund are sold at their net asset
value on days the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Except under the
circumstances described in the prospectus, the minimum initial
investment in the Fund by an investor is $1,000. The minimum
initial investment may be waived from time to time for
employees and retired employees of Star Bank, N.A., and for
members of the families (including parents, grandparents,
siblings, spouses, children, aunts, uncles, and in-laws) of
such employees or retired employees. The procedure for
purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan
pursuant to Rule 12b-1 which was promulgated by the Securities
and Exchange Commission pursuant to the Investment Company Act
of 1940 (the "Plan"). The Plan provides for payment of fees
to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of the Fund's
shares subject to the Plan. Such activities may include the
advertising and marketing of shares of the Fund; preparing,
printing, and distributing prospectuses and sales literature
to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan,
Federated Securities Corp. may pay fees to brokers and others
for such services.
The Trustees expect that the adoption of the Plan will result
in the sale of a sufficient number of shares so as to allow
the Fund to achieve economic viability. It is also
anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objective.
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to,
providing office space, equipment, telephone facilities, and
various personnel, including clerical, supervisory, and
computer, as is necessary or beneficial to establish and
maintain shareholders' accounts and records, process purchase
and redemption transactions, process automatic investments of
client account cash balances, answer routine client inquiries
regarding the Fund, assist clients in changing dividend
options, account designations, and addresses, and providing
such other services as the Fund may reasonably request.
SHAREHOLDER SERVICES PLAN
This arrangement permits the payment of fees to the Fund and,
indirectly, to financial institutions to cause services to to
be provided to shareholders by a representative who has
knowledge of the shareholder's particular circumstances and
goals. These activities and services may include, but are not
limited to, providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and
other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of
client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so
that maximum interest may be earned. To this end, all
payments from shareholders must be in federal funds or be
converted into federal funds. Star Bank acts as the
shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on
which the net asset value is calculated by the Fund are
described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are
determined as follows:
o for equity securities, according to the last sale price on a
national securities exchange, if applicable;
o in the absence of recorded sales for listed equity
securities, according to the mean between the last closing
bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined
by an independent pricing service;
o for short-term obligations, according to the mean between
bid and asked prices as furnished by an independent pricing
service, or for short-term obligations with remaining
maturities of 60 days or less at the time of purchase, at
amortized cost; or
o for all other securities, at fair value as determined in
good faith by the Trustees.
Prices provided by independent pricing services may be
determined without relying exclusively on quoted prices and
may reflect: institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value options at their market values established
by the exchanges at the close of options trading on such
exchanges unless the Trustees determine in good faith that
another method of valuing option positions is necessary.
Over-the-counter put options will be valued at the mean
between the bid and the asked prices. Covered call options
will be valued at the last sale price on the national exchange
on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which
vary from the closing of the New York Stock Exchange. In
computing the net asset value, the Fund values foreign
securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange
rates may also be determined at the latest rate prior to the
closing of the New York Stock Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars
at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which
they are determined and the closing of the New York Stock
Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their
fair value as determined in good faith by the Trustees,
although the actual calculation may be done by others.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares
having a net asset value of at least $1,000. Before the
exchange, the shareholder must receive a prospectus of the
fund for which the exchange is being made.
This privilege is available to shareholders resident in any
state in which the fund shares being acquired may be sold.
Upon receipt of proper instructions and required supporting
documents, shares submitted for exchange are redeemed and the
proceeds invested in shares of the other fund. Further
information on the exchange privilege and prospectuses may be
obtained by calling Star Bank at the number on the cover of
this Statement.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written
instructions may require a signature guarantee.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value
after Star Bank receives the redemption request. Shareholder
redemptions may be subject to a contingent deferred sales
charge. 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.
Redemption procedures are explained in the prospectus under
"Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it
reserves the right under certain circumstances to pay the
redemption price in whole or in part by a distribution of
securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in
kind will be made in readily marketable securities to the
extent that such securities are available. If this state's
policy changes, the Fund reserves the right to redeem in kind
by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such
securities at the same value employed in determining net asset
value and selecting the securities in a manner the Trustees
determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940 under which the Trust is
obligated to redeem shares for any one shareholder in cash
only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If
redemption is made in kind, shareholders receiving their
securities and selling them before their maturity could
receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to
meet the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net
income earned during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the
Fund may invest may be subject to foreign withholding or other
taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends
and capital gains received as cash or additional shares. The
dividends received deduction for corporations will apply to
ordinary income distributions to the extent the distribution
represents amounts that would qualify for the dividends
received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so
qualifying. These dividends and any short-term capital gains
are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates
on long-term capital gains distributed to them regardless
of how long they have held Fund shares.
TOTAL RETURN
The average annual total return for the Fund is the average
compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the
period by the maximum offering price per share at the end of
the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period
by any additional shares, assuming the monthly reinvestment of
all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the
investment based on the lesser of the original purchase price
or the offering price of shares redeemed.
YIELD
The yield for the Fund is determined 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 value is then annualized
using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain
adjustments required by the Securities and Exchange Commission
and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in
conjunction with an investment in the Fund, the performance
will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of the Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely
because net earnings and the maximum offering price per share
fluctuate daily. Both net earnings and offering price per
share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to
obtain a more complete view of the Fund's performance. When
comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing
market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute
offering price. The financial publications and/or indices
which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various
fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all
income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in
the "growth" category in advertising and sale literature.
o Standard & Poor's Daily Stock Price Index of 500 Common
Stocks, a composite index of common stocks in industry,
transportation, and financial and public utility companies,
can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's Index assumes reinvestments
of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's
figures.
Advertisements and other sales literature for the Fund may
quote total returns which are calculated on non-standardized
base periods. These total returns also represent the historic
change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does
not reflect the effect of the contingent deferred sales
charge.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.
A--Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that
there is insufficient information on which to base a rating,
or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds
and, therefore, impair timely payment.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very
strong. The issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this
designation is strong. However, the relative degree of safety
is not as high as for issues designated A-1.
MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting
institutions) have a superior capacity for repayment of short-
term promissory obligations. PRIME-1 repayment capacity will
normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance
on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (for related supporting
institutions) have a strong capacity for repayment of short-
term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound,
will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned to this
rating reflect an assurance of timely payment only slightly
less in degree than issues rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have
a satisfactory degree of assurance for timely payment but the
margin of safety is not as great as the F-1+ and F-1
categories.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 15, 1994
STAR GROWTH EQUITY FUND
(A PORTFOLIO OF THE STAR FUNDS)
PROSPECTUS
The shares offered by this prospectus represent interests in Star Growth Equity
Fund (the "Fund"), a diversified investment portfolio of 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
growth-oriented 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
November , 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 November , 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 3
Domestic Equity Securities 3
Real Estate Investment Trusts 3
Domestic Debt Securities 3
International Securities 4
Money Market Instruments 4
Convertible Securities 4
Zero Coupon Securities 5
U.S. Government Securities 5
Repurchase Agreements 5
When-Issued and Delayed Delivery
Transactions 6
Investing in Securities of Other
Investment Companies 6
Lending of Portfolio Securities 6
Restricted and Illiquid Securities 6
Foreign Securities Risks 6
Foreign Companies 7
Options Transactions 7
Futures and Options on Futures 8
Risks 9
Investment Limitations 9
STAR FUNDS INFORMATION 9
- ------------------------------------------------------
Management of the Trust 9
Board of Trustees 9
Investment Adviser 9
Advisory Fees 9
Adviser's Background 10
Distribution of Fund Shares 10
Distribution Plan 10
Administrative Arrangements 11
Administration of the Fund 11
Administrative Services 11
Shareholder Services Plan 12
Custodian 12
Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services 12
Legal Counsel 12
Independent Public Accountants 12
Brokerage Transactions 12
Expenses of the Fund 12
NET ASSET VALUE 13
- ------------------------------------------------------
INVESTING IN THE FUND 13
- ------------------------------------------------------
Minimum Investment Required 13
What Shares Cost 13
Share Purchases 13
Through Star Bank 13
By Mail 14
Exchanging Securities for Fund Shares 14
Certificates and Confirmations 14
Dividends and Capital Gains 15
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
Star Funds 15
Exchanging Shares 15
Exchange-by-Telephone 16
REDEEMING SHARES 16
- ------------------------------------------------------
By Telephone 16
By Mail 16
Signatures 17
Contingent Deferred Sales Charge 17
Elimination of Contingent Deferred Sales
Charge 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)............................................. 5.00%
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 Fee.......................................................................................... 0.75%
12b-1 Fees (2).......................................................................................... 0.00%
Total Other Expenses.................................................................................... 0.40%
Shareholder Services Fees (3)........................................................... 0.00%
Total Operating Expenses (4).................................................................. 1.15%
</TABLE>
(1) The contingent deferred sales charge is 5.00% in the first year, declining
to 1.00% in the fifth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge.")
