Following is the text of the announcement yesterday by Time Inc. that it will end publication of The Washington Star early next month:

Time Inc. will end publication of The Washington Star on August 7 because of mounting financial losses, it was announced today by J. Richard Munro, president and chief executive officer of Time Inc.

"This is a sad day for all those connected with The Star -- its readers, its talented, loyal staff, and many of us at Time Inc. who tried our utmost to turn it into profitable enterprise," Munro said. "Despite our substantial investment, the newspaper continues to lose money and shows no prospect of financial improvement. Regrettably, we have no choice but to close it."

Time Inc. acquired The Star from Joe L. Allbritton in March 1978 for $20 million. Once the dominant daily in Washington, the 128-year-old evening newspaper has operated at a deficit, as its circulation declined over the last decade. Time Inc. has invested a total of $85 million in The Star.

To upgrade The Star, Time Inc. recruited top journalists and drew on the global resources of the Time-Life News Service. The Star's Washington metropolitan news coverage was expanded with the introduction of a morning edition and five community editions. The newspaper was redesigned and editied more tightly. The op-ed page was doubled, and the weekend sections improved. In the last three years The Star has won, among other awards, two Pulitzer Prizes.

Said Henry Grunwald, Time Inc. editor in chief: "Many observers, including sharp critics, have said that The Washington Star is the best afternoon daily in the United States. I'd go further and say that it's one of the three or four best and most responsible newspapers, morning or afternoon, in the country. We are proud of the editorial quality that we have brought to The Star, and of the outstanding work done by Editor Murray Gart and his staff."

Elaborating on the newspaper's financial straits, James R. Shepley, chairman of the board of The Star, said: "Our early goal, which we publicly stated, was to invest at least $60 million over a five-year period. We brought in excellent managers who formulated aggressive marketing approaches and strategies for building circulation and attracting advertising.

"Nevertheless, after three-and-a-half years, The Star's circulation of nearly 349,000 daily and 337,000 on Sunday is now at 323,000 and 294,000, respectively. The 25 percent share of the Washington-area advertising market the newspaper had when it took it over has remained virtually the same.

"The dominance of The Post in the Washington market, the tough economics of publishing an afternoon daily and a weakening economy over the last 18 months in Washington that hit The Star especially hard vitiated whatever small gains we made.

"The rate at which The Star is losing money -- about $20 million a year -- would place too much of a burden on the long-term interests of Time Inc. and its stockholders."

In an effort to improve The Star's deteriorating financial position, Shepley initiated talks with Katharine Graham, chairman of The Washington Post Company, about the possibility of engaging in joint publishing activities under the Newspaper Preservation Act. Althought the talks were friendly, it was not possible to reach an agreement acceptable to both companies and the talks were terminated.

Shepley expressed the hope that today's announcement might bring forth a buyer for The Star, and said Time Inc. would pursue that possiblity. To date there have been several discussions but none has been substantive.

A substantial portion of Time Inc.'s $85 million investment has previously been expensed. The total remaining cost to the company is estimated to be about $17.0 million after taxes, for which a reserve will be set up in Time Inc.'s third quarter.

"I have the most profound respect for the people who work at The Star," Munro said. "Despite years of uncertainty, they sacrificed a great deal to serve a newspaper of which they can be very proud. I also wish to pay tribute to Jim Shepley who, as The Star's chairman, took every reasonable course to revitalize the paper. Editor Murray Gart produced a distinguished publication, and publisher George Hoyt worked tirelessly to make it a going business under trying circumstances."

Time Inc. will engage outplacement services to assist in finding new jobs for The Star's employees, with special emphasis on minorities.