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. 30 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 31 ......................... 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)
---------------
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
X 75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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 16, 1996; 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.
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of the Star Funds, which
is comprised of eight portfolios: (1) Star Tax-Free Money Market Fund, (2)
Star Treasury Fund, (3) Star Relative Value Fund, (4) The Stellar Fund (a)
Investment Shares and (b) Trust Shares, (5) Star U.S. Government Income
Fund, (6) Star Capital Appreciation Fund, (7) Star Strategic Income Fund,
(8) Star Growth Equity Fund, and (9) Star Tax-Free Insured Fund, 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.................(1-8) Synopsis; (1-9) Summary of Fund
Expenses.
Item 3. Condensed Financial
Information..............(1-8) Financial Highlights; (1-9)
Performance Information.
Item 4. General Description of
Registrant...............(1-8) Objective and Investment Policies
of Each Fund; (1-2) Common Investment
Techniques of the Funds; (3-8) Portfolio
Investments and Strategies; (3-8)
Additional Risk Considerations; (9)
General Information; (9) Investment
Information; (9) Investment Objective;
(9) Investment Policies; (1-9)
Investment Limitations.
Item 5. Management of the Trust..(1-9) Star Funds Information; (1-9)
Management of the Trust; (1-9)
Distribution of Fund Shares; (1-9)
Administration of the Fund(s);(4)
Expenses of The Stellar Fund; (3,5-8)
Expenses of the Funds; (9) Expenses of
Fund; (3-9) Brokerage Transactions.
Item 6. Capital Stock and Other
Securities...............(1-2) Dividends; (1-2) Capital Gains;
(3-9) Dividends and Capital Gains; (1-9)
Shareholder Information; (1-9) Voting
Rights; (1-9) Effect of Banking Laws;
(1-9) Tax Information; (1-9) Federal
Income Tax.
Item 7. Purchase of Securities
Being Offered............(1-9) Net Asset Value; (1-9) Investing
in the Fund(s); (1-9) Share Purchases;
(1-9) Minimum Investment Required; (1-9)
What Shares Cost; (3-9) Systematic
Investment Plan; (3,4a,5,6,9) Reducing
the Sales Charge; (1-9) Exchanging
Securities for Fund Shares; (1-9)
Certificates and Confirmations; (1-2)
Shareholder Service Organizations; (3-9)
Frequent Investor Program; (1-9)
Exchange Privilege.
Item 8. Redemption or Repurchase.(1-9) Redeeming Shares; (3-9) Systematic
Withdrawal Plan; (7,8) Contingent
Deferred Sales Charge; (7,8) Elimination
of Contingent Deferred Sales Charge;
(1-9) Accounts with Low Balances.
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) Star Funds 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-
8) Administrative Services; (9) Other
Services; (1-8) 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; (1-9)
Redemption in Kind.
Item 20. Tax Status...............(1-9) Tax Status; (1-9) Yield; (1-2)
Effective Yield; (1,9) Tax-Equivalent
Yield; (3-9) Total Return.
Item 21. Underwriters.............(1-8) Administrative Arrangements; (1-
3,4a,5-9) Distribution Plan.
Item 22. Calculation of Performance
Data.....................(1-9) Performance Comparisons.
Item 23. Financial Statements.....(1-8) The Financial Statements for the
fiscal period ended November 30, 1995,
are incorporated herein by reference
from the Funds' Annual Reports dated
November 30, 1995; (9) to be filed by
Amendment.
STAR TAX-FREE INSURED FUND
PROSPECTUS
The shares offered by this prospectus represent interests in the Star
Tax-Free Insured Fund (the "Fund"), which is a non-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 provide current income which is
exempt from federal income tax. The Fund pursues this investment objective
by investing the Fund's assets in municipal securities so that at least 80%
of its annual interest income is exempt from federal income tax. Under
normal circumstances, at least 65% of the Fund's assets will be invested in
obligations which are insured as to timely payment.
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.
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
December , 1996, with the Securities and Exchange Commission (the
---
"SEC"). 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 or a paper copy
of this prospectus, if you have received your prospectus electronically,
free of charge, obtain other information, or make inquiries about the Fund
by writing to the Fund or by calling 1-800-677-FUND.
The Statement of Additional Information, material incorporated by reference
into this document, and other information regarding the Trust is maintained
electronically with the SEC at Internet web site (http://www.sec.gov).
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 December , 1996
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TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Municipal Securities
Characteristics
Participation Interests
Variable Rate Municipal Securities
Industrial Development Bonds
Municipal Leases
When-Issued and Delayed Delivery
Transactions
Investing in Securities of Other
Investment Companies
Put Options on Portfolio Securities
Future Contracts and Options to Buy or
Sell Such Contracts
Leveraging Through Borrowing
Special Risks Associated with Leveraging
Portfolio Turnover
Municipal Bond Insurance
Investment Risks
Non-Diversification
Restricted and Illiquid Securities
Temporary Investments
Investment Limitations
STAR FUNDS INFORMATION
Management of the Trust
Board of Trustees
Advisory Fees
Adviser's Background
Distribution of Fund Shares
Distribution Plan
Additional Distribution
Payments
Administrative Arrangements
Administration of the Fund
Administrative Services
Shareholder Services Plan
Brokerage Transactions
Expenses of the Fund
NET ASSET VALUE
INVESTING IN THE FUND
Minimum Investment Required
What Shares Cost
Purchases at Net Asset Value
Sales Charge Reallowance
Reducing the Sales Charge
Quantity Discounts and Accumulated
Purchases
Letter of Intent
Reinvestment Privilege
Concurrent Purchases
Systematic Investment Plan
Share Purchases
Through Star Bank
By Mail
Frequent Investor Program
Exchanging Securities for Fund Shares
Certificates and Confirmations
Dividends and Capital Gains
EXCHANGE PRIVILEGE
Exchanging Shares
Exchange-by-Telephone
Other Matters Effecting the Exchange
Privilege
REDEEMING SHARES
By Telephone
By Mail
Signatures
Systematic Withdrawal Plan
Accounts with Low Balances
SHAREHOLDER INFORMATION
Voting Rights
EFFECT OF BANKING LAWS
TAX INFORMATION
Federal Income Tax
State and Local Taxes
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
STAR TAX-FREE INSURED FUND
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .................4.50%
Maximum Sales Charge 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) .... None
Redemption Fees (as a percentage of amount
redeemed, if applicable) ................................. None
Exchange Fee................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1........................0.50%
12b-1 Fees(2) .........................................0.00%
Total Other Expenses...................................0.33%
Shareholder Servicing Fees(3) ......................0.05%
Total Fund Operating Expenses (after waiver)(4) ..0.83%
(1) The management fee has been reduced to reflect the voluntary waiver
of a portion of the management fee by the investment adviser. The
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.75%.
(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% of average net assets 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 12b-1 Plan) is created and
trust and investment agency clients' investments in the Fund are
converted to such Trust class.
(3) The Fund can pay up to 0.25% of average net assets as a Shareholder
Servicing Fee. For the foreseeable future, the Fund plans to limit the
Shareholder Servicing Fee to 0.05% of average net assets. The
shareholder service provider can terminate this voluntary waiver at any
time at its sole discretion.
(4) The Total Fund Operating Expenses are projected to be 1.08%, absent
the voluntary waiver described in Note 1.
* Annual Fund Operating Expenses are estimated based on average net assets
expected to be incurred during the fiscal year ending November 30, 1997.
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."
EXAMPLE 1 YEAR 3 YEARS
You would pay the following expenses on
a $1,000 investment assuming (1) 5% annual
return, (2) redemption at the end of each
time period, and (3) payment of the
maximum sales charge $53 $70
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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 Tax-Free
Insured Fund.
The Fund is primarily designed for customers of StarBanc Corporation and
its subsidiaries as a convenient means of accumulating an interest in a
professionally managed portfolio of municipal securities that are covered
by insurance guaranteeing the timely payment of principal and interest.
Insurance will not guarantee the market value of the municipal securities
or the value of shares of the Fund. A minimum initial investment of $1,000
($25 for Star Bank Connections Group Banking customers and Star Bank
employees and members of their immediate families) is required.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal income tax. The investment objective cannot be changed
without approval of the Fund's 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
As a matter of fundamental investment policy, the Fund will normally invest
its assets so that at least 80% of its annual interest income is exempt
from federal income tax. Under normal circumstances, at least 65% of the
value of the Fund's total assets will be invested in municipal securities
that are insured as to timely payment. Interest income of the Fund that is
exempt from federal income taxes retains its tax-free status when
distributed to the Fund's shareholders. Unless stated otherwise, the
investment policies of the Fund may be changed by the Trust's 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 Fund pursues its investment objective by investing primarily in a
portfolio of municipal securities that are covered by insurance
guaranteeing the timely payment of principal and interest. Insurance will
not guarantee the market value of the municipal securities or the value of
shares of the Fund.
MUNICIPAL SECURITIES. Municipal securities are debt obligations issued by
or on behalf of states, territories, and possessions of the United States,
including the District of Columbia, and their political subdivisions,
agencies, and instrumentalities, the interest from which is exempt from
federal income tax. Shareholders who are subject to alternative minimum
tax may be required to include interest from a portion of the municipal
securities owned by the Fund in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations, to the extent that the Fund invests in securities
which generate interest subject to the alternative minimum tax.
Municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also
issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities. Municipal securities include industrial development bonds
issued by or on behalf of public authorities to provide financing aid to
acquire sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds
do not represent a pledge of credit or create any debt of or charge against
the general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
Examples of municipal securities include, but are not limited to:
o tax and revenue anticipation notes ("TRANs") issued to finance
working capital needs in anticipation of receiving taxes or other
revenues;
o bond anticipation notes ("BANs") that are intended to be
refinanced through a later issuance of longer-term bonds;
o municipal commercial paper and other short-term notes;
o variable rate demand notes;
o municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases;
o construction loan notes insured by the Federal Housing
Administration and financed by the Federal or Government National
Mortgage Associations; and
o participation, trust and partnership interests in any of the
foregoing obligations.
CHARACTERISTICS. The municipal securities which the Fund buys are
subject to the following quality standards:
o rated, at the time of purchase, investment grade (within the four
highest rating categories for municipal securities) by a nationally
recognized statistical rating organization ("NRSRO") (such as Baa
or above by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
A or Baa), BBB or above by Standard & Poor's Ratings Group ("S&P")
or Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A or BBB), or
by Duff & Phelps Credit Rating Co. ("D&P"));
o insured by a municipal bond insurance company which is rated in the
top rating category by an NRSRO;
o guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
o fully collateralized by an escrow of U.S. government securities; or
o unrated if determined to be of comparable quality to one of the
foregoing rating categories by the Fund's investment adviser.
Securities rated Baa or BBB by an NRSRO have 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. If any security invested in by the Fund loses its
rating or has its rating reduced after the Fund has purchased it, the Fund
is not required to sell or otherwise dispose of the security, but may
consider doing so. A description of the rating categories of NRSROs is
contained in the Appendix to the Statement of Additional Information.
There are no restrictions on the maturity of municipal securities in which
the Fund may invest. The Fund will seek to invest in municipal securities
of such maturities as the Fund's investment adviser believes will produce
current income consistent with prudent investment. The Fund's investment
adviser will also consider current market conditions and the cost of the
insurance obtainable on such securities.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings associations
and insurance companies. These participation interests would give the Fund
an undivided interest in one or more underlying municipal securities. The
financial institutions from which the Fund purchases participation
interests frequently provide or obtain irrevocable letters of credit or
guarantees to assure that the participation interests are of high quality.
The Trustees will determine that participation interests meet the
prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily stated as a percentage of the prime rate of a bank or
some similar standard, such as the 91-day U.S. Treasury bill rate.
Variable interest rates are adjusted on a periodic basis, e.g., every 30
days. Many variable rate municipal securities are subject to payment of
principal on demand by the Fund, usually in not more than seven days. If a
variable rate municipal security does not have this demand feature, or the
demand feature extends beyond seven days and the Fund's investment adviser
believes the security cannot be sold within seven days, the Fund's
investment adviser may consider the security to be illiquid. However, the
Fund's investment limitations provide that it will not invest more than 15%
of its net assets in illiquid securities. All variable rate municipal
securities will meet the quality standards for the Fund. The Fund's
investment adviser has been instructed by the Trustees to monitor the
pricing, quality and liquidity of the variable rate municipal securities,
including participation interests held by the Fund, on the basis of
published financial information and reports of NRSROs and other analytical
services.
INDUSTRIAL DEVELOPMENT BONDS. Industrial development bonds are generally
issued to provide financing aid to acquire sites or construct and equip
facilities for use by privately or publicly owned entities. Most state and
local governments have the power to permit the issuance of industrial
development bonds to provide financing for such entities in order to
encourage the corporations to locate within their communities. Industrial
development bonds, which are in most cases revenue bonds, do not represent
a pledge of credit or create any debt of a municipality or a public
authority, and no taxes may be levied for the payment of principal or
interest on these bonds. The principal and interest is payable solely out
of monies generated by the entities using or purchasing the sites or
facilities. These bonds will be considered municipal securities eligible
for purchase by the Fund if the interest paid on them, in the opinion of
bond counsel or in the opinion of the officers of the Fund and/or the
Fund's investment adviser, is exempt from federal income tax. The Fund may
invest more than 25% of its total assets in industrial development bonds
(including pollution control revenue bonds) as long as they are not from
the same facility or similar types of facilities or projects.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, a conditional sales contract,
or a participation interest in any of the above. In determining the
liquidity of municipal lease securities, the Fund's investment adviser,
under the authority delegated by the Trustees, will base its determination
on the following factors: (a) whether the lease can be terminated by the
lessee; (b) the potential recovery, if any, from a sale of the leased
property upon termination of the lease; (c) the lessee's general credit
strength (e.g., its debt, administrative, economic and financial
characteristics, and prospects); (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property because the
property is no longer deemed essential to its operations (e.g., the
potential for an "event of nonappropriation"); and (e) any credit
enhancement or legal recourse provided upon an event of nonappropriation or
other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
portfolio 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 or less than the market value of the securities on the
settlement date. The Fund may dispose of a commitment prior to settlement
if the Fund's investment adviser deems it appropriate to do so. In
addition, the Fund may enter into 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 the securities of other investment companies that have investment
objectives and policies similar to its own, but the Fund 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, nor
invest more than 10% of its total assets in investment companies in
general. The Fund's investment adviser will waive its investment advisory
fee on that portion of the Fund's assets invested in securities of open-end
investment companies. These limitations are not applicable if the
securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets.
PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may purchase put options on
municipal securities in an amount up to 5% of its total assets or may
purchase municipal securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
FUTURES CONTRACTS AND OPTIONS TO BUY OR SELL SUCH CONTRACTS. The Fund
reserves the right to enter into interest rate futures contracts and
options to buy or sell such contracts as a hedge without shareholder
action.
LEVERAGE THROUGH BORROWING. The Fund may borrow for investment purposes.
This borrowing, which is known as leveraging, generally will be unsecured,
except to the extent the Fund enters into reverse repurchase agreements (as
described in the Statement of Additional Information). 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.
SPECIAL RISKS ASSOCIATED WITH LEVERAGING. 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.
PORTFOLIO TURNOVER. The Fund trades portfolio securities in order to
achieve its investment objective while anticipating movements of interest
rates. It is free to trade or dispose of portfolio securities as
considered necessary to meet its investment objective. It is not
anticipated that the portfolio trading engaged in by the Fund will result
in its annual rate of turnover exceeding 50%.
MUNICIPAL BOND INSURANCE
The Fund may purchase municipal securities covered by insurance which
guarantees the timely payment of principal at maturity and interest on such
securities. These insured municipal securities are either (1) covered by
an insurance policy applicable to a particular security, whether obtained
by the issuer of the security or by a third party ("Issuer-Obtained
Insurance"), or (2) insured under master insurance policies issued by
municipal bond insurers, which may be purchased by the Fund (the
"Policies").
The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance
when purchasing or holding specific municipal securities when, in the
opinion of the Fund's investment adviser, such insurance would benefit the
Fund, for example, through improvement of portfolio quality or increased
liquidity of certain securities. The Fund's investment adviser anticipates
that at least 65% of the Fund's total assets will be invested in municipal
securities which are insured.
Issuer-Obtained Insurance Policies are noncancellable and continue in force
as long as the municipal securities are outstanding and their respective
insurers remain in business. If a municipal security is covered by Issuer-
Obtained Insurance, then such security need not be insured by the Policies
purchased by the Fund.
The Fund may purchase two types of Policies issued by municipal bond
insurers. One type of Policy covers certain municipal securities only
during the period in which they are in the Fund's portfolio. In the event
that a municipal security covered by such a Policy is sold from the Fund,
the insurer of the relevant Policy will be liable only for those payments
of interest and principal which are then due and owing at the time of sale.
The other type of policy covers municipal securities not only while they
remain in the Fund's portfolio but also until their final maturity even if
they are sold out of the Fund's portfolio, so that the coverage may benefit
all subsequent holders of those municipal securities. The Fund will obtain
insurance which covers municipal securities until final maturity even after
they are sold out of the Fund's portfolio only if, in the judgment of the
Fund's investment adviser, the Fund would receive net proceeds from the
sale of those securities, after deducting the cost of such permanent
insurance and related fees, significantly in excess of the proceeds it
would receive if such municipal securities were sold without insurance.
Payments received from municipal bond insurers may not be tax-exempt income
to shareholders of the Fund.
The premiums for the Policies are paid by the Fund and the yield on the
Fund's portfolio is reduced thereby. Premiums for the Policies are paid by
the Fund monthly, and are adjusted for purchases and sales of municipal
securities during the month. Depending upon the characteristics of the
municipal security held by the Fund, the annual premiums for the Policies
are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate
of approximately 0.175%.
The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC"), Financial Guaranty Insurance Company ("FGIC"),
Financial Security Assurance ("FSA") or any other municipal bond insurer
which is rated in the highest rating category by an NRSRO. A more detailed
description of these insurers may be found in the Statement of Additional
Information. Each Policy will obligate the insurer to provide insurance
payments pursuant to valid claims under the Policy equal to the payment of
principal and interest on those municipal securities it insures. The
Policies will have the same general characteristics and features. A
municipal security will be eligible for coverage if it meets certain
requirements set forth in a Policy. In the event interest or principal on
an insured municipal security is not paid when due, the insurer covering
the security will be obligated under its Policy to make such payment not
later than 30 days after it has been notified by the Fund that such non-
payment has occurred. The insurance feature is intended to reduce
financial risk, but the cost thereof and compliance with the investment
restrictions imposed by the guidelines in the Policies will reduce the
yield to shareholders of the Fund.
MBIA, AMBAC, FGIC, and FSA will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in
the Fund's portfolio, nor may MBIA, AMBAC, FGIC, or FSA cancel their
Policies for any reason except failure to pay premiums when due. MBIA,
AMBAC, FGIC, and FSA will reserve the right at any time upon 90 days'
written notice to the Fund to refuse to insure any additional municipal
securities purchased by the Fund after the effective date of such notice.
