STAR FUNDS, 497, 1995-03-31

STAR FUNDS
497, 1995-03-31

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STAR PRIME OBLIGATIONS FUND

A PORTFOLIO OF THE STAR FUNDS

PROSPECTUS

The shares offered in this prospectus represent interests in Star Prime
Obligations Fund (the "Fund"), a portfolio of the Star Funds (the "Trust"), an
open-end management investment company (a mutual fund). It is proposed that,
on or about April 24, 1995, the Fund will transfer all of its assets to Star
Treasury Fund, in exchange for which shareholders of Star Prime Obligations
Fund would receive shares of Star Treasury Fund equal in value to shares of
Star Prime Obligations Fund. Star Prime Obligations Fund would then be
dissolved.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.

The Trust has also filed a separate Statement of Additional Information for
the Fund dated March 31, 1995, with the Securities and Exchange Commission.
The information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information,
or make inquiries about the Fund by writing to the Fund or by calling (513)
632-5547.

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 March 31, 1995

TABLE OF CONTENTS
--------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
-------------------------------------

FINANCIAL HIGHLIGHTS 2
-------------------------------------

GENERAL INFORMATION 3
-------------------------------------

INVESTMENT INFORMATION 3
-------------------------------------

Acceptable Investments 3

Bank Instruments 3

Short-Term Credit Facilities 3

Asset-Backed Securities 3

Restricted Securities 4

Concentration of Investments 4

Investment Risks 4

Repurchase Agreements 4

When-Issued and Delayed Delivery
Transactions 4

Regulatory Compliance 5

Reverse Repurchase Agreements 5

Variable Rate Demand Notes 5

Ratings 5

Credit Enhancement 6

Demand Features 6

Investment Limitations 6

STAR FUNDS INFORMATION 6
-------------------------------------

Management of the Trust 6

Board of Trustees 6

Investment Adviser 7

Advisory Fees 7

Adviser's Background 7

Distribution of Fund Shares 7

Distribution Plan 7

Administrative Arrangements 8

Administration of the Funds 8

Administrative Services 8

Custodian 8

Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services 8

Independent Public Accountants 8

NET ASSET VALUE 9
-------------------------------------

INVESTING IN THE FUND 9
-------------------------------------

Minimum Investment Required 9

What Shares Cost 9

Share Purchases 9

Through Star Bank 9

Through Shareholder Service
Organizations 9

Via a Sweep Account 9

Shareholder Service Organizations 10

Exchanging Securities for Fund
Shares 10

Certificates and Confirmations 10

Dividends 10

Capital Gains 10

EXCHANGE PRIVILEGE 11
-------------------------------------

Exchanging Shares 11

Exchange-By-Telephone 11

REDEEMING SHARES 12
-------------------------------------

By Telephone 12

Automatic Redemptions 12

Accounts with Low Balances 12

SHAREHOLDER INFORMATION 12
-------------------------------------

Voting Rights 12

Massachusetts Partnership Law 13

EFFECT OF BANKING LAWS 13
-------------------------------------

TAX INFORMATION 13
-------------------------------------

Federal Income Tax 13

PERFORMANCE INFORMATION 14
-------------------------------------

ADDRESSES 15
-------------------------------------

STAR PRIME OBLIGATIONS FUND

SUMMARY OF FUND EXPENSES
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............. None
Redemption Fees (as a percentage of amount redeemed, if
applicable)........................................................ None
Exchange Fee....................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fees.................................................... 0.55%
12b-1 Fees (1)..................................................... 0.00%
Total Other Expenses............................................... 0.38%
Shareholder Servicing Fees (2)................................... 0.03%
Total Operating Expenses (3)................................... 0.93%
</TABLE>

(1) 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 daily 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.

(2) The Fund can pay up to 0.25% of average daily net assets as a Shareholder
Servicing Fee. For the foreseeable future, the Fund plans to limit the
Shareholder Servicing Fee to 0.03% of average daily net assets.

(3) The Total Operating Expenses in the table above are based on expenses
expected to be incurred during the fiscal year ending November 30, 1995.
The Total Operating Expenses were 0.85% for the fiscal year ended November
30, 1994.

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."