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.25% as a 12b-1 fee to the distributor. Trust
and investment agency clients of Star Bank or its affiliates will not be
affected by the Plan because the Plan will not be activated unless and until
a second "Trust" class of shares of the Fund (which would not have a Rule
12b-1 Plan) is created and trust and investment agency clients' investments
in the Fund are converted to such Trust class.
(3) The maximum shareholder services fee is 0.25%. There is no present intention
to charge a shareholder services fee.
(4) The Total Operating Expenses are estimated to be 1.40%, including the
payment of the shareholder services fee, had this plan been in effect, but
does not include the maximum 12b-1 fee as described in note 2 above.
* Expenses in this table are estimated based on average expenses expected to
be incurred during the fiscal year ending November 30, 1995. During 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 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....................... $64 $70
You would pay the following expenses on the same investment assuming no redemption........... $12 $37
</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 UPON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1995.
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 the portfolio of
the Trust known as Star Growth Equity 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
growth-oriented 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.
In general, shares of the Fund are sold at net asset value and are redeemed at
net asset value. However, a contingent deferred sales charge is imposed on Fund
shares, other than Fund shares purchased through reinvestment of dividends,
which are redeemed within five years of their purchase date. For a more complete
description, see "Redeeming Shares."
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
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 growth-oriented
equity securities. The Fund defines growth-oriented equity securities as
securities of U.S. companies with market capitalizations of $1.5 billion or
greater that are projected by the Fund's investment adviser, based upon
traditional research techniques, to show earnings growth potential superior to
the Standard & Poor's 500 Composite Stock Index. 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. The data considered by the
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 (the "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 may invest may include
the following:
DOMESTIC EQUITY SECURITIES. The domestic equity securities in the Fund will
usually consist of U.S. common and preferred stocks of companies with
market capitalizations of $1.5 billion or greater 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.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in equity or
mortgage-real estate investment trusts integrated to capture income. A real
estate investment trust is a managed portfolio of real estate investments.
Real estate investment trust holdings will be diversified by sector
(shopping malls, apartment building complexes, and health care facilities)
and geographic location. An equity real estate investment trust holds
equity positions in real estate, and it seeks to provide its shareholders
with income from the leasing of its properties and with capital gains from
any sales of properties. A mortgage real estate investment trust
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
RISKS. Risks associated with real estate investments include the fact
that equity and mortgage real estate investment trusts are dependent
upon management skill, are not diversified, and are, therefore, subject
to the risk of financing single projects or a limited number of
projects. They are also subject to heavy cash flow dependency, defaults
by borrowers, and self-liquidation.
Additionally, equity real estate investment trusts may be affected by
any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by
the quality of any credit extended. The investment adviser seeks to
mitigate these risks by selecting real estate investment trusts
diversified by sector (shopping malls, apartment building complexes,
and health care facilities) and geographic location.
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 and
Poor's Ratings Group ("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 investment 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 U.S. dollars or 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, if unrated, deemed by the Fund's 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 investment 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 the international equity and debt
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 acceptable 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;
.subject to limitations described in this prospectus, securities of other
investment companies; and
.other short-term instruments which are not rated, but are determined by
the Fund's 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.
In addition, 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 to 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. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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. Pursuant to a fundamental policy, 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 where the Fund 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 will purchase options only to the extent permitted by the policies of
state securities authorities in states where shares of the Fund are qualified
for offer and sale. The Fund will write put options only on securities which the
Fund wishes to have in its portfolio and where the Fund has determined, as an
investment consideration, that it is willing to pay the exercise price 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 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 difference 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 futures 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
- --------------------------------------------------------------------------------
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 0.75 of 1% of the Fund's average daily net assets. 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 its 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 managed 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.
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 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 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% of average net assets of the Fund. Any fees paid for these services
by the distributor will be reimbursed by the Adviser. Payments made pursuant to
these arrangements are in addition to any payments made under the Fund's Rule
12b-1 Distribution Plan or the Fund's Shareholder Services 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 choose to 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, L.L.P.,
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. There is no sales charge imposed by the Fund at the time of purchase.
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.
Under certain circumstances, as described under "Redeeming Shares," shareholders
may be charged a contingent deferred sales charge by the distributor at the time
Fund shares are redeemed.
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 by calling 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 Growth Equity 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 Capital Appreciation Fund, Star Prime
Obligations Fund, Star Treasury Fund, Star Relative Value Fund, Star Strategic
Income 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 certain 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 any fund
in the Star Funds which imposes a contingent deferred sales charge. Shareholders
who exercise this exchange privilege must exchange Fund 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.
A contingent deferred sales charge is not assessed in connection with an
exchange of Fund shares for shares of Star Funds that impose contingent deferred
sales charges. However, if the shareholder redeems shares within five years of
the original purchase, a contingent deferred sales charge will be imposed. For
purposes of computing the contingent deferred sales charge, the length of time
the shareholder has owned shares will be measured from the date of original
purchase and will not be affected by the exchange.
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, less any applicable contingent
deferred sales charge, next determined after Star Bank receives the redemption
request. (See "Contingent Deferred Sales Charge.") 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.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from the Fund within five full years of the
purchase date will be charged a contingent deferred sales charge by the Fund's
distributor. Any applicable contingent deferred sales charge will be imposed on
the lesser of the net asset value of the redeemed shares at the time of the
purchase or the net asset value of the redeemed shares at the time of redemption
in accordance with to the following schedule:
<TABLE>
<S> <C>
YEAR OF REDEMPTION
AFTER PURCHASE CONTINGENT DEFERRED SALES CHARGE
Year 1 5.00%
Year 2 4.00%
Year 3 3.00%
Year 4 2.00%
Year 5 1.00%
Year 6 0.00%
</TABLE>
The contingent deferred sales charge will not be charged with respect to: (1)
shares acquired through the reinvestment of dividends or distributions of
short-term or long-term capital gains; and (2) shares held for more than five
full years from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of contingent deferred
sales charge, redemptions are
deemed to have occurred in the following order: (1) shares of the Fund acquired
through the reinvestment of dividends and long-term capital gains; (2) shares of
the Fund held for more than five full years from the date of purchase; and (3)
shares of the Fund held for fewer than five full years on a first-in, first-out
basis. A contingent deferred sales charge is not assessed in connection with an
exchange of shares of the Fund for shares of certain other Star Funds that are
also subject to contingent deferred sales charges as described in this
prospectus under the section entitled "Exchanging Shares." Moreover, the
contingent deferred sales charge will be eliminated with respect to certain
redemptions. (See "Elimination of Contingent Deferred Sales Charge.")