The Trustees will reserve the right to terminate any of the Policies if
they determine that the benefits to the Fund of having its portfolio
insured under such Policy are not justified by the expense involved.
Additionally, the Trustees reserve the right to enter into contracts with
insurance carriers other than MBIA, AMBAC, FGIC, or FSA if such carriers
are rated in the highest rating category by an NRSRO.
Under the Policies, municipal bond insurers unconditionally guarantee to
the Fund the timely payment of principal and interest on the insured
municipal securities when and as such payments shall become due but shall
not be paid by the issuer, except that in the event of any acceleration of
the due date of the principal by reason of mandatory or optional redemption
(other than acceleration by reason of mandatory sinking fund payments),
default or otherwise, the payments guaranteed will be made in such amounts
and at such times as payments of principal would have been due had there
not been such acceleration. The municipal bond insurers will be
responsible for such payments less any amounts received by the Fund from
any trustee for the municipal bond holders or from any other source. The
Policies do not guarantee payment on an accelerated basis, the payment of
any redemption premium, the value for the shares of the Fund, or payments
of any tender purchase price upon the tender of the municipal securities.
The Policies also do not insure against nonpayment of principal of or
interest on the securities resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for the
securities. However, with respect to small issue industrial development
municipal bonds and pollution control revenue municipal bonds covered by
the Policies, the municipal bond insurers guarantee the full and complete
payments required to be made by or on behalf of an issuer of such municipal
securities if there occurs any change in the tax-exempt status of interest
on such municipal securities, including principal, interest or premium
payments, if any, as and when required to be made by or on behalf of the
issuer pursuant to the terms of such municipal securities. A "when-issued"
municipal security will be covered under the Policies upon the settlement
date of the original issue of such "when-issued" municipal security. In
determining whether to insure municipal securities held by the Fund, each
municipal bond insurer will apply its own standard, which corresponds
generally to the standards it has established for determining the
insurability of new issues of municipal securities.
If a Policy terminates as to municipal securities sold by the Fund on the
date of sale, in which event municipal bond insurers will be liable only
for those payments of principal and interest that are then due and owing,
the provision for insurance will not enhance the marketability of
securities held by the Fund, whether or not the securities are in default
or subject to significant risk of default, unless the option to obtain
permanent insurance is exercised. On the other hand, since Issuer-Obtained
Insurance will remain in effect as long as the insured municipal securities
are outstanding, such insurance may enhance the marketability of municipal
securities covered thereby, but the exact effect, if any, on marketability
cannot be estimated. The Fund generally intends to retain any securities
that are in default or subject to significant risk of default and to place
a value on the insurance, which ordinarily will be the difference between
the market value of the defaulted security and the market value of similar
securities of minimum high grade (i.e., rated `A'' by an NRSRO) that are
not in default. To the extent that the Fund holds defaulted securities, it
may be limited in its ability to manage its investment and to purchase
other municipal securities. Except as described above with respect to
securities that are in default or subject to significant risk of default,
the Fund will not place any value on the insurance in valuing the municipal
securities that it holds.
INVESTMENT RISKS
The value of the Fund's shares will fluctuate. The amount of this
fluctuation is dependent upon the quality and maturity of the municipal
securities in the Fund's portfolio, as well as on market conditions.
Municipal securities prices are interest rate sensitive, which means that
their value varies inversely with market interest rates. Thus, if market
interest rates have increased from the time a security was purchased, the
security, if sold, might be sold at a price less than its cost. Similarly,
if market interest rates have declined from the time a security was
purchased, the security, if sold, might be sold at a price greater than its
cost. (In either instance, if the security was held to maturity, no loss
or gain normally would be realized as a result of interim market
fluctuations.)
Yields on municipal securities depend on a variety of factors, including:
the general conditions of the money market and the taxable and municipal
securities markets; the size of the particular offering; the maturity of
the obligations; and the credit quality of the issue. The ability of the
Fund to achieve its investment objective also depends on the continuing
ability of the issuers of municipal securities to meet their obligations
for the payment of interest and principal when due.
Further, any adverse economic conditions or developments affecting the
states or municipalities could impact the Fund's portfolio. Investing in
municipal securities which meet the Fund's quality standards may not be
possible if the states and municipalities do not maintain their current
credit ratings.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio.
As such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in the Fund, therefore, will
entail greater risk than would exist in a diversified portfolio of
securities because the higher percentage of investments among fewer issuers
may result in greater fluctuation in the total market value of the Fund's
portfolio. Any economic, political, or regulatory developments affecting
the value of the securities in the Fund's portfolio will have a greater
impact on the total value of the portfolio than would be the case of the
portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code.
This undertaking requires that at the end of each quarter of the taxable
year, with regard to at least 50% of the Fund's total assets, no more than
5% of its total assets are invested in the securities of a single issuer;
beyond that, no more than 25% of its total assets are invested in the
securities of a single issuer.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities laws. Under
criteria established by the Trustees, certain restricted securities are
considered liquid. To the extent that restricted securities or municipal
leases are found not to be liquid, the Fund will limit their purchase,
together with other securities considered not to be liquid, to 15% of its
net assets.
TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of
its annual interest income is exempt from federal income tax. However,
from time to time, on a temporary basis, or when the Fund's investment
adviser determines that market conditions call for a temporary defensive
posture, the Fund may invest up to 100% of its assets in short-term, tax-
exempt or taxable temporary investments. These temporary investments
include, but are not limited to: tax-exempt variable and floating rate
demand notes; temporary municipal securities; obligations issued by or on
behalf of municipal issuers; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; certificates of deposit
issued by banks; shares of other investment companies; and repurchase
agreements (arrangements in which the organization selling the Fund a bond
or temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments, with
the exception of temporary municipal securities, which are subject to the
same rating requirements as all other municipal securities in which the
Fund invests. For other temporary investments, the Fund's investment
adviser will limit temporary investments to those it considers of good
quality.
Although the Fund is permitted to make taxable, temporary investments,
there is no current intention of generating income subject to federal
income tax.
INVESTMENT LIMITATIONS
The Fund will not:
o pledge securities except, under certain circumstances, the Fund may
pledge up to 10% of the value of its total assets to secure
permitted borrowings; or
o invest more than 15% of its net assets in securities subject to
restrictions on resale under federal securities laws.
The above investment limitations cannot be changed without shareholder
approval.
The following limitations can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
The Fund will not:
o invest more than 15% of the value of its net assets in securities
which are not readily marketable or which are otherwise considered
illiquid, including repurchase agreements providing for settlement
in more than seven days after notice, certain restricted securities
not determined by the Trustees to be liquid, and participation
interests and variable rate municipal securities without a demand
feature or with a demand feature of longer than seven days and
which the Fund's investment adviser believes cannot be sold within
seven days; or
o invest more than 5% of its total assets in industrial development
bonds, the principal and interest of which are paid by companies
(or guarantors, where applicable) which have an operating history
of less than three years.
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.
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 is entitled to receive an annual investment
advisory fee equal to 0.75 of 1% of the Fund's average daily net
assets. The investment advisory fee may be higher than the advisory
fees paid by mutual funds in general but is comparable to the fees
paid by many mutual funds with objectives and policies similar to the
Fund's. 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. 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.
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, 1995, Star Bank had an asset base of
$9.6 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 $21.6 billion as of December 31, 1995.
Star Bank has managed commingled funds since 1957. As of December 31,
1995, it managed 9 common trust funds and collective investment funds
having a market value in excess of $279 million. Additionally, Star
Bank has advised the portfolios of the Trust since 1989.
Mary Jo McGeorge is the Municipal Fund Manager for the Capital
Management Division of Star Bank. She oversees all municipal fund
management and credit analysis for the $120 million Personal Trust Tax
Exempt collective investment fund, and also serves as the portfolio
manager of Star Tax-Free Money Market Fund, another portfolio of the
Trust. In addition to the management of these two funds, Ms. McGeorge
is responsible for all tax-exempt fixed income investing within the
Trust Department of Star Bank. Ms. McGeorge joined Star Bank in 1976
and has extensive trading, credit and funds management experience.
Ms. McGeorge has managed the Star Tax-Free Insured Fund since its
inception.
As part of its regular banking operations, Star Bank may make loans to
public companies and other borrowers. 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.
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/or administrative services as agents
for their clients or customers who beneficially own shares. Administrative
services may include, but are not limited to, the following functions:
providing office space, equipment, telephone facilities, and various
personnel (including clerical, supervisory, and computer) 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
regarding the Fund; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests.
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 prohibits a depository institution (such as a
commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from
acting in the administrative 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.
ADDITIONAL DISTRIBUTION PAYMENTS. The distributor will, periodically,
uniformly offer to pay additional amounts in the form of cash or
promotional incentives consisting of trips to sales seminars at luxury
resorts, tickets or other items, to all dealers selling shares of the Fund.
Such payments will be predicated upon the amount of shares of the Fund that
are sold by the dealer. Any such payments will be made from the assets of
the distributor (including any portion of any sales charge returned by the
distributor) and will not result in a charge to the Fund. These payments
will be made directly by the distributor from its assets, and will not be
made from assets of the Fund.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers
to provide distribution and administrative services. The distributor may
also select administrators (including depository institutions such as
commercial banks and savings and loan associations) to provide
administrative services. These administrative services include distributing
prospectuses and other information, providing accounting assistance, and
communicating or facilitating purchases and redemptions of the Fund's
shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares of the Fund owned by their clients or customers. The fees
are calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. The current annual rate of such fees is up
to 0.30 of 1% 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 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:
MAXIMUM
ADMINISTRATIVE FEE AVERAGE AGGREGATE DAILY
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 voluntarily waive a
portion of its fee.