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return
and (2) redemption at the end of each time
period. As noted in the table above, the Fund
charges no redemption fees..................... $9 $30 $51 $114
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

STAR PRIME OBLIGATIONS FUND

FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated January 13, 1995, on the
Fund's Financial Statements for the year ended November 30, 1994, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should be
read in conjunction with the Fund's Financial Statements and notes thereto,
contained in the Fund's Annual Report, which may be obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------
1994 1993 1992 1991 1990*
---------------------------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------
INCOME FROM INVESTMENT OPER-
ATIONS
----------------------------
Net investment income 0.03 0.02 0.03 0.05 0.06
---------------------------- ------ ------ ------ -------- -------
LESS DISTRIBUTIONS
----------------------------
Dividends to shareholders
from net
investment income (0.03) (0.02) (0.03) (0.05) (0.06)
---------------------------- ------- ------- -------- -------- -------
NET ASSET VALUE, END OF PE-
RIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------- ------ ------ ------ ------ ------
TOTAL RETURN** 3.22% 2.48% 3.37% 5.62% 6.31%
----------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------
Expenses 0.85% 0.82% 0.80% 0.87% 0.78%(b)
----------------------------
Net investment income 3.16% 2.45% 3.33% 5.31% 7.50%(b)
----------------------------
Expense
waiver/reimbursement (a) 0.00% 0.25% 0.25% 0.10% 0.03%(b)
----------------------------
SUPPLEMENTAL DATA
----------------------------
Net assets, end of period
(000 omitted) $86,343 $92,452 $112,638 $107,164 $54,441
----------------------------
</TABLE>

* Reflects operations for the period from February 5, 1990 (date of initial
public investment), to November 30, 1990. For the period from January 12,
1990 (start of business) to February 4, 1990, all income was distributed to
the Administrator.

** Based on net asset value, which does not reflect the sales load or
redemption fee, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

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 Prime Obligations Fund.

The Fund is designed primarily for customers of StarBanc Corporation and its
subsidiaries as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio limited to money market
instruments maturing in 397 days. A minimum initial investment of $1,000 ($25
for Star Bank Connections Group banking customers and Star Bank employees and
members of their immediate family) is required.

INVESTMENT INFORMATION
-------------------------------------------------------------------------------

The investment objective of the Fund is current income consistent with
stability of principal. 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. The investment objective cannot be
changed without approval of shareholders.

The Fund pursues this investment objective by investing exclusively in a
portfolio of high-quality money market instruments maturing in 397 days or
less. Unless indicated otherwise, the investment policies may be changed by
the Trustees without the approval of shareholders. Shareholders will be
notified before any material changes in these policies become effective.

ACCEPTABLE INVESTMENTS. The Fund invests in high-quality money market
instruments that are either rated in the highest short-term rating category by
one or more NRSRO or of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:

. domestic issues of corporate debt obligations, including variable rate
demand notes;
. commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
. certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
. short-term credit facilities, such as demand notes;
. asset-backed securities;
. obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
. other money market instruments.

The Fund invests only in instruments denominated and payable in U.S. dollars.

BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus, and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund
will treat securities credit-enhanced with a bank's letter of credit as
Bank Instruments.

SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as
the Fund) payable upon demand by either party. The notice period for
demand typically ranges from one to seven days, and the party may demand
full or partial payment. The Fund may also enter into, or acquire
participations in, short-term revolving credit facilities with corporate
borrowers. Demand notes and other short-term credit arrangements usually
provide for floating or variable rates of interest.

ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans
or accounts receivable. The securities may take the form of beneficial
interests in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the
securities often have some form of credit or liquidity enhancement,
payments on the securities depend predominately upon collections of the
loans and receivables held by the issuer.

RESTRICTED SECURITIES. The Fund intends to invest in restricted securities.
Restricted securities are any securities in which the Fund may otherwise
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities law. However, the Fund will
limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than
seven days after notice, to 10% of its net assets.

The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with
a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) paper, thus
providing liquidity. The Fund believes that Section 4(2) paper, and possibly
certain other restricted securities which meet the criteria for liquidity
established by the Trustees, though technically restricted, are quite liquid.
The Fund intends, therefore, to treat the securities which meet the criteria
for liquidity established by the Trustees, as determined by the Fund's
investment adviser, as liquid and not subject to the investment limitations
applicable to illiquid securities.

CONCENTRATION OF INVESTMENTS. The Fund may invest more than 25% of the value
of its total assets in cash or cash items (including instruments issued by a
U.S. branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment),
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. (As an operating policy, the Fund will consider
"instruments secured by these money market instruments" to be only repurchase
agreements.)

INVESTMENT RISKS. ECDs, ETDs, Yankee CDs, CCPs, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international, economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholdings or other taxes on
interest income, difficulties in obtaining or enforcing a judgment against the
issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for ECDs,
ETDs, and Yankee CDs because the banks issuing these instruments, or their
domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors will
be carefully considered by the Fund's adviser in selecting investments for the
Fund.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell securities to the Funds and agree
at the time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition.

