Star Bank of Cincinnati has nothing but praise for an unusual arrangement with its mutual fund distributor that puts more investments at its customers' fingertips.

The arrangement, in place for the three years, gives investors in Star's funds a break on sales charges when they move money into funds managed by Federated Investors, of Pittsburgh. Federated also distributes Star's mutual funds.

Star's chief investment officer, B. Randolph Bateman, said the program has helped the bank expand its mutual fund offerings faster than it could have on its own. "We were bringing in one fund at a time and we didn't have a full family," Mr. Bateman said. "This was a way for us to offer our customers what they needed."

Geoff Bobroff, a consultant and mutual fund expert in East Greenwich, R.I. said the price break program could be useful for many banks. "If a bank has a limited array to offer and this may be a good way to have a more rounded offering," he said.

Star Bank. the lead bank of $8 billion-asset Star Banc Coxp., has $743 million of assets in its proprietary Star Funds. Privately held Federated manages three fund families with more than $50 billion of assets. The company also distributes funds for 27 banks, and administers funds with a total of $23 billion of assets.

Glass-Steagall Act restrictions force banks to tap outside firms to distribute their funds. This niche is the core of Federated's business.

To give its business a boost, Federated made the sales charge breaks available to all of its customers in 1991. Star is one of six banks currently using the program

The program lets investors move money from a mutual fund managed by a Federated customer, and into a fund managed by Federated, and pay only the difference between the two funds' sales charges.

If, for example, the sales charge on a Federated fund is 3%, and the charge on a bank's fund is 2%. the investor pays only the extra 1% for moving his money from the one fund to the other. On the other hand. if the bank's sales charge is lower. the customer receives a refund for the difference. This money is invested in the fund into which the money is moved.

Similar price breaks are sometimes available for different funds within the same family, but are unusual for funds from different companies, experts said.

Mr. Bateman said Star is using only those Federated funds that complement the bank's existing funds.

Specifically, Star is using Federated's versions of three types of funds that to date it has not wanted to launch on its own a tax-free municipal bond fund, and separate utility and international equity funds. The municipal bond fund, which is marketed as part of the Star Fund family, has proven popular with the bank's customers. The other Federated funds have so far had limited success with Star customers, Mr. Bateman said.

The program hasn't stopped Star Bank from launching more of its own funds. A growth fund and a "turbo" income fund are planned for November, Mr. Bateman said.

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