SHAREHOLDER SERVICES PLAN. Under the terms of the Shareholder Services
Agreement with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to
0.25 of 1% of its average daily net assets for the period. The Fund
presently intends to limit the shareholder servicing fee to 0.05% of
average daily net assets.
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 guidelines established 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 the Fund's outstanding shares.
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 families). 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
Fund shares are sold at their net asset value next determined after an
order is received, plus a sales charge, as follows:
Sales Charge as
Percentage of Sales Charge as a
Public Percentage of Net
Amount of Transaction Offering Price Amount Invested
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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.
PURCHASES AT NET ASSET VALUE. The following persons may purchase shares of
the Fund at net asset value, without a sales charge: (a) employees and
retired employees of Star Bank, Federated Securities Corp., or their
affiliates, or any bank or investment dealer who has a sales agreement with
Federated Securities Corp. with regard to the Fund, and members of their
families (including parents, grandparents, siblings, spouses, children, and
in-laws) of such employees or retired employees; (b) trust customers of
StarBanc Corporation and its subsidiaries; and (c) non-trust customers of
financial advisers.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, Star Bank or
any authorized dealer will normally receive up to 89% of the applicable
sales charge. Any portion of the sales charge which is not paid to Star
Bank or a dealer will be retained by the distributor.
The sales charge for shares sold other than through Star Bank or registered
broker/dealers will be retained by the distributor. The distributor may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Fund
shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o using the reinvestment privilege; or
o concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table under
"What Shares Cost," larger purchases reduce the sales charge paid. The
Fund will combine purchases made on the same day by the investor, his
spouse, and his children under age 21 when it calculates the sales charge.
If an additional purchase of Fund shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns shares having a current value at the net asset
value of $90,000 and he purchases $10,000 more at the current net asset
value, the sales charge on the additional purchase according to the
schedule now in effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, Star Bank or the distributor must be
notified by the shareholder in writing at the time the purchase is made
that Fund shares are already owned or that purchases are being combined.
The Fund will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000
of shares in the Fund and other portfolios of the Trust (excluding money
market funds) over the next 13 months, the sales charge may be reduced by
signing a Letter of Intent to that effect. This Letter of Intent includes
a provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Fund's
custodian to hold 4.50% of the total amount intended to be purchased in
escrow (in shares of the Fund) until such purchase is completed. The
shares held in escrow in the shareholder's account will be released at the
fulfillment of the Letter of Intent or at the end of the 13-month period,
whichever comes first. If the amount specified in the Letter of Intent is
not purchased, an appropriate number of escrowed shares may be redeemed in
order to realize the difference in the sales charge.
This Letter of Intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. At
the time a Letter of Intent is established, current balances in accounts of
shares of any other portfolios of the Trust, excluding money market
accounts, will be aggregated to provide a purchase credit towards
fulfillment of the Letter of Intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the
redemption proceeds at the next-determined net asset value without any
sales charge. Star Bank or the distributor must be notified by the
shareholder in writing or by his financial institution of the reinvestment
in order to eliminate a sales charge. If the shareholder redeems his
shares in the Fund, there may be tax consequences. Shareholders
contemplating such transactions should consult their own tax advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent
purchases of two or more funds in the Trust, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently
invested $30,000 in one of the other funds in the Trust with a sales charge
and $70,000 in the Fund, the sales charge imposed on each purchase would be
reduced to the sales charge rate in effect for a $100,000 investment in the
respective fund.
To receive this sales charge reduction, Star Bank or the distributor must
be notified by the shareholder in writing at the time the concurrent
purchases are made. The Fund will reduce the sales charge after it
confirms the purchases.
SYSTEMATIC INVESTMENT PLAN
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $25. Under this plan,
funds may be withdrawn periodically from the shareholder's checking account
and invested in shares of the Fund at the net asset value next determined
after an order is received by Star Bank, plus the applicable sales charge.
A shareholder may apply for participation in this plan through Star Bank.
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the
Federal Reserve wire system are open for business.
A customer of Star Bank may purchase shares of the Fund through Star Bank.
Texas residents must purchase 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 three 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 the Star Tax-Free Insured 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.
FREQUENT INVESTOR PROGRAM
Under the Frequent Investor Program ("Program"), eligible persons who
purchase shares ("Program Shares") of any Star Fund (other than Star Tax-
Free Money Market Fund and Star Treasury Fund) on or after August 12, 1996
will receive points ("Points") which, upon accumulation of 50,000 Points,
may be used to purchase a round trip airline ticket to any of the 50 states
on any U.S. carrier.
The following terms and conditions apply with respect to the Program: (a)
one Point will be awarded per dollar invested (gross of sales charges) in
Program Shares; (b) Program Shares purchased may be redeemed at any time
without loss of Points; (c) a maximum of 100,000 Points may be earned in
any 12-month period; (d) all unused Points will expire one year from the
latest purchase of Program Shares of $100 or more; and (e) Points are not
transferable.
All airline tickets are subject to the following stipulations and
restrictions: (i) the ticket will be non-refundable and for a coach seat;
(ii) the price of the ticket may not exceed $500 inclusive of taxes and
destination charges, although the shareholder may elect to pay the overage;
(iii) all travel must originate in the U.S.; (iv) interim stopovers may not
exceed four hours; (v) tickets will be mailed to the shareholder account
address (overnight shipping is available at the shareholder's expense);
(iv) there are no "blackout" dates; (vii) 21-day advance purchase and
Saturday night stay-over are required; and (vii) tickets may be purchased
in any individual's name.
The Program does not apply with respect to: (i) shares which are purchased
without a front-end sales charge or a contingent deferred sales charge
including shares which are acquired through reinvestment of dividend or
capital gain distributions; (ii) shares acquired in exchange for shares in
another Star Fund; and (iii) shares owned prior to August 12, 1996.
The Program is subject to modification or termination on 90 days' notice at
the option of Star Bank, N.A.
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, through its
subsidiary, Federated Shareholder 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 monthly. Dividends and capital gains will
be automatically reinvested in additional shares of the Fund on payment
dates at the ex-dividend date net asset value, unless cash payments are
requested by writing to the Fund or Star Bank.
Capital gains realized by the Fund, if any, will be distributed once every
12 months.
EXCHANGE PRIVILEGE
EXCHANGING SHARES
All shareholders of the Fund are shareholders of the Star Funds. Star Funds
currently consists of the Fund, Star U.S. Government Income Fund, Star
Strategic Income Fund, The Stellar Fund, Star Relative Value Fund, Star
Growth Equity Fund, Star Capital Appreciation Fund, Star Tax-Free Money
Market Fund and Star Treasury Fund. Shareholders of the Fund may exchange
shares for shares of those other non-money market funds in the Star Funds
which impose a front-end sales charge, and may also exchange shares for
shares of Star Tax-Free Market Fund and Star Treasury Fund. In addition,
shares of the Fund may also be exchanged for certain other funds
distributed by Federated Securities Corp. that are not advised by Star
Bank, N.A. ("Federated Funds"). For further information on the
availability of Federated Funds for exchange, call Star Bank at 1-800-677-
FUND. Shareholders who exercise this exchange privilege must exchange
shares having a total net asset value of at least $1,000. Prior to any
exchange, the shareholder must receive a copy of the current prospectus of
the fund into which an exchange is to be effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales charge already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends on such shares retain the character of
the exchanged shares for purposes of exercising further exchange
privileges; thus, an exchange of such shares for shares of a fund with a
sales charge would be at net asset value.
EXCHANGE-BY-TELEPHONE
Instructions for exchange 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) 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.
OTHER MATTERS EFFECTING THE EXCHANGE PRIVILEGE
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.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after Star
Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed or on
federal holidays restricting wire transfers. Requests for redemption can
be made in person, by telephone through Star Bank, or by mail.
BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem
shares of the Fund by telephoning Star Bank at 1-800-677-FUND. Redemption
requests given by telephone may be electronically recorded. For calls
received by Star Bank before 3:30 p.m. (Eastern time), proceeds will
normally be wired the same 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 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 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 Bank Insurance Fund, which is administered by the Federal
Deposit Insurance Corporation (the "FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
o a savings bank or savings association whose deposits are insured
by the Savings Association Insurance Fund, 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 Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect
in the future to limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Trust and its
transfer agent reserve the right to amend these standards at any time
without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders invested in shares of the Fund may engage in a Systematic
Withdrawal Plan. Under this plan, accounts may arrange for regular monthly
or quarterly fixed withdrawal payments. Each payment must be at least $25
and may be as much as 1.50% per month or 4.50% per quarter of the total net
asset value of the shares in the account when the Systematic Withdrawal
Plan is opened. Depending upon the amount of the withdrawal payments and
the amount of dividends paid with respect to Fund shares, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund.
For this reason, payments under this plan should not be considered as yield
or income on the shareholder's investment in the Fund. Due to the fact
that shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing shares of the Fund while participating in
this plan.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account and pay the proceeds to the shareholder if
the account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights, except that only shares of
the Fund are entitled to vote on matters affecting only the Fund. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by 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.
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 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 its
customer.
Some entities providing services to the Trust are subject to such banking
laws and regulations. They believe that they may perform those services
for the Fund contemplated by any agreement entered into with the Trust
without violating those 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 these entities from continuing to perform
all or a part of the above services for their customers and/or the Fund.
If this happens, the Trustees would consider alternative means of
continuing available services. It is not expected that the Fund's
shareholders would suffer any adverse financial consequences 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, if any) and losses
realized by the Trust's other portfolios will not be combined for tax
purposes with those realized by the Fund.