The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-
term U.S. government obligations, Municipal Securities, and U.S. Treasury
obligations, respectively, 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 adviser deems it appropriate to do so. In addition, the
Fund may enter in transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other commitments
to purchase similar securities at later dates. The Fund may realize short-term
profits or losses upon the sale of such commitments.

REGULATORY COMPLIANCE. The Fund may follow non-fundamental operational
policies that are more restrictive than their fundamental investment
limitations, as set forth in this prospectus and in the Fund's Statement of
Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the Investment
Company Act of 1940, as amended. In particular, the Fund will comply with the
various requirements of Rule 2a-7, which regulates money market mutual funds.
For example, with limited exceptions, Rule 2a-7 prohibits the investment of
more than 5% of a Fund's total assets in the securities of any one issuer,
exclusive of U.S. government securities and repurchase agreements fully
collateralized thereby, although the Fund's investment limitations only
requires such 5% diversification with respect to 75% of its assets. The Fund
will invest more than 5% of its assets in any one issuer only under the
circumstances permitted by Rule 2a-7. The Fund will also determine the
effective maturity of their investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.

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.

When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.

During the period any reverse repurchase agreements are outstanding, the Fund
will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure completion
of the reverse repurchase agreements.

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.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments. These variable rate demand notes have variable or floating
interest rates and provide the Fund with the right to tender the security for
repurchase at its stated principal amount plus accrued interest. Such
securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually) and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days' prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand notes
as maturing on the later of the date of the next interest adjustment or the
date on which the Fund may next tender the security for repurchase.

For example, securities rated A-1 or A-1+ by S&P, Prime-1 by Moody's, or F-1
(+ or -) by Fitch are all considered rated in the highest short-term rating
category.

The Fund will follow applicable regulations in determining whether a security
rated by more than one NRSRO can be treated as being in the highest short-term
rating category. See "Regulatory Compliance." The Fund currently requires that
securities in which it invests be rated by two NRSROs in their highest rating
category.

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit, or insurance. The Fund
typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer.

Generally, the Fund will not treat credit-enhanced securities as having been
issued by the credit enhancer for diversification purposes. However, under
certain circumstances, applicable regulations may require the Fund to treat
the securities as having been issued by both the issuer and the credit
enhancer.

The bankruptcy, receivership, or default of the credit enhancer will adversely
affect the quality and marketability of the underlying security.

Tax-Free Money Market Fund may have more than 25% of its total assets invested
in securities credit- enhanced by banks.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may be
issued by the issuer of the underlying securities, a dealer in the securities,
or by another third party and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund with
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer
of the demand feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will adversely affect
the liquidity of the underlying security. Demand features that are exercisable
even after a payment default on the underlying security may be treated as a
form of credit enhancement.

INVESTMENT LIMITATIONS

The Fund will not:

. borrow money directly or through reverse repurchase agreements, or
pledge securities except, under certain circumstances, the Fund may
borrow up to one-third of the value of its net assets and pledge up to
15% of the value of its total assets to secure such borrowings; or

. with respect to 75% of the value of its total assets, invest more than
5% of its total assets in securities of one issuer (except repurchase
agreements collateralized by U.S. government securities and U.S.
government obligations). The remaining 25% of its total assets may be
invested in a single issuer if the investment adviser believes such a
strategy to be prudent.

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 this limitation becomes effective.

The Fund will not:

. commit more than 10% of its net assets to illiquid securities, including
repurchase agreements providing for settlement in more than seven days
after notice and non-negotiable fixed time deposits with maturities over
seven days and certain securities subject to restrictions on resale under
federal securities law.

STAR FUNDS INFORMATION
-------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved
for the shareholders. The Executive Committee of the Board of Trustees handles
the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank,
N.A., the Fund's investment adviser (the "Adviser" or "Star Bank"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from the
Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.55 of 1% of the Fund's average daily net assets. The Adviser
has undertaken to reimburse the Fund, up to the amount of its 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.

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, 1994, Star Bank had an asset base of $9.4 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 $13.4 billion as of December 31, 1994.

Star Bank has managed commingled funds since 1957. As of December 31,
1994, it manages 9 common trust funds and collective investment funds
having a market value in excess of $270 million. Additionally, Star Bank
has advised the portfolios of the Trust since 1989.

As part of their regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the
Funds 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 will pay to Federated Securities Corp. an amount computed at an annual
rate of 0.25 of 1% of the average daily net asset value of its shares to
finance any activity which is principally intended to result in the sale of
its 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.