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions:
(1) redemptions following the death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, as amended, of a shareholder; (2)
redemptions representing minimum required distributions from an Individual
Retirement Account or other retirement plan to a shareholder who has attained
the age of 70-1/2; and (3) involuntary redemptions by the Fund of shares in
shareholder accounts that do not comply with the minimum balance requirements.
The exemption from the contingent deferred sales charge for Individual
Retirement Accounts or other retirement plans does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Shares of the Fund purchased by the following entities are not subject to the
contingent deferred sales charge, to the extent that no payment was advanced for
purchases made by such entities: (a) private banking or Star Bank Connections
Group banking customers of StarBanc Corporation and its subsidiaries; (b)
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 any correspondent
bank of Star Bank and members of their families (including parents,
grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such
employees or retired employees; (c) trust customers of StarBanc Corporation and
its subsidiaries and correspondent banks of Star Bank when investing non-trust
assets; (d) certain non-trust customers of correspondent banks of Star Bank; and
(e) non-trust customers of financial advisers.
The Fund reserves the right to discontinue elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
shares of the Fund purchased prior to the termination of such waiver would have
the contingent deferred sales charge eliminated as provided in the Fund's
prospectus at the time of purchase of Fund shares. If a shareholder making a
redemption qualifies for an elimination of the contingent deferred sales charge,
the shareholder must notify Federated Securities Corp. or the transfer agent in
writing that the shareholder is entitled to such elimination.
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 non-recurring
charges, such as the contingent deferred sales charge, which, if excluded, would
increase the total return and yield.
From time to time the Fund may advertise its performance using certain financial
publications and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Star Growth Equity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- ---------------------------------------------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
STAR GROWTH
EQUITY FUND
PROSPECTUS
November , 1994
[logo] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
G00522-01 (9/94)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 15, 1994
STAR GROWTH EQUITY FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Star Growth Equity Fund (the "Fund") dated November ,
1994. This Statement is not a prospectus itself. To receive a copy of
the prospectus, write to the Fund or call 1-800-677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated November , 1994
- --------------------------------------------------------------------------------
STAR BANK, N.A.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
Distributor
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Convertible Securities 1
Warrants 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 2
"Margin" in Futures Transactions 3
Put Options on Financial Futures Contracts 3
Call Options on Financial Futures Contracts 3
Stock Index Options 4
Over-the-Counter Options 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
INVESTMENT LIMITATIONS 4
- ---------------------------------------------------------------
TRUST MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
The Funds 9
Fund Ownership 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
CUSTODIAN 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PURCHASING SHARES 11
- ---------------------------------------------------------------
Distribution Plan 11
Administrative Arrangements 11
Shareholder Services Plan 11
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
Determining Market Value of Securities 11
Trading in Foreign Securities 12
EXCHANGE PRIVILEGE 12
- ---------------------------------------------------------------
Requirements for Exchange 12
Making an Exchange 12
REDEEMING SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 13
- ---------------------------------------------------------------
The Fund's Tax Status 13
Foreign Taxes 13
Shareholders' Tax Status 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 14
- ---------------------------------------------------------------
APPENDIX 15
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio of Star Funds (the "Trust"). The Trust 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. On May 1, 1993, the Board of Trustees (the "Trustees") approved
changing the name of the Trust, effective May 1, 1993, from Losantiville Funds
to Star Funds.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to maximize capital appreciation. The
investment objective cannot be changed without the approval of shareholders.
Unless indicated otherwise, the policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock. The Fund will not invest more than 5% of the value of its
total assets in warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges. Warrants required in
units or attached to securities may be deemed to be without value for purposes
of this policy.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. 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. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for
certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:
.the frequency of trades and quotes for the security;
.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
.dealer undertakings to make a market in the security; and
.the nature of the security and the nature of the marketplace trades.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and put options on financial futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income. The Fund will
maintain its positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against changes in prices. The Fund will not engage in futures
transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" (agree to purchase
securities in the future at a predetermined price) to hedge against a decline
in market interest rates.
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.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed and
over-the-counter call options on financial futures contracts to hedge its
portfolio against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation of assuming
a short futures position (selling a futures contract) at the fixed strike price
at any time during the life of the option if the option is exercised. As stock
prices fall or market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national securities
exchanges or traded in the over-the-counter market. A stock index fluctuates
with changes in the market values of the stocks included in the index.
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
ability of the Fund's adviser to predict correctly movements in the directions
of the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements pursuant to a
fundamental policy. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its annual rate of portfolio turnover exceeding 75%.
INVESTMENT LIMITATIONS
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SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the
amount borrowed; and except to the extent that the Fund may enter into
futures contracts. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
Fund by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the pledge. For purposes of this
limitation, the following will not be deemed to be pledges of the Fund's
assets: (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on
a when-issued basis; and (b) collateral arrangements with respect to (i)
the purchase and sale of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts. Margin deposits
for the purchase and sale of futures contracts and related options are
not deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than
5% of the value of its total assets would be invested in the securities
of that issuer, or if it would own more than 10% of the outstanding
voting securities of any one issuer.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving financial futures contracts or options on
financial futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government,
its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no 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 purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition of
assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants may be warrants which are
not listed on the New York Stock Exchange or the American Stock Exchange.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (a) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (b) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, (c) will limit the margin deposits on futures contracts entered into by
the Fund to 5% of its net assets, and (d) will limit
investment in warrants to 5% of its net assets. No more than 2% of the Fund's
net assets will be in warrants which are not listed on the New York or American
Stock Exchanges. (If state requirements change, these restrictions may be
revised without shareholder notification.)
TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, present positions with
the Trust, and principal occupations.
- --------------------------------------------------------------------------------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, tna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
- --------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park Restaurants,
Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
- --------------------------------------------------------------------------------
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
- --------------------------------------------------------------------------------
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
- --------------------------------------------------------------------------------
*This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
+Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; The Medalist Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is Star Bank, N.A. ("Star Bank" or "Adviser").
Star Bank is a wholly-owned subsidiary of StarBanc Corporation. Because of
internal controls maintained by Star Bank to restrict the flow of non-public
information, Fund investments are typically made without any knowledge of Star
Bank's or its affiliates' lending relationships with an issuer.
Star Bank shall not be liable to the Trust, the Fund, or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Star Bank receives an annual investment advisory fee
as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Fund has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
BROKERAGE TRANSACTIONS
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The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
.advice as to the advisability of investing in securities;
.security analysis and reports;
.economic studies;
.industry studies;
.receipt of quotations for portfolio evaluations; and
.similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. It
determines in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, shares of the
Fund are sold at their net asset value, on days the New York Stock Exchange and
the Federal Reserve Wire System are open for business. Except under the
circumstances described in the prospectus, the minimum initial investment in the
Fund by an investor is $1,000. The minimum initial investment may be waived from
time to time for employees and retired employees of Star Bank, N.A., and for
members of the families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees.
The procedure for purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 (the "Plan"). The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is principally
intended to result in the sale of the Fund's shares subject to the Plan. Such
activities may include the advertising and marketing of shares of the Fund;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay
fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
SHAREHOLDER SERVICES PLAN
This arrangement permits the payment of fees to the Fund and, indirectly, to
financial institutions to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Star Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
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The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
.for equity securities, according to the last sale price on a national
securities exchange, if applicable;
.in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
.for unlisted equity securities, latest bid prices;
.for bonds and other fixed income securities, as determined by an independent
pricing service;
.for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost; or
.for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling Star Bank at the
number on the cover of this Statement.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after Star Bank
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. 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. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If this state's policy changes, the Fund reserves the right to redeem
in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
.derive less than 30% of its gross income from the sale of securities held less
than three months;
.invest in securities within certain statutory limits; and
.distribute to its shareholders at least 90% of its net income earned during the
year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
TOTAL RETURN
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The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, adjusted over the period by any
additional shares, assuming the quarterly reinvestment of all dividends and
distributions. Any applicable contingent deferred sales charge is deducted from
the ending value of the investment based on the lesser of the original purchase
price or the offering price of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined 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 value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund's expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
.LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "growth"
category in advertising and sale literature.
.STANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON STOCKS are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare the total returns of
funds whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's indices assume reinvestments of all dividends paid by
stocks listed on its indices. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in Standard & Poor's
figures.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the contingent deferred sales charge.
APPENDIX
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STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
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STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as the F-1+ and F-1 categories.
G00522-01 (9/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A for 1-6; to
be filed with 4-6 month update for 7,8, and 9)
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant (15);
(i) Conformed copy of Amendment
No. 1 to Declaration of Trust (2);
(ii) Conformed copy of Amendment
No. 2 to Declaration of Trust (2);
(iii) Conformed copy of Amendment
No. 3 to Declaration of Trust (2);
(iv) Conformed copy of Amendment
No. 4 to Declaration of Trust (4);
(v) Conformed copy of Amendment
No. 5 to Declaration of Trust (12);
(vi) Conformed copy of Amendment
No. 6 to Declaration of Trust (12);
(vii) Conformed copy of Amendment
No. 7 to Declaration of Trust (12);
(viii) Conformed copy of Amendment
No. 8 to Declaration of Trust (15);
(ix) Conformed copy of Amendment
No. 9 to Declaration of Trust (15);
(x) Conformed copy of Amendment
No. 10 to Declaration of Trust (15);
(xi) Conformed copy of Amendment
No. 11 to Declaration of Trust (15);
(xii) Conformed copy of Amendment
No. 12 to Declaration of Trust (18);
(xiii) Conformed copy of Amendment
No. 13 to Declaration of Trust (19);
(xiv) Conformed copy of Amendment
No. 14 to Declaration of Trust;+
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed April 10, 1989. (File Nos. 33-26915 and 811-
5762)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed December 6, 1989. (File Nos. 33-26915 and
811-5762)
12. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 14 to the Registration Statement on
Form N-1A filed January 29, 1992. (File Nos. 33-26915 and
811-5762)
15. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 19 to the Registration Statement on
Form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-
5762)
18. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 22 to the Registration Statement on
Form N-1A filed March 17, 1994. (File Nos. 33-26915 and 811-
5762)
19. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-
5762)
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Not applicable;
(5) Conformed copy of Investment Advisory
Contract between Losantiville Funds and Star
Bank, N.A. (13);
(i) Conformed copy of Exhibit H to
Investment Advisory Contract of the
Registrant to add Star Growth Equity
Fund (now known as Star Capital
Appreciation Fund) to the present
Investment Advisory Contract (19);
(ii) Conformed copy of Exhibit I to
Investment Advisory Contract of the
Registrant to add Star Strategic Income
Fund to the present Investment Advisory
Contract;+
(iii)Form of Exhibit J to Investment
Advisory Contract of the Registrant to
add Star Growth Equity Fund to the
present Investment Advisory Contract;+
(6) (i) Conformed copy of Distributor's
Contract of the Registrant (13);
(ii) Conformed copy of Exhibit F to
Distributor's Contract of the
Registrant (17);
(iii)Conformed copy of Exhibit G to
Distributor's Contract of the
Registrant (19);
(iv) Conformed copy of Exhibit H to
Distributor's Contract of the
Registrant to add Star Growth Equity
Fund (now known as Star Capital
Appreciation Fund) to the present
Distributor's Contract (19);
(v) Conformed copy of Exhibit I to
Distributor's Contract of the
Registrant to add Star Strategic Income
Fund to the present Distributor's
Contract;+
(vi) Form of Exhibit J to Distributor's
Contract of the Registrant to add Star
Growth Equity Fund to the present
Distributor's Contract;+
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the
Registrant (15);
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's
Initial Registration Statement on Form N-1A filed February
3, 1989. (File Nos. 33-26915 and 811-5762)
13. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 16 to the Registration Statement on
Form N-1A filed November 20, 1992. (File Nos. 33-26915 and
811-5762)
15. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 19 to the Registration Statement on
form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-
5762)
17. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and
811-5762)
19. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-
5762)
(9) (i) Conformed copy of Fund
Accounting and Shareholder
Recordkeeping Agreement;+
(ii) Conformed copy of Administrative
Services Agreement (17);
(iii) Conformed copy of Shareholder
Services Plan of the Registrant (19);
(iv) Conformed copy of Exhibit B to
Shareholder Services Plan of the
Registrant to add Star Strategic Income
Fund to the present Shareholder
Services Plan;+
(v) Form of Exhibit C to Shareholder
Services Plan of the Registrant to add
Star Growth Equity Fund to the present
Shareholder Services Plan;+
(vi) Copy of Shareholder Services Agreement
of the Registrant, including Exhibit
A;+
(10) Paper copy of Opinion and Consent of Counsel
as to Legality of Shares being Issued (2);
(11) Opinion and Consent of Special Counsel (9);
(12) Not applicable;
(13) Conformed copy of Initial Capital
Understanding (2);
(14) Not applicable;
(15) (i) Conformed copy of Distribution
Plan (13);
(ii) Copy of Rule 12b-1 Agreement
(7);
(iii) Copy of Amendment No. 2 to
Exhibit A to 12b-1 Agreement (11);
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed April 10, 1989. (File Nos. 33-26915 and 811-
5762)
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 6 to the Registration Statement on
Form N-1A filed December 4, 1990. (File Nos. 33-26915 and
811-5762)
9. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 9 to the Registration Statement on
Form N-1A filed March 12, 1991. (File Nos. 33-26915 and 811-
5762)
11. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 12 to the Registration Statement on
Form N-1A filed August 29, 1991. (File Nos. 33-26915 and
811-5762)
13. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 16 to the Registration Statement on
Form N-1A filed November 20, 1992. (File Nos. 33-26915 and
811-5762)
17. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and
811-5762)
19. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-
5762)
(iv) Copy of Amendment No. 3 to
Exhibit A to 12b-1 Agreement (11);
(v) Copy of Amendment No. 4 to
Exhibit A to 12b-1 Agreement (13);
(vi) Conformed copy of Exhibit E
to the Distribution Plan (17);
(vii) Copy of Amendment No. 5 to
Exhibit A to 12b-1 Agreement (18);
(viii) Conformed copy of Exhibit F
to Distribution Plan of the Registrant
to add Star Growth Equity Fund (now
known as Star Capital Appreciation
Fund) to the present Distribution Plan
(19);
(ix) Conformed copy of Exhibit G to
Distribution Plan of the Registrant to
add Star Strategic Income Fund to the
present Distribution Plan;+
(x) Form of Exhibit H to Distribution Plan
of the Registrant to add Star Growth
Equity Fund to the present
Distribution Plan;+
(xi) Copy of Amendment No. 6 to Exhibit A to
12b-1 Agreement;+
(16) (i) Paper copy of Schedule for
Computation of Fund Performance
Data (11);
(ii) Copy of Schedule for
Computation of Fund Performance Data,
The Stellar Fund (12);
(iii) Copy of Schedule for Computation
of Fund Performance Data, Star
U.S. Government Income Fund (15);
(17) Conformed copy of Power of Attorney
(15);
(18) Not applicable.
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None.
+ All exhibits have been filed electronically.
11. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 12 to the Registration Statement on
Form N-1A filed August 29, 1991. (File Nos. 33-26915 and
811-5762)
12. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 14 to the Registration Statement on
Form N-1A filed January 29, 1992. (File Nos. 33-26915 and
811-5762)
13. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 16 to the Registration Statement on
Form N-1A filed November 20, 1992. (File Nos. 33-26915 and
811-5762)
15. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 19 to the Registration Statement on
Form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-
5762)
17. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and
811-5762)
18. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 22 to the Registration Statement on
Form N-1A filed March 17, 1994. (File Nos. 33-26915 and 811-
5762)
19. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-
5762)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of August 9, 1994__
Shares of beneficial interest
(no par value)
Star Treasury Fund 11
Star Prime Obligations Fund 9
Star Relative Value Fund 344
Star Tax-Free Money Market Fund 6
The Stellar Fund
Investment Shares 3,113
Trust Shares 29
Star U.S. Government Income Fund 419
Star Capital Appreciation Fund 14
Star Strategic Income Fund 0
Star Growth Equity Fund 0
Item 27. Indemnification: (3)
Item 28. Business and Other Connections of Investment Adviser:
(a) Star Bank, N.A. ("Star Bank"), a national
bank, was founded in 1863 and is the largest bank
and trust organization of StarBanc Corporation.
Star Bank had an asset base of $7.6 billion as of
December 31, 1993, and trust assets of
$12.5 billion as of December 31, 1993.
Star Bank has managed commingled funds since 1957.
It currently manages eleven common trust funds and
collective investment funds having a market value
in excess of $303 million.
The officers and directors of the Star Bank any
other business, profession, vocation, or employment
of a substantial nature in which each such officer
and director is or has been engaged during the past
two years, is set forth below. Unless otherwise
noted, the position listed under "Other Business,
Profession, Vocation or Employment" is with Star
Bank.
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A filed July 26, 1989. (File Nos. 33-26915 and 811-
5762)
(b)
Other Substantial
Position with Business,
Profession,
Name the Adviser Vocation or
Employment
Samuel M. Cassidy President and Chief N/A
Executive Officer
Jerry A. Grundhofer Chairman of the Board N/A
Oliver W. Waddell Vice Chairman of the Board N/A
David M. Moffett Executive Vice President N/A
Richard K. Davis Executive Vice President N/A
Joseph A. Campanella Executive
Vice President N/A
Thomas J. Lakin Executive Vice President N/A
Timothy J. Fogarty Senior Vice President N/A
Stephen E. Smith Senior Vice President N/A
F. Kristen Koepcke Vice President and N/A
Secretary
J. R. Bridgeland, Jr. Director Partner,
Taft, Stetinius &
Hollister
L. L. Browning, Jr. Director Emerson Electric Co.
V. B. Buyniski Director United Medical
Resources, Inc.
Samuel M. Cassidy Director President & CEO,
Star Bank, N.A.
Raymond R. Clark Director Cincinnati Bell
Telephone Company
V. Anderson Coombe Director Wm. Powell Company
John C. Dannemiller Director Bearings, Inc.
Jerry A. Grundhofer Director President and CEO,
Star Banc Corp.
J. P. Hayden, Jr. Director The Midland Company
Roger L. Howe Director U.S. Precision Lens,
Inc.
T. J. Klinedinst, Jr. Director Thomas E.
Wood, Inc.
Chares S. Mechem, Jr. Director Ladies
Professional Golf
Association
Other Substantial
Position with Business,
Profession,
Name the Adviser Vocation or
Employment
Daniel J. Meyer Director Cincinnati Milacron,
Inc.
O. M. Owens, M.D., M. Director Christ
Hospital
Thomas E. Petry Director Eagle-Picher
Industries, Inc.
William C. Portman Director Portman Equipment
Company
Oliver W. Waddell Director Star Banc
Corporation
Bradley L. Warnemunde Director Ohio
National Life
Insurance Company
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor
for shares of the Registrant, also acts as
principal underwriter for the following open-end
investment companies: Alexander Hamilton Funds;
American Leaders Fund, Inc.; Annuity Management
Series; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California
Municipal Cash Trust; Cambridge Series Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities,
Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fountain Square Funds;
Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International
Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Mark Twain Funds; Marshall Funds, Inc.; The
Medalist Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust;
The Monitor Funds; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; SouthTrust Vulcan
Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision
Fiduciary Funds, Inc.; Vision Group of Funds, Inc.;
and World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief, Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, and Treasurer,
Treasurer, and
Pittsburgh, PA 15222-3779 Federated
Securities Corp. Trustee
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and
Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary,
Federated
Securities Corp.
John A. Staley, IV Executive Vice President --
Federated Investors Tower and Assistant
Secretary,
Pittsburgh, PA 15222-3779 Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust,
Federated
Pittsburgh, PA 15222-3779 Securities
Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With Registrant
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice
President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With Registrant
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffery Niss Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With Registrant
Eugene B. Reed Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian L. Sullivan Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower
Federated Securities Corp
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Assistant Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Assistant Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
Sharon M. Morgan Assistant Vice President, --
Federated Investors Tower
Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities
Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained
by Section 31(a) of the Investment Company Act of
1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following
locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Star Bank, N.A. 425 Walnut Street
("Adviser") Cincinnati, OH 45202
Star Bank, N.A. 425 Walnut Street
("Custodian") Cincinnati, OH 45202
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with
respect to the removal of Trustees and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
Registrant hereby undertakes to file a post-effective
amendment on behalf of Star Capital Appreciation Fund
using financial statements for Star Capital
Appreciation Fund, which need not be certified, within
four to six months from the effective date of Post-
Effective Amendment No. 23.
Registrant hereby undertakes to file a post-effective
amendment on behalf of Star Strategic Income Fund and
Star Growth Equity Fund using financial statements for
Star Strategic Income Fund and Star Growth Equity Fund,
respectively, which need not be certified, within four
to six months from the effective date of this Post-
Effective Amendment No. 24.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant,
STAR FUNDS, has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 15th day
of September, 1994.
STAR FUNDS
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
September 15, 1994
Pursuant to the requirements of the Securities Act of
1933, this Amendment to its Registration Statement has been
signed below by the following person in the capacity and on
the date indicated:
NAME TITLE
DATE
By: /s/ C. Grant Anderson
C. Grant Anderson Attorney In Fact September 15, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* President, Treasurer, and
Trustee
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 1(xiv) under Form N-1A
Exhibit 3(a) under Item
601/Reg. S-K
STAR FUNDS
(formerly: Losantiville Funds)
Amendment No. 14
DECLARATION OF TRUST
dated January 23, 1989
THIS Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from
the Declaration of Trust and substitute in its place the
following:
"Section 5. Establishment and Designation of Series
or Class. Without limiting the authority of the
Trustees set forth in Article XII, Section 8, inter
alia, to establish and designate any additional
Series or Class or to modify the rights and
preferences of any existing Series or Class, the
Series and Classes of the Trust are established and
designated as:
Star Capital Appreciation Fund
Star Growth Equity Fund
Star Prime Obligations Fund
Star Relative Value Fund
Star Strategic Income Fund
Star Tax-Free Money Market Fund
Star Treasury Fund
Star U.S. Government Income Fund
The Stellar Fund
Investment Shares
Trust Shares"
The undersigned Assistant Secretary of Star Funds hereby
certifies that the above-stated Amendment is a true and correct
Amendment to the Declaration of Trust, as adopted by the Board
of Trustees on the 20th day of May, 1994 and on the 25th day of
August, 1994.
WITNESS the due execution hereof this 26th day of August,
1994.
/s/ C. Grant Anderson
C. Grant Anderson,
Assistant Secretary
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg.
S-K
EXHIBIT I
to the
Investment Advisory Contract
STAR STRATEGIC INCOME FUND
For all services rendered by Adviser hereunder, the
above-named Fund of the Trust shall pay to Adviser and
Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual investment advisory
fee equal to 0.95 of 1% of the average daily net assets of
the Fund.