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing
net interest earned on certain "private activity" bonds issued after
August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations. The Fund may purchase all types of municipal securities,
including private activity bonds.
Dividends payable by the Fund, while exempt from federal regular income tax,
may be a tax-preference item for purposes of the alternative minimum tax.The
alternative minimum tax applies when it exceeds the federal regular tax for the
taxable year. Alternative minimum taxable income is equal to the federal regular
taxable income of the taxpayer increased by certain "tax preference" items
not included in federal regular taxable income and reduced by only a portion
of the deductions allowed in the calculation of the federal regular tax.
Dividends of the Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.
STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
income taxes of any state or local taxing authority. State laws differ on
this issue and 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, yield and tax-
equivalent 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
gains 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 tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Fund would have had to earn to equal its actual yield,
assuming a specific tax rate. The yield and tax-equivalent yield do 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 reflects the effect of the maximum sales charge
which, if excluded, would increase the total return, yield, and tax-
equivalent yield. Occasionally, performance information which does not
reflect the effect of the sales charge may be quoted in advertising.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
ADDRESSES
Star Tax-Free Insured 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 Shareholder Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
STAR TAX-FREE INSURED 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 Tax-Free Insured Fund (the "Fund") dated December , 1996.
----
This Statement is not a prospectus itself. You may request a copy of the
prospectus or a paper copy of this Statement of Additional Information, if
you received it electronically, free of charge by calling 1-800-677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December , 1996
--
STAR BANK, N.A.
INVESTMENT ADVISER
FEDERATED SECURITIES CORP.
Distributor
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Acceptable Investments
Temporary Investments
Municipal Bond Insurers
Investment Limitations
STAR FUNDS MANAGEMENT
Fund Ownership
Officers and Trustees Compensation
Trustee Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
State Expense Limitations
BROKERAGE TRANSACTIONS
OTHER SERVICES
Fund Administration
Custodian
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accounting Services
Independent Public Accountants
PURCHASING SHARES
Distribution Plan
Administrative Arrangements
Shareholder Services Plan
Conversion to Federal Funds
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
EXCHANGE PRIVILEGE
Requirements for Exchange
Making an Exchange
REDEEMING SHARES
Redemption in Kind
MASSACHUSETTS PARTNERSHIP LAW
TAX STATUS
The Fund's Tax Status
Shareholders' Tax Status
Capital Gains
TOTAL RETURN
YIELD
TAX-EQUIVALENT YIELD
Tax-Equivalency Table
PERFORMANCE COMPARISONS
Economic and Market Information
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 provide current income which is
exempt from federal income tax. The objective cannot be changed without
approval of shareholders. The investment 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.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal securities that are covered by
insurance guaranteeing the timely payment of principal and interest.
CHARACTERISTICS
The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.
A municipal security will be determined by the Fund's investment
adviser to meet the quality standards established by the Trustees if
it is of comparable quality to municipal securities within the Fund's
rating requirements. The Trustees consider the creditworthiness of
the issuer of a municipal security, the issuer of a participation
interest if the Fund has the right to demand payment from such
issuer, or the guarantor of payment by either of those issuers. If a
security loses its rating or has its rating reduced below the
required minimum after the Fund has purchased it, the Fund is not
required to sell the security from its portfolio, but will consider
doing so. If ratings made by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch Investors
Service, Inc. ("Fitch"), Duff & Phelps Credit Rating Co. ("D&P") or
any other nationally recognized statistical rating organization (an
"NRSRO") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in the
Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of municipal securities include, but are not limited to:
o industrial development bonds;
o municipal notes and bonds;
o serial notes and bonds sold with a series of maturity dates;
o tax anticipation notes and bonds sold to finance working capital
needs of municipalities in anticipation of receiving taxes at a
later date;
o bond anticipation notes sold in anticipation of the issuance of
longer-term bonds in the future;
o prerefunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds are assured through the
first call date by the deposit in escrow of U.S. government
securities); and
o general obligation bonds secured by a municipality's pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from other
financial institutions irrevocable letters of credit or guarantees
and give the Fund the right to demand payment on specified notice
(normally within thirty days) from the issuer of the letter of credit
or guarantee. These financial institutions may charge certain fees
in connection with their repurchase commitments, including a fee
equal to the excess of the interest paid on the municipal securities
over the negotiated yield at which the participation interests were
purchased by the Fund. By purchasing participation interests, the
Fund is buying a security meeting the quality requirements of the
Fund and is also receiving the tax-free benefits of the underlying
securities.
In the acquisition of participation interests, the Fund's investment
adviser will consider the following quality factors:
o a high-quality underlying municipal security (of which the Fund
takes possession);
o a high-quality issuer of the participation interest; or
o a guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by
the Fund are subject to repayment of principal (usually within seven
days) on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest from
the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.
FUTURES AND OPTIONS TRANSACTIONS. As a means of reducing fluctuations in
the Fund's net asset value, the Fund may attempt to hedge all or a portion
of its portfolio by buying and selling futures contracts and options on
futures contracts, and buying put and call options on securities indices.
The Fund may also purchase put options on portfolio securities to hedge a
portion of its portfolio investments. 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 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. Although some financial futures contracts call for
making or taking delivery of the underlying securities, in most cases
these obligations are closed out before the settlement date. The
closing of a contractual obligation is accomplished by purchasing or
selling an identical offsetting futures contract. Other financial
futures contracts by their terms call for cash settlements.
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 securities ("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.
"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, U.S. government securities or
highly-liquid debt securities 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 position. The Fund is
also required to deposit and maintain margin when it writes call
options on futures contracts. 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 contracts is unleveraged.
To the extent required to comply with CFTC Regulation 4.5 and thereby
avoid status as a "commodity pool operator," the Fund will not enter
into a futures contract for other than bona fide hedging purposes, or
purchase an option thereon, if immediately thereafter the initial
margin deposits for futures contracts held by it, plus premiums paid
by it for open options on futures contracts, would exceed 5% of the
market value of the Fund's net assets, after taking into account the
unrealized profits and losses on those contracts it has entered into;
and, provided further, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%. Second, the Fund will not enter into
these contracts for speculative purposes; rather, these transactions
are entered into only for bona fide hedging purposes, or other
permissible purposes pursuant to regulations promulgated by the CFTC.
Third, since the Fund does not constitute a commodity pool, it will
not market itself as such, nor serve as a vehicle for trading in the
commodities futures or commodity options markets. Finally, because
the Fund will submit to the CFTC special calls for information, the
Fund will not register as a commodities pool operator.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase
listed put options on financial 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.
The Fund may write listed put options on financial futures contracts
to hedge its portfolio against a decrease in market interest rates.
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 transaction. When the
Fund writes (sells) a put on a futures contract, it receives a cash
premium in exchange for granting to the purchaser of the put the
right to receive from the Fund, at the strike price, a short position
in such futures contract (the Fund undertakes the obligation to
assume a long futures position), even though the strike price upon
exercise of the option is greater than the value of the futures
position received by such holder. As market interest rates decrease,
the market price of the underlying futures contract normally
increases. As the market value of the underlying futures contract
increases, the buyer of the put option has less reason to exercise
the put because the buyer can sell the same futures contract at a
higher price in the market. If the value of the underlying futures
position is not such that exercise of the option would be profitable
to the option holder, the option will generally expire without being
exercised. The premium received by the Fund can then be used to
offset the higher prices of portfolio securities to be purchased in
the future.
In will generally be the policy of the Fund, in order to avoid the
exercise of an option sold by it, to cancel its obligations under the
option by entering into a closing purchase transaction, if available,
unless it is determined to be in the Fund's interest to deliver the
underlying futures position. A closing purchase transaction consists
of the purchase by the Fund of an option having the same term as the
option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in
executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part
upon the relative price of the underlying futures position at the
time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by
the Fund for the initial option.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. In addition to
purchasing put options on futures, the Fund may write (sell) listed
and over-the-counter call options on financial futures contracts to
hedge its portfolio. 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 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.
An additional way in which the Fund may hedge against decreases in
market interest rates is to buy a listed call option on a financial
futures contract. 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 transaction.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but
not the obligation, to enter into the underlying futures contract at
a strike price determined at the time the call was purchased,
regardless of the comparative market value of such futures position
at the time the option is exercised. The holder of a call option has
the right to receive a long (or buyer's) position in the underlying
futures contract. As market interest rates fall, the value of the
underlying futures contract will normally increase, resulting in an
increase in value of the Fund's option position. When the market
price of the underlying futures contract increases above the strike
price plus premium paid, the Fund could exercise its option and buy
the futures contract below market price. Prior to the exercise or
expiration of the call option, the Fund could sell an identical call
option and close out its position. If the premium received upon
selling the offsetting call is greater than the premium originally
paid, the Fund has completed a successful hedge.
LIMITATION ON OPEN FUTURES POSITIONS. 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.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may
purchase put options on portfolio securities to protect against price
movements in the Fund's portfolio securities. 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.
OVER-THE-COUNTER OPTIONS. The Fund may generally purchase over-the-
counter options on portfolio securities in negotiated transactions
with the writers of the options when options on the portfolio
securities held by the Fund are not traded on an exchange. The Fund
purchases 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.
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 to market
changes than the portfolio securities. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate
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
Fund's 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. The inability to close
these positions could have an adverse effect on the Fund's ability to
hedge its portfolio.
To minimize risks, 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 after taking into account the
unrealized profits and losses on those contracts it has entered into;
and, provided further, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%. 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 collaterize
the position as discussed above.
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. 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. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time:
o as a reaction to market conditions;
o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally such proceeds from sales of shares
will be invested in municipal securities as quickly as possible;
o in anticipation of redemption requests; or
o for temporary defensive purposes, in which case the Fund may invest
more than 20% of the value of its net assets in cash or certain
money market instruments, U.S. Treasury bills or securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, or repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is 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 maintained until the transaction is
settled.
INVESTMENTS IN CASH
From time to time, such as when suitable municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the
amount of assets in municipal securities and thereby reduce the
Fund's yield.
MUNICIPAL BOND INSURERS
Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated in the highest
rating category by an NRSRO. The claims-paying ability of each of the
following insurers has been rated in the highest rating category by an
NRSRO.
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-
owned subsidiary of MBIA, Inc., a Connecticut insurance company,
which is owned by Aetna Life and Casualty, Credit Local DeFrance
CAECL, S.A., The Fund American Companies, and the public. The
investors in MBIA, Inc., are not obligated to pay the obligations
of MBIA. MBIA, domiciled in New York, is regulated by the New
York State Insurance Department and licensed to do business in
various states. The address of MBIA is 113 King Street, Armonk,
New York, 10504, and its telephone number is (914) 273-4345.
AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled
stock insurance company, regulated by the Insurance Department of
Wisconsin, and licensed to do business in various states. AMBAC
is a wholly-owned subsidiary of AMBAC, Inc., a financial holding
company which is owned by the public. Copies of certain
statutorily required filings of AMBAC can be obtained from AMBAC.
The address of AMBAC's administrative offices is One State Street
Plaza, 17th Floor, New York, New York 10004, and its telephone
number is (212) 668-0340.
FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is wholly-owned by General Electric
Capital Corporation. The investors in FGIC Corporation are not
obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is subject to regulation by the
State of New York Insurance Department and is licensed to do
business in various states. The address of Financial Guaranty is
175 Water Street, New York, New York 10038, and its telephone
number is (212) 607-3000.
FINANCIAL SECURITY ASSURANCE HOLDINGS
Financial Security Assurance ("FSA"), a wholly-owned subsidiary
of Financial Security Assurance Holdings domiciled in New York,
is a monoline financial guaranty insurer of municipal bonds and
asset-backed securities. The investors in FSA are not obligated
to pay the debts of or the claims against FSA. FSA is subject to
regulation by the State of New York Insurance Department and is
licensed to do business in all fifty states and in the District
of Columbia. The address of FSA is 350 Park Avenue, New York, NY
10022, and its telephone number is (212) 688-3101.
INVESTMENT LIMITATIONS
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 the clearance of purchases and sales of
securities, except that the Fund may make margin payments in
connection with its use of financial futures contracts or related
options and transactions.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of the Fund's total assets
would be invested in any one industry, or in industrial
development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the
Fund may invest as temporary investments more than 25% of the
value of its assets in cash or certain money market instruments,
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
The Fund does not intend to purchase securities (other than
securities guaranteed by the U.S. government or its agencies or
direct obligations of the U.S. government) if, as a result of
such purchases, 25% or more of the value of its total assets
would be invested in a governmental subdivision in any one state,
territory or possession of the United States.
BORROWING MONEY
The Fund will not issue senior securities, except (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
inconvenient 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.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 15% of the value of its net
assets in securities subject to restrictions on resale under the
Securities Act of 1933.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its 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 its 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 or
delayed delivery basis; and (b) collateral arrangement with
respect to (i) the purchase and sale of stock options 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.
INVESTING IN COMMODITIES AND MINERALS
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.
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs or leases.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests, although it may invest in securities
secured by real estate or interests in real estate.
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.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except for when-issued
and delayed-delivery transactions and futures contracts, each of
which might be considered senior securities. In addition, the
Fund reserves the right to purchase municipal securities which
the Fund has the right or obligation to sell to a third-party
(including the issuer of a participation interest).
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets. This shall not prevent
the Fund from acquiring publicly or non-publicly issued municipal
securities or temporary investments, entering into repurchase
agreements, or engaging in other transactions in accordance with
its investment objective, policies, and limitations or
Declaration of Trust.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net
assets in securities which are not readily marketable or which
are otherwise considered illiquid, including repurchase
agreements providing for settlement in more than seven days after
notice, certain restricted securities not determined by the
Trustees to be liquid, and participation interests and variable
rate municipal securities without a demand feature or with a
demand feature of longer than seven days and which the Fund's
investment adviser believes cannot be sold within seven days.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total
assets in industrial development bonds or other municipal
securities where payment of principal and interest is the
responsibility of companies (or guarantors, where applicable)
which have records of less than three years of continuous
operations, including the operation of any predecessor.
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
limit its investments in the securities of other investment
companies to those having investment objectives and policies
similar to its own. The Fund will not purchase or acquire any
security issued by a registered closed-end investment company if,
immediately after the purchase or acquisition, 10% or more of the
voting securities of the closed-end investment company would be
owned by the Fund and other investment companies having the same
adviser and companies controlled by these investment companies.
The Fund will purchase securities of closed-end 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, reorganization, or acquisition of assets. It
should be noted that investment companies may incur certain
expenses which may be duplicative of certain fees incurred by the
Fund. The Fund's investment adviser will waive its investment
advisory fee on assets of the Fund invested in securities of
open-end investment companies.
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 0.5 of 1% of
the issuer's securities, together own more than 5% of the
issuer's securities.
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
instruments issued by a U.S. branch of a domestic bank having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Fund has no present intent to borrow money or pledge securities (except
as a temporary, extraordinary or emergency measure) in excess of 5% of the
value of its net assets or to invest in securities of closed-end investment
companies.
STAR FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with the Star Funds, and principal occupations. Except as listed
below, none of the Trustees or officers are affiliated with Star Bank,
N.A., Federated Investors, Federated Securities Corp., Federated Services
Company, Federated Administrative Services, or the Funds (as defined
below).
Ralph R. Burchenal
725 Ivy Avenue
Cincinnati, Ohio 45246
Birthdate: November 28, 1931
Trustee
Independent Investor; Retired Director, Standard Register Company, Dayton,
Ohio, since 1992.
Thomas L. Conlan, Jr.*
2884 Lengel Road
Cincinnati, Ohio 45244
Birthdate: May 20, 1938
Trustee
President and Chief Executive Officer, The Student Loan Funding Corporation
and SLFC, Inc., Cincinnati, Ohio.
Alfred Gottschalk, Ph.D.
2401 Ingleside Avenue
Cincinnati, Ohio 45206
Birthdate: March 7, 1930
Trustee
Chancellor (since January 1996), Professor and President (1971-1995),
Hebrew Union College--Jewish Institute of Religion, Cincinnati, Ohio.
Edward C. Gonzales **
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: October 22, 1930
President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
Robert J. Hill, D.O.
8373 Deer Path Lane
West Chester, Ohio 45069
Birthdate: January 13, 1959
Trustee
Physician, Orthopaedic and Sports Medicine Institute, West Chester, Ohio,
and The Hamilton Orthopaedic Clinic, Hamilton, Ohio, since April 1994, and,
prior thereto Resident Physician, Michigan State University/Michigan
Capital Medical Center.
William H. Zimmer III
2684 Devils Backbone Road
Cincinnati, Ohio 45233
Birthdate: December 19, 1953
Trustee
Secretary and Treasurer (1991 to present) and Secretary and Assistant
Treasurer (1988-1991), Cincinnati Bell Inc.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: May 22, 1962
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Director, Private Label
Management, Federated Investors; Vice President and Assistant Treasurer of
the Funds.
C. Grant Anderson
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: November 6, 1940
Secretary
Corporate Counsel, Federated Investors.
* This Trustee is deemed to be an "interested person," as defined in the
Investment Company Act of 1940, of the Trust by virtue of his business
relationship with the Fund's investment adviser, and certain of its
affiliates. The Student Loan Funding Corporation and SLFC, Inc., of which
Mr. Conlan is President and Chief Executive Officer, purchase student loans
from various financial institutions, including the Fund's investment
adviser and its affiliates. In addition, the Fund's investment adviser
extends credit from time to time to Student Loan Funding Corporation and
SLFC, Inc. to finance their operations.
** This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual 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 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.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
OFFICERS AND TRUSTEES COMPENSATION
NAME, POSITION AGGREGATE
WITH TRUST*# COMPENSATION FROM TRUST
Ralph R. Burchenal
Trustee $6,000
Thomas L. Conlan, Jr. $6,500
Trustee
Alfred Gottschalk, Ph.D $6,000
Trustee
Edward C. Gonzales, $ 0
President, Treasurer and Trustee
Robert J. Hill, D.O. $6,500
Trustee
William H. Zimmer III $6,500
Trustee
* Information is estimated for the fiscal year ending November 30, 1997. On
February 9, 1996, the Trust elected a new Board of Trustees.
# The aggregate compensation is provided for the Trust, which is comprised
of nine portfolios.
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 the 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 2.5% per year of the first $30
million of average net assets, 2% per year of the next $70
million of average net assets, and 1.5% 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.
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.
Research services provided by brokers and dealers may be used by the
Adviser or its affiliates in advising the Fund and other accounts. To the
extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION. 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. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, through its
subsidiary Federated Shareholder Services Company, 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.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Fund are Arthur Andersen LLP, Pittsburgh, Pennsylvania.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares are
sold at their net asset value plus a sales charge, if any, 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, 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 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
The net asset value generally changes each day. The days on which 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 as provided 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 less than
60 days at the time of purchase, at amortized cost unless the
Trustees determine this is not fair value; or
o 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. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter options will be valued at the mean between the bid and
asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such options are traded. Unlisted call
options will be valued at the latest bid price as provided by brokers.
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. 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 Fund 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.
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.