The portion of the fee based upon the average daily net
assets of the Fund shall be accrued daily at the rate of
1/365th of 0.95 of 1% applied to the daily net assets of the
Fund.
The advisory fee so accrued shall be paid to Adviser
daily.
Witness the due execution hereof this 1st day of June,
1994.
Attest: STAR BANK, N.A.
/s/ Thomas J. Lakin By: /s/ B. Randolph Bateman
Secretary Vice President
Attest: STAR FUNDS
/s/ C. Grant Anderson By: /s/ E. C. Gonzales
Assistant Secretary President
Exhibit 5(iii) under Form N-1A
Exhibit 10 under Item 601/Reg.
S-K
EXHIBIT J
to the
Investment Advisory Contract
STAR GROWTH EQUITY FUND
For all services rendered by Adviser hereunder, the
above-named Fund of the Trust shall pay to Adviser and
Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual investment advisory
fee equal to 0.75 of 1% of the average daily net assets of
the Fund.
The portion of the fee based upon the average daily net
assets of the Fund shall be accrued daily at the rate of
1/365th of 0.75 of 1% applied to the daily net assets of the
Fund.
The advisory fee so accrued shall be paid to Adviser
daily.
Witness the due execution hereof this 1st day of
September, 1994.
Attest: STAR BANK, N.A.
By:
Secretary Vice President
Attest: STAR FUNDS
By:
Assistant Secretary President
Exhibit 6(v) under Form N-1A
Exhibit 6 under Item 601/Reg. S-K
Exhibit I
to the
Distributor's Contract
Star Funds
Star Strategic Income Fund
The following provisions are hereby incorporated and made
part of the Distributor's Contract dated the 15th day of
November, 1990, between Star Funds and Federated Securities Corp.
with respect to Classes of the Funds set forth above.
1. The Trust hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-
listed Classes ("Shares"). Pursuant to this appointment, FSC is
authorized to select a group of brokers ("Brokers") to sell
Shares at the current offering price thereof as described and set
forth in the respective prospectuses of the Trust, and to render
administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group
of administrators ("Administrators") to render administrative
support services to the Trust and its shareholders.
2. Administrative support services may include, but are
not limited to, the following functions: 1) account openings:
the Broker or Administrator communicates account openings via
computer terminals located on the Broker's or Administrator's
premises; 2) account closings: the Broker or Administrator
communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through
the Broker's or Administrator's own personal computer or through
the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to
provide accounting support for all transactions. Broker or
Administrator also wires funds and receives funds for Trust share
purchases and redemptions, confirms and reconciles all
transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest
posting: Broker or Administrator posts and reinvests dividends
to the Trust's accounts; 7) prospectus and shareholder reports:
Broker or Administrator maintains and distributes current copies
of prospectuses and shareholder reports; 8) advertisements: the
Broker or Administrator continuously advertises the availability
of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers;
10) design services: the Broker or Administrator continuously
designs material to send to customers and develops methods of
making such materials accessible to customers; and
11) consultation services: the Broker or Administrator
continuously provides information about the product needs of
customers.
3. During the term of this Agreement, the Trust will pay
FSC for services pursuant to this Agreement, a monthly fee
computed at the annual rate of 0.25 of the average aggregate net
asset value of the shares of the Star Strategic Income Fund held
during the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the
Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as
it deems appropriate reduce its compensation to the extent any
Classes' expenses exceed such lower expense limitation as FSC
may, by notice to the Trust, voluntarily declare to be effective.
5. FSC will enter into separate written agreements
with various firms to provide certain of the services set forth
in Paragraph 1 herein. FSC, in its sole discretion, may pay
Brokers and Administrators a periodic fee in respect of Shares
owned from time to time by their clients or customers. The
schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
6. FSC will prepare reports to the Board of Trustees
of the Trust on a quarterly basis showing amounts expended
hereunder including amounts paid to Brokers and Administrators
and the purpose for such payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated November 15, 1990 between Star Funds
and Federated Securities Corp., Star Funds executes and delivers
this Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 1st day of June, 1994.
ATTEST: STAR FUNDS
/s/ John W. McGonigle By: /s/ E. C. Gonzales
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/S/ S. Elliott Cohan By: /s/ John A. Staley
Secretary Executive Vice
President
(SEAL)
Exhibit 6(vi) under Form N-1A
Exhibit 6 under Item 601/Reg. S-K
Exhibit J
to the
Distributor's Contract
Star Funds
Star Growth Equity Fund
The following provisions are hereby incorporated and made
part of the Distributor's Contract dated the 15th day of
November, 1990, between Star Funds and Federated Securities Corp.
with respect to Classes of the Funds set forth above.
1. The Trust hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-
listed Classes ("Shares"). Pursuant to this appointment, FSC is
authorized to select a group of brokers ("Brokers") to sell
Shares at the current offering price thereof as described and set
forth in the respective prospectuses of the Trust, and to render
administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group
of administrators ("Administrators") to render administrative
support services to the Trust and its shareholders.
2. Administrative support services may include, but are
not limited to, the following functions: 1) account openings:
the Broker or Administrator communicates account openings via
computer terminals located on the Broker's or Administrator's
premises; 2) account closings: the Broker or Administrator
communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through
the Broker's or Administrator's own personal computer or through
the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to
provide accounting support for all transactions. Broker or
Administrator also wires funds and receives funds for Trust share
purchases and redemptions, confirms and reconciles all
transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest
posting: Broker or Administrator posts and reinvests dividends
to the Trust's accounts; 7) prospectus and shareholder reports:
Broker or Administrator maintains and distributes current copies
of prospectuses and shareholder reports; 8) advertisements: the
Broker or Administrator continuously advertises the availability
of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers;
10) design services: the Broker or Administrator continuously
designs material to send to customers and develops methods of
making such materials accessible to customers; and
11) consultation services: the Broker or Administrator
continuously provides information about the product needs of
customers.
3. During the term of this Agreement, the Trust will pay
FSC for services pursuant to this Agreement, a monthly fee
computed at the annual rate of 0.25% of the average aggregate net
asset value of the shares of the Star Growth Equity Fund held
during the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the
Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as
it deems appropriate reduce its compensation to the extent any
Classes' expenses exceed such lower expense limitation as FSC
may, by notice to the Trust, voluntarily declare to be effective.
5. FSC will enter into separate written agreements
with various firms to provide certain of the services set forth
in Paragraph 1 herein. FSC, in its sole discretion, may pay
Brokers and Administrators a periodic fee in respect of Shares
owned from time to time by their clients or customers. The
schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
6. FSC will prepare reports to the Board of Trustees
of the Trust on a quarterly basis showing amounts expended
hereunder including amounts paid to Brokers and Administrators
and the purpose for such payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated November 15, 1990 between Star Funds
and Federated Securities Corp., Star Funds executes and delivers
this Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 1st day of September,
1994.
ATTEST: STAR FUNDS
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice
President
(SEAL)
FSCO Services Providers Contract11 Page 1 July 22, 1994
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund" and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the
Company is willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer
agent, dividend disbursing agent, and agent in connection with certain
other activities, and the Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks and the Company desires to accept such
appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds and determine the net asset value per
share of each Fund and/or Class, at the time and in the manner from
time to time determined by the Board and as set forth in the
Prospectus and Statement of Additional Information ("Prospectus")
of each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
E. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to surrender
promptly to the Trust such records upon the Trust's request;
F. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other applicable
laws and regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees set forth on Fee Schedules A ("A1, A2, A3 etc..."), annexed
hereto and incorporated herein, as may be added or amended from
time to time. Such fees do not include out-of-pocket disbursements
of the Company for which the Funds shall reimburse the Company upon
receipt of a separate invoice. Out-of-pocket disbursements shall
include, but shall not be limited to, the items specified in
Schedules B ("B1, B2, B3, etc..."), annexed hereto and incorporated
herein, as may be added or amended from time to time. Schedules B
may be modified by the Company upon not less than thirty days'
prior written notice to the Trust.