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.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because
of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the 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 net asset value 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, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.
Cumulative total return reflects the Fund's total performance over a
specific period of time. This total return assumes and is reduced by the
payment of the maximum sales load. Any applicable redemption fee is
deducted from the ending value of the investment based on the lesser of the
original purchase price or the net asset value of the 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.
TAX-EQUIVALENT YIELD
The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 39.60% tax rate (the maximum
effective federal rate for individuals) and assuming that income is 100%
tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal income tax,* and is often
free from state and local taxes as well. As the table below indicates, a
"tax-free" investment can be an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN: 40,100 96,900 147,700 263,750 $263,750
SINGLE $1 $24,001 $58,151- $121,301- OVER
RETURN: 24,000 58,150 121,300 263,750 $263,750
Tax-Exempt Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the Taxable Yield Equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
The Fund's performance 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;
o the relative amount of Fund cash flow; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the 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 and takes into account any
change in offering price over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "insured
municipal funds" category in advertising and sales literature.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total
returns calculated for the same periods as listed above.
o LEHMAN BROTHERS TEN-YEAR INSURED BOND INDEX is an unmanaged index
that reflects the total performance of the Insured Bond sector
(includes all bond insurers with Aaa/AAA ratings) of the Lehman
Municipal Bond Index. The maturities range between eight and
twelve years.
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 historic change in the value of an investment in the
Fund based on monthly investment of dividends over a specific period of
time.
Advertisements may quote performance information which does not reflect the
effect of the sales charge. In addition, advertisements and sales
literature for the Fund may include charts and other illustrations that
depict the hypothetical growth of a tax-free investment as compared to a
taxable investment.
Advertisements and sales literature for the Fund may include quotations
from financial publications and other sources relating to current economic
conditions in the municipal securities market or to the benefit and
popularity of municipal securities or mutual funds.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities markets. Such discussions may take the form of commentary on
these developments by the Fund's portfolio manager and the manager's views
and analysis on how such developments could affect the Fund. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute ("ICI").
For example, according to the ICI, twenty-seven percent of American
households are pursuing their financial goals through mutual funds. These
investors, as well as businesses and institutions, have entrusted over $3
trillion to the more than 5,500 funds available.
APPENDIX
STANDARD & POOR'S RATINGS GROUP ("S&P") MUNICIPAL BOND RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by S&P. 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.
BB, B, CCC, CC-Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C-The rating C is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus(+) or Minus (-): S&P may apply a plus (+) or minus (-) sign to show
relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATING
DEFINITIONS
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 edged." 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.
BA-Bonds which are BA are judged to have a speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA-Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NR-Not rated by Moody's
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through BAA in its municipal bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates the mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATING DEFINITIONS
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 repay 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-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whenever 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.
BB-Bonds are considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D-Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these
bonds, and D represents the lowest potential for recovery.
NR-NR indicates that Fitch does not rate the specific issue.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.
DUFF & PHELPS CREDIT RATING CO. ("D&P") LONG-TERM DEBT RATING DEFINITIONS
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.
AA- High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB-Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category.
D&P SHORT-TERM DEBT RATING DEFINITIONS
D-1+-Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,
is outstanding, and safety is just below U.S. Treasury short-term
obligations.
D-1-Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1--High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2-Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
S&P COMMERCIAL PAPER RATING DEFINITIONS
A-1-This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those 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 COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers rated PRIME-1 (or 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 earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternative liquidity.
P-2- Issuers rated PRIME-2 (or 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
alternative liquidity is maintained.
FITCH COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
182158.3
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (1-8) The Financial Statements for the
fiscal period ended November 30, 1995, are incorporated
herein by reference from the Fund's Annual Reports dated
November 30, 1995; (9) to be filed by Amendment.
(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 (19);
(xv) Conformed Copy of Amendment No. 15 to
Declaration of Trust; (to be filed by amendment)
+ 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-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 (20);
(iii)Conformed copy of Exhibit J to Investment
Advisory Contract of the Registrant to add Star
Growth Equity Fund to the present Investment
Advisory Contract (21);
(iv) Form of Exhibit K to Investment Advisory Contract
of the Registrant to add Star Tax-Free Insured
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
(20);
+ 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)
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)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
(vi) Conformed copy of Exhibit J to Distributor's
Contract of the Registrant to add Star Growth
Equity Fund to the present Distributor's Contract
(21);
(vi) Form of Exhibit K to Distributor's Contract of
the Registrant to add Star Tax-Free Insured Fund
to the present Distributor's Contract;+
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the
Registrant (15);
(9) (i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement
Agreement (21);
(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 (20);
(v) Conformed copy of Exhibit C to Shareholder
Services Plan of the Registrant to add Star
Growth Equity Fund to the present Shareholder
Services Plan (21);
(vi) Conformed copy of Exhibit D to Shareholder
Services Plan of the Registrant to add The
Stellar Fund (Trust Shares) to the present
Shareholder Services Plan; (22)
(vii)Conformed copy of Exhibit E to Shareholder
Services Plan of the Registrant to add The
Stellar Fund (Investment Shares) to the present
Shareholder Services Plan; (22)
+ All exhibits have been filed electronically.
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)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-
26915 and 811-5762)
(viii) Conformed copy of Exhibit F to Shareholder
Services Plan of the Registrant to add Star Tax-
Free Money Market Fund to the present Shareholder
Services Plan; (22)
(ix) Conformed copy of Exhibit G to Shareholder
Services Plan of the Registrant to add Star
Treasury Fund to the present Shareholder Services
Plan; (22)
(x) .Conformed copy of Exhibit H to
ShareholderServices Plan of the Registrant to add
Star U.S. Government Income Fund to the present
Shareholder Services Plan; (22)
(xi) Conformed copy of Exhibit I to Shareholder
Services Plan of the Registrant to add Star
Relative Value Fund to the present Shareholder
Services Plan; (22)
(xii)Conformed copy of Exhibit J to Shareholder
Services Plan of the Registrant to add Star Prime
Obligations Fund to the present Shareholder
Services Plan; (22)
(xiii) Copy of Shareholder Services Agreement of the
Registrant, including Exhibit A (20);
(xiv)Form of Exhibit K to Shareholder Services Plan of
the Registrant to add Star Tax-Free Insured Fund
to the present Shareholder Services Plan;+
(10) Conformed copy of Opinion and Consent of Counsel as to
Legality of Shares being Issued;+
(11) (i) Not applicable;
(ii) Opinion and Consent of Special Counsel (9);
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (2);
(14) Not applicable;
+ 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)
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)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-
26915 and 811-5762)
(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);
(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 (20);
(x) Conformed copy of Exhibit H to Distribution Plan
of the Registrant to add Star Growth Equity Fund
to the present Distribution Plan (21);
(xi) Copy of Amendment No. 6 to Exhibit A to 12b-1
Agreement (20);
(xii) Form of Exhibit I to Distribution Plan of the
Registrant to add Star Tax-Free Insured fund to
the present Distribution Plan; +
+ All exhibits have been filed electronically.
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)
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)
18. Response is incorporated by reference to Registrant's Post-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)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
(16) (i) Copy of Schedule for Computation of Fund
Performance Data;+
(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);
(iv) Copy of Schedule for Computation of Fund
Performance Data, Star Capital Appreciation Fund
(21);
(v) Copy of Schedule for Computation of Fund
Performance Data, Star Strategic Income Fund;
(22)
(vi) Copy of Schedule for Computation of Fund
Performance Data, Star Growth Equity Fund; (22)
(17) Not applicable;
(18) Conformed copy of Multiple Class Plan;+
(19) Conformed copy of Power of Attorney; (23)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 4, 1996
Shares of beneficial interest
(no par value)
Star Treasury Fund 128
Star Relative Value Fund 2,021
Star Tax-Free Money Market Fund 9
The Stellar Fund
Investment Shares 5,497
Trust Shares 46
Star U.S. Government Income Fund 291
Star Capital Appreciation Fund 420
Star Strategic Income Fund 1,081
Star Growth Equity Fund 1,241
Star Tax-Free Insured Fund (not yet offered)
+ All exhibits have been filed electronically.
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)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-
26915 and 811-5762)
23. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed July 17, 1996. (File Nos. 33-
26915 and 811-5762)
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 $9.6
billion as of June 30, 1996, and trust assets of $23.6
billion as of June 30, 1996.
Star Bank has managed commingled funds since 1957. It
currently manages seven common trust funds and collective
investment funds having a market value in excess of $271
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.
(b)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Jerry A. Grundhofer Chairman, President and Chief Traditional
Executive Officer Interiors
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 Executive Vice President N/A
Wayne J. Shircliff Executive Vice President N/A
Daniel B. Benhase Executive Vice President N/A
Daniel R. Noe Executive Vice President N/A
Jerome C. Kohlhepp Executive Vice President N/A
Stephen E. Smith Executive Vice President S. E. Smith
and Company
S. Kay Geiger Executive Vice President Global Access
Marketing, Inc.
Andrew E. Randall Executive Vice President N/A
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)
J. R. Bridgeland, Jr. Director Taft, Stetinius &
Hollister
L. L. Browning, Jr. Director N/A
V. B. Buyniski Director United Medical Resources, Inc.
Mt. Auburn Partnership, American
Operations Management, NCG and
Schmidt Marble
Samuel M. Cassidy Director Cassidy and Cassidy, Ltd. d/b/a
Cave Spring Farm
Raymond R. Clark Director .N/A
V. Anderson Coombe Director Wm. Powell Company
John C. Dannemiller Director Bearings, Inc.
Jerry A. Grundhofer Director Traditional Interiors
J. P. Harrington, S.C. Director N/A
J. P. Hayden, Jr. Director The Midland Company, American
Family Home Insurance Co., American
Modern Home Insurance Co.
Roger L. Howe Director U.S. Precision Lens, Inc.
T. J. Klinedinst, Jr. Director Thomas E. Wood, Inc.,
Ohio Cap Insurance Co., Ltd., The
Tomba Co., Ltd.
Chares S. Mechem, Jr. Director N/A
Daniel J. Meyer Director Cincinnati Milacron, Inc.
David B. O'Maley Director Ohio National Life Insurance Co.
O. M. Owens, M.D., Director O'dell M. Owens, M.D., Inc., Moreno
Food, MKO Investment, Seven Hills
Lab, Graphi Action.
Thomas E. Petry Director Eagle-Picher Industries, Inc.
William C. Portman Director Portman Equipment Company
Oliver W. Waddell Director N/A
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Annuity Management Series; Arrow Funds;
Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash
Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity
Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund,
Inc.; First Priority Funds; Fixed Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; SouthTrust Vulcan Funds; Star Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Biltmore Funds; The
Biltmore Municipal Funds; The Monitor Funds; The Planters Funds;
The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Tower Mutual 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 Group of
Funds, Inc.; andWorld 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 --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive VicePresident,
Federated Investors Tower President, Federated Treasurer and
Pittburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary, --
Federated Investors Tower Assistant Treasurer
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
Richard W. Boyd 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
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
Solon A. Person, IV 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
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
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
Dale R. Browne 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
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites 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
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales 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
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm 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
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III 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
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
Edward L. Smith 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
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace 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
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
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:
Star Funds Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services Federated Investors Tower
Company(`Transfer Agent, Pittsburgh, PA 15222-3779
Dividend 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,
using financial statements which need not be certified, within
four to six months from the effective date of Registrant's 1933
Act Registration Statement on behalf of Star Tax-Free Insured
Fund.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, STAR FUNDS, certifies that
it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) under the Securities Act of
1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 10th day of
October, 1996.
STAR FUNDS
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 10, 1996
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 October 10, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* President, Treasurer and Trustee
(Principal Financial and
Accounting Officer)
Ralph R. Burchenal* Trustee
Thomas L. Conlan, Jr.* Trustee
Dr. Alfred Gottschalk* Trustee
Dr. Robert J. Hill* Trustee
William H. Zimmer, III* Trustee
* By Power of Attorney
Exhibit 5(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT K
to the
Investment Advisory Contract
STAR TAX-FREE INSURED 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 December, 1996.
Attest: STAR BANK, N.A.
By:
Jennie Carlson B. Randolph Bateman
Assistant Secretary Vice President
Attest: STAR FUNDS
By:
C. Grant Anderson Edward C. Gonzales
Secretary President
Exhibit 6(vi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit K
to the
Distributor's Contract
STAR FUNDS
STAR TAX-FREE INSURED 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 Portfolio
(`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 .25% of the average aggregate net asset value of the Shares 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 December, 1996.
ATTEST: STAR FUNDS
By:
C. Grant Anderson Edward C. Gonzales
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Byron F. Bowman Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit 9(xiv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT K
to the
Shareholder Services Plan
Star Funds
STAR TAX-FREE INSURED 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 Tax-Free Insured
Fund held during the month.
Witness the due execution hereof this 1st day of December, 1996.
Star Funds
By:
Edward C. Gonzales
President
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
PITTSBURGH, PA 15222
William McC Houston
Fred Chalmers Houston, Jr. (412) 471-5828 Fred Chalmers Houston
Thomas J. Donnelly FAX (412) 471-0738 (1914-1971)
John J. Heck
Mario Santillo, Jr.
Theodore M. Hammer
August 22, 1991
Losantiville Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Losantiville Funds (`Trust'') we have reviewed Post-
effective Amendment No. 12 to the Trust's Registration Statement to be
filed with the Securities and Exchange Commission under the Securities Act
of 1933 (File No. 33-26915). The subject Post-effective Amendment will be
filed pursuant to Paragraph (b) of Rule 485 and become effective pursuant
to said Rule immediately upon filing.
Our review also included an examination of other relevant portions of
the amended 1933Act Registration Statement of the Trust and such other
documents and records deemed appropriate. On the basis of this review we
are of the opinion that Post-effective Amendment No. 12 does not contain
disclosures which would render it ineligible to become effective pursuant
to Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation letter as a
part of the Trust's Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 and as part of any
application or registration statement filed under the Securities laws of
the States of the United States.
Very truly yours,
HOUSTON, HOUSTON & DONNELLY
By: /s/Thomas J. Donnelly
TJD/heh
Exhibit 15(xii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT I
to the
Rule 12b-1 Plan
STAR FUNDS
STAR TAX-FREE INSURED 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 Tax-Free Insured Fund held
during the month.
Witness the due execution hereof this 1st day of December, 1996.
STAR FUNDS
By:
Edward C. Gonzales
President
FUND NAME: LOSANTIVILLE RELATIVE VALUE FUND
COMPUTATION OF SEC YIELD
AS OF: AUGUST 1, 1991
Exhibit 16(i) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
DIVIDEND AND/OR INTEREST INCOME $131,829
FOR THE 30 DAYS ENDED
NET EXPENSES FOR THE PERIOD $11,197.00
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 3,385,717
MAXIMUM OFFERING PRICE PER SHARE AS OF 08-01-91 $9.94
UNDISTRIBUTED NET INCOME $0.06000
YIELD=2[( 131829 - 11197)+1)^6-1]= 4.37%
3385717*(9.94 - 0.06)
Exhibit 18 under Form N-1A
Exhibit 99 Under Item 601/Reg. S-K
STAR FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") is adopted by STAR FUNDS (the
"Trust"), a Massachusetts Business Trust with respect to the classes
of shares ("Classes") of the portfolios of the Trust (the "Funds")
set forth in exhibits hereto.
PURPOSE
1. This Plan is adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, as amended (the "Rule"), so as to allow the
Trust to issue more than one class of shares of any or all of the
Funds ("Covered Classes") in reliance on the Rule and to make
payments as contemplated herein.
2. SEPARATE ARRANGEMENTS/CLASS DIFFERENCES
a. Designation of Classes: The Funds set forth on Exhibit A offer
two classes of shares: Investment Shares and Trust Shares.
b. Sales Load and Expenses: Purchases of Investment Shares are
subject to a sales load as described in the Prospectus. The only
expenses allocated to Investment Shares as a class are the expenses
incurred under the applicable distribution plan adopted pursuant to
Rule 12b-1.
c. Distribution of Shares: Investment Shares are sold primarily to
individuals who purchase shares through Star Bank, N.A. and MDS
Securities. Quantity discounts, accumulated purchases, concurrent
purchases, purchases in conjunction with a letter of intent,
reinstatement privileges, systematic withdrawal and purchases at net
asset value as they relate to Investment Shares, are as described in
the applicable prospectus. Trust Shares are offered primarily to
trusts, fiduciaries and other institutions through Star Bank, N.A.
d. Minimum Investment Amounts: The minimum initial investment in
the Funds is $1,000 ($25 for Star Bank Connections Group banking
customers and Star Bank employees and members of their immediate
family). For Trust Shares, the minimum investment will be
calculated by combining all mutual fund accounts which the
shareholder maintains with Star Bank and invests with Star Funds.
e. Voting Rights: Shareholders of each class are entitled to one
vote for each share held on the record date for any action requiring
a vote by the shareholders and a proportionate fractional vote for
each fractional share held. Shareholders of the Trust will vote in
the aggregate and not by Fund or class except (i) as otherwise
expressly required by law or when the Trustees determine that the
matter to be voted upon affects only the interests of the
shareholders of a particular Fund or class, and (ii) only holders of
Investment Shares will be entitled to vote on matters submitted to
shareholder vote with respect to the Rule 12b-1 Plan applicable to
such class.
3. EXPENSE ALLOCATIONS
The expenses incurred pursuant to the Rule 12b-1 Plan will be borne
solely by the Investment Shares class of the applicable Fund, and
constitute the only expenses allocated to one class and not the
other.
4. EXCHANGE FEATURES
Holders of any Star money market fund may exchange such shares for
shares of any other Star money market fund, at net asset value.
Holders of shares of any Star non-money market fund which imposes a
contingent deferred sales charge may exchange such shares for shares
of any other Star non-money market fund which imposes a contingent
deferred sales charge, at net asset value. Holders of any shares of
Star non-money market fund which imposes a front-end sales charge
may exchange such shares for shares of any other Star non-money
market fund which imposes a front-end sales charge, at net asset
value plus the difference (if any) between the sales charge already
paid on the shares of the Fund which are being exchanged out of, and
any sales charge imposed by the Fund which is being exchanged into.
In all cases, shareholders will be required to pay a sales charge
only once.
EFFECTIVENESS
5. This Plan shall become effective with respect to each class, (i) to
the extent required by the Rule, after approval by a majority vote
of: (a) the Trust's Board of Trustees ; (b) the members of the Board
of the Trust who are not interested persons of the Trust and have no
direct or indirect financial interest in the operation of the
Trust's Plan , and/or (ii) upon execution of an exhibit adopting
this Plan with respect to such class.
EXHIBIT A
to the
Multiple Class Plan
STAR FUNDS
INVESTMENT SHARES
TRUST SHARES
The Stellar Fund
This Multiple Class Plan is adopted by STAR FUNDS with respect to
the Class(es) of Shares of the portfolio of STAR FUNDS set forth
above.
Witness the due execution hereof this 1st day of March, 1996.
STAR FUNDS
By: /s/ E.C. Gonzales
Title: President
Date: 3/1/96