B. The Fund and/or the Class, and not the Company, shall bear the cost
of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes
and fees payable to federal, state and other governmental agencies;
fees of Trustees or Directors of the Trust; independent auditors
expenses; Federated Administrative Services and/or Federated
Administrative Services, Inc. legal and audit department expenses
billed to Federated Services Company for work performed related to
the Trust, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly
payable by the Funds and/or classes.
C. The Company will send an invoice to each of the Funds as soon as
practicable after the end of each month. Each invoice will provide
detailed information about the compensation and out-of-pocket
expenses in accordance with Schedules A and Schedules B. The Funds
and or the Classes will pay to the Company the amount of such
invoice within 30 days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedules A revised Schedules dated and signed
by a duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall be
computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they may
be officers and employees who are employed by both the Company and
the Funds. The compensation of such person or persons shall be
paid by the Company and no obligation shall be incurred on behalf
of the Trust, the Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase
of shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and
hold such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate
to the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile
the amounts so requested and the amounts actually received
with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to
the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company
by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the Company
shall pay or cause to be paid the redemption proceeds in the
manner instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the reason
therefor, and shall effect such redemption at the price
applicable to the date and time of receipt of documents
complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the
Fund on a regular basis or upon reasonable request with the
total number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall
forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and documents
created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in
performance of its services or for its protection. If not so
turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of
creation, during the first two of which such documents will be
in readily accessible form. At the end of the six year
period, such records and documents will either be turned over
to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required to
be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state
income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, agent
in connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program),
including but not limited to: maintaining all
Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes
on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and
filing reports on U.S. Treasury Department Form 1099 and
other appropriate forms required with respect to
dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class sold
in each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized
by the Trust and shall bear the seal of the Trust or facsimile
thereof; and notwithstanding the death, resignation or removal of
any officer of the Trust authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as set out in
Schedules C ("C1, C2, C3 etc..."), attached hereto, as may be added
or amended from time to time. Such fees may be changed from time
to time subject to written agreement between the Trust and the
Company. Pursuant to information in the Fund Prospectus or other
information or instructions from the Fund, the Company may sub-
divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the fees
set forth on Schedule C for each such Class or sub-component the
same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items set out
in Schedules D ("D1, D2, D3 etc..."), attached hereto, as may be
added or amended from time to time. In addition, any other
expenses incurred by the Company at the request or with the consent
of the Trust and/or the Fund, will be reimbursed by the appropriate
Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket
expenses in accordance with Schedules C and Schedules D. The Trust
or the Funds will pay to the Company the amount of such invoice
within 30 days following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of
the other party.
(1) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
(2) The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17A(c)(1)
of the Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS
subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other
provider of services duly registered as a transfer agent under
Section 17A(c)(1) as Company shall select; provided, however,
that the Company shall be as fully responsible to the Trust
for the acts and omissions of any subcontractor as it is for
its own acts and omissions; or
(3) The Company shall upon instruction from the Trust subcontract
for the performance hereof with an Agent selected by the
Trust, other than BFDS or a provider of services selected by
Company, as described in (2) above; provided, however, that
the Company shall in no way be responsible to the Trust for
the acts and omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets
the criteria established in Section 17(f) of the 1940 Act and (ii)
has been approved by the Board as eligible for selection by the
Company as a custodian (the "Eligible Custodian"). The Company
accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
(1) evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of the Trust
as Custodian of the Trust's assets substantially on the terms
set forth as the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
(4) establish procedures to monitor the nature and the quality of
the services provided by the Custodians;
(5) continuously monitor the nature and the quality of services
provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with
respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable it
to fulfill its duties and obligations under Sections 17(f) and
36(b) of the 1940 Act and other duties and obligations
thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the Company
an annual fee as set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket
expenses in occurrence with Schedule E. The Trust and/or Fund will
pay to the Company the amount of such invoice within 30 days
following the receipt of the invoice.
Article 12. Representations.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the
services contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board of
the Trust with a certificate of the Secretary of the Trust as
to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement, and
shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such
forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or appropriate
in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of
each Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Trust's or
The Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any
representation or warranty of the Trust or Fund hereunder or
otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of the
Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information; or
(b) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the Trust
or the Fund.
(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop order
or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to any action or failure or omission to act
by the Company as a result of the Company's willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with respect
to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior
written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be borne
by the Trust or the appropriate Fund. Additionally, the Company
reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 15
shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor
of this Agreement. Any such interpretive or additional provisions
shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any
provision of the Charter. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Trust or
the Company may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of
the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose
any liability on any of them personally, and the obligations of
this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property
of the Fund, or Class, as provided in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Company and signed by an authorized officer
of the Company, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally, and the obligations
of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the property of the
Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to
such successor agent at the office of the Company all properties of
the Trust held by it hereunder. If no such successor agent shall
be appointed, the Company shall at its office upon receipt of
Proper Instructions deliver such properties in accordance with such
instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before the date when such termination shall become effective, then
the Company shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the 1940 Act, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this
Agreement. Thereafter, such bank or trust company shall be the
successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a
result of work stoppage, power or other mechanical failure, natural
disaster, governmental action, communication disruption or other
impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either party
may assign to a successor all of or a substantial portion of its
business, or to a party controlling, controlled by, or under common
control with such party. Nothing in this Article 28 shall prevent
the Company from delegating its responsibilities to another entity
to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void
or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
Star Funds
Exhibit 9(iv) under Form N-1A
Exhibit 10 under Item 601/Reg.
S-K
EXHIBIT B
to the
Shareholder Services Plan
Star Funds
Star Strategic Income Fund
This Plan is adopted by Star Funds with respect to
the Class of Shares of the portfolio of the Trust set forth
above.
In compensation for the services provided pursuant
to this Plan, Providers will be paid a monthly fee computed
at the annual rate of 0.25 of 1% of the average aggregate
net asset value of the Star Strategic Income Fund held
during the month.
Witness the due execution hereof this 1st day of
June, 1994.
Star Funds
By:/s/ E. C. Gonzales
President
Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg.
S-K
EXHIBIT C
to the
Shareholder Services Plan
Star Funds
Star Growth Equity Fund
This Plan is adopted by Star Funds with respect to the
Class of Shares of the portfolio of the Trust set forth
above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of 0.25 of 1% of the average aggregate net
asset value of the Star Growth Equity Fund held during the
month.
Witness the due execution hereof this 1st day of
September, 1994.
Star Funds
By:
President
Exhibit 9(vi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STAR FUNDS
SHAREHOLDER SERVICES AGREEMENT
This Agreement is made between the financial institution executing
this Agreement ("Provider") and Federated Administrative Services
("FAS"), a Delaware business trust, on behalf of certain classes of
shares ("Classes") of the investment companies listed in Exhibit A
hereto (the "Funds"), for which FAS administers Shareholder Services
Plans ("Plans"). In consideration of the mutual covenants hereinafter
contained, and other good and valuable consideration the receipt of
which are hereby acknowledged by each party, it is hereby agreed by
and between the parties hereto as follows:
1. FAS hereby appoints Provider to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance
of accounts of shareholders ("Shareholders") of the Funds
("Services"). Provider agrees to provide certain Services which, in
its sole judgment, are necessary or desirable for its customers who
are Shareholders. Provider further agrees to provide FAS, upon
request, a written description of the Services which Provider is
providing hereunder.
2. The Services to be provided hereunder by Provider may include,
but are not limited to, the following:
(a) communicating account openings through computer terminals
located on the Provider's premises ("Computer Terminals"),
through a toll-free telephone number or otherwise;
(b) communicating account closings via the Computer Terminals,
through a toll-free telephone number or otherwise;
(c) entering purchase transactions through the Computer Terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the Computer
Terminals, through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund share
purchases and redemptions, and confirming and reconciling all
such transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel; and
(h) responding to customers' and potential customers' questions
about the Funds.
The Services listed above are illustrative only. The Provider is not
required to perform each Service and may at any time perform either
more or fewer Services than described above.
3. During the term of this Agreement, the Funds will pay the
Provider fees as set forth in a written schedule delivered to the
Provider pursuant to this Agreement. The fee schedule for Provider
may be changed by FAS sending a new fee schedule to Provider pursuant
to Paragraph 10 of this Agreement. For the payment period in which
this Agreement becomes effective or terminates, there shall be an
appropriate proration of the fee on the basis of the number of days
that this Agreement is in effect during such payment period. To
enable the Funds to comply with an applicable exemptive order,
Provider represents that the fees received pursuant to this Agreement
will be disclosed to its customers, will be authorized by its
customers, and will not result in an excessive fee to Provider.
4. The Provider understands that the Department of Labor views
ERISA self-dealing and conflict of interest rules as prohibiting
fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which
the fiduciary's discretionary ERISA assets are invested. To date, the
Department of Labor has not issued any exemptive order or advisory
opinion that would exempt fiduciaries from this interpretation.
Without specific authorization from the Department of Labor,
fiduciaries should carefully avoid investing discretionary assets in
any fund pursuant to an arrangement where the fiduciary is to be
compensated by the fund for such investment.
5. The Provider agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from
the shareholders of a Fund in opposition to proxies solicited by
management of the Fund, unless a court of competent jurisdiction shall
have determined that the conduct of a majority of the Board of
Trustees of the Fund constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This paragraph 5
will survive the term of this Agreement.
6. This Agreement shall continue in effect with respect to each
Class presently set forth on an exhibit and any subsequent Classes
added pursuant to an exhibit during the initial year of this Agreement
for one year from the date of its execution, and thereafter for
successive periods of one year if the form of this Agreement is
approved at least annually by the Board of the Funds, including a
majority of the members of the Board of the Funds who are not
interested persons of the Funds and have no direct or indirect
financial interest in the operation of the Funds' Plan or in any
related documents to the Plan ("Disinterested Board Members") cast in
person at a meeting called for that purpose. If this Agreement is
adopted with respect to a Class after the first annual aproval by the
Trustees as described above, this Agreement will be effective as to
that Class upon execution of the applicable exhibit and will continue
in effect until the next annual approval of this Agreement by the
Trustees and thereafter for successive periods of one year subject to
approval as described above.
7. Notwithstanding paragraph 6, this Agreement may be terminated
as follows:
(a) at any time, without the payment of any penalty, by the vote of
a majority of the Disinterested Board Members of the Funds or
by a vote of a majority of the outstanding voting securities of
the Funds as defined in the Investment Company Act of 1940, as
amended (the "1940 Act") on not more than sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the 1940 Act ; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
8. The Provider agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of
the Internal Revenue Code of 1986, as amended, and any applicable
Treasury regulations, and to provide the Funds or their designee with
timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the
implementation of any required backup withholding.
9. This Agreement supersedes any prior service agreements with
respect to the subject matter hereof between the parties for the Fund.
10. This Agreement, including the schedules and exhibits hereto,
may be amended by FAS from time to time by the following procedure.
FAS will mail a copy of the amendment to the Provider's address, as
shown below. If the Provider does not object to the amendment within
thirty (30) days after its receipt, the amendment will become part of
the Agreement. The Provider's objection must be in writing and be
received by FAS within such thirty (30) days.
11. The execution and delivery of this Agreement, pursuant to the
Plan, have been authorized by the Trustees of FAS and signed by an
authorized officer of FAS, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees
or shareholders of FAS, but bind only the trust property of FAS as
provided in the Declaration of Trust of FAS.
12. The Provider acknowledges and agrees that FAS has entered into
this Agreement solely in the capacity of agent for the Funds and
administrator of the Plans. The Provider agrees not to claim that FAS
is liable for any responsibilities or amounts due by the Funds
hereunder.
13. This Agreement shall be construed in accordance with the Laws
of the Commonwealth of Pennsylvania.
[Provider]
Address
City State Zip Code
Dated: By:
Authorized Signature
Title
Print Name of Authorized Signer
FEDERATED ADMINISTRATIVE SERVICES
Federated Investors Tower
Pittsburgh, PA 15222-3779
By:
Name:
Title:
EXHIBIT A
Shareholder Services Agreement
Star Funds (the "Funds")
Fund covered by this Agreement:
Star Capital Appreciation Fund
Star Strategic Income Fund
Star Growth Equity Fund
Shareholder Service Fees
1. During the term of this Agreement, the Fund will pay Provider
a fee within ____ days of the end of each calendar quarter. This fee
will be computed at the annual rate of 0.25% of the average net asset
value of shares of the Funds held during the quarter in accounts for
which the Provider provides Services under this Agreement.
2. For the quarterly period in which the Shareholder Services
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of
days that the Agreement is in effect during the quarter.
-1-
Exhibit 15(ix) under Form
N-1A
Exhibit 1 under Item
601/Reg. S-K
EXHIBIT G
to the
Distribution Plan
STAR FUNDS
Star Strategic Income Fund
The Plan is adopted by Star Funds with respect to the Class
of Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this
Plan, FSC will be paid a monthly fee computed at the annual rate
of 0.25 of 1% of the average aggregate net asset value of Star
Strategic Income Fund held during the month.
Witness the due execution hereof this 1st day of June, 1994.
STAR FUNDS
By: /s/ E. C. Gonzales
President
Exhibit 15(x) under Form
N-1A
Exhibit 1 under Item
601/Reg. S-K
EXHIBIT H
to the
Distribution Plan
STAR FUNDS
Star Growth Equity Fund
The Plan is adopted by Star Funds with respect to the Class
of Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this
Plan, FSC will be paid a monthly fee computed at the annual rate
of 0.25 of 1% of the average aggregate net asset value of Star
Growth Equity Fund held during the month.
Witness the due execution hereof this 1st day of September,
1994.
STAR FUNDS
By:
President
Exhibit 15(xi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FEE SCHEDULE FOR RULE 12b-1 AGREEMENT WITH
FEDERATED SECURITIES CORP.
STAR FUNDS
__________________________
Amendment No. 6 to EXHIBIT A
to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay Administrator fees for the following
portfolios (the "Funds") effective as of the dates set forth
below:
Name Date
STAR RELATIVE VALUE FUND December 5, 1990
STAR TAX-FREE MONEY MARKET FUND March 14, 1991
STAR PRIME OBLIGATIONS FUND July 25, 1991
STAR TREASURY FUND July 25, 1991
THE STELLAR FUND - INVESTMENT SHARES April 5, 1994
STAR U.S. GOVERNMENT INCOME FUND November 23, 1992
STAR CAPITAL APPRECIATION FUND May 16, 1994
STAR STRATEGIC INCOME FUND , 1994
STAR GROWTH EQUITY FUND , 1994
Administrative Fees
1. During the term of this Agreement, FSC will pay
Administrator a quarterly fee in respect of each Fund. This fee
will be computed at the annual rate of .25% of the average net
asset value of Shares held during the quarter in accounts for
which the Administrator provides services under this Agreement,
so long as the average net asset value of Shares in each Fund
during the quarter equals or exceeds such minimum amount as FSC
shall from time to time determine and communicate in writing to
the Administrator.
2. For the quarterly period in which the Administrative
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the
quarter.