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 each Fund owned by their clients or customers. The fees
are calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. The current annual rate of such fees is up to
0.30 of 1% for the Fund. Any fees paid for these services by the distributor
will be reimbursed by the Adviser. Payments made here are in addition to any
payments made under the Fund's Rule 12b-1 Distribution Plan 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:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
------------------ ---------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.

SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to shares of the Fund. Under the Services
Plan, financial institutions will enter into shareholder service agreements
with the Fund to provide administrative support and personal services to their
customers who from time to time may be owners of record or beneficial owners
of shares of the Fund. In return for providing these support services, a
financial institution may receive payments from the Fund at a rate not
exceeding 0.25 of 1% of the average daily net assets of shares of the Fund
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship.

CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities
and cash of the Fund.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary
of Federated Investors, is transfer agent and dividend disbursing agent for
the Fund. It also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments.

INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Fund are Arthur Andersen LLP, Pittsburgh, Pennsylvania.

NET ASSET VALUE
-------------------------------------------------------------------------------

The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting total liabilities of the
Fund from the Fund's total assets and dividing the remainder by the number of
the Fund's shares outstanding. The Fund cannot guarantee that its net asset
value will always remain at $1.00 per share.

INVESTING IN THE FUND
-------------------------------------------------------------------------------

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Fund by an investor is $1,000 ($25 for
Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family). Subsequent investments may be in any
amounts. For customers of Star Bank, an institutional investor's minimum
investment will be calculated by combining all mutual fund accounts it
maintains with Star Bank and invests with a Fund. Accounts established through
a Shareholder Service Organization may be subject to a smaller minimum
investment. (See "Shareholder Service Organizations.") Shareholders purchasing
through sweep accounts should refer to their sweep agreement or other account
agreement for required investment minimums.

WHAT SHARES COST

Fund shares are sold at their net asset value next determined after an order
is received. There is no sales charge imposed by the Fund.

The net asset value is determined at 12:00 noon and 4:00 p.m. (Eastern time),
Monday through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.

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 should 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 (513) 632-5547 or place the
order in person.

Payment may be made to Star Bank either by check or federal funds. Orders are
considered received after payment by check is converted into federal funds and
received by Star Bank. 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 10:30 a.m. (Eastern time) and
payment by federal funds must be received by Star Bank before 3:00 p.m.
(Eastern time) on the same day as the order to earn dividends for that day.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed or on federal holidays restricting wire transfers.

THROUGH SHAREHOLDER SERVICE ORGANIZATIONS. To purchase shares of the Fund for
an investor, the relevant Shareholder Service Organization, as defined below,
must open an account by calling Star Bank at (513) 632-5547. Information
needed to establish the account will be taken over the telephone. The Fund
reserves the right to reject any purchase request.

VIA A SWEEP ACCOUNT. If you are investing in the Fund as part of a sweep
program, automatic purchases and redemptions will be made by Star Bank or by
the relevant Shareholder Service Organization on your behalf pursuant to your
sweep or other account agreement. You should refer to your sweep or other
account agreement for information on the frequency of automatic purchases and
redemptions and statement and confirmation schedules.

SHAREHOLDER SERVICE ORGANIZATIONS

"Shareholder Service Organizations" are non-affiliated banks and
broker/dealers who provide certain support and/or distribution services to
their customers who are the beneficial owners of the Fund's shares. The
services provided by Shareholder Service Organizations are fully discussed in
the account agreement between the Shareholder Service Organization and its
customers but generally include assisting customers in processing purchase,
exchange, and redemption requests.

Shareholder Service Organizations are responsible for prompt transmission of
orders. These Service Organizations are the record owners of the shares of the
Fund. Shareholder Service Organizations may charge their customers for
services relating to their investment in the Fund. This prospectus should,
therefore, be read together with any account agreement between the customer
and the Shareholder Service Organization with regard to the services provided,
the fees charged for those services, and any restrictions and limitations
imposed.

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 its 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 market value of any
securities exchanged in an initial investment, plus any cash, must be at least
$25,000.

Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of the
Fund will be issued for each equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other
rights attached to the securities become the property of the Fund, along with
the securities.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.

Monthly confirmations are sent to report transactions such as purchases and
redemptions, as well as dividends, paid during the month.

Since any Shareholder Service Organization will maintain a master account with
the Fund, investors purchasing through those institutions will not receive
confirmations from Federated Services Company. Confirmations will be mailed by
the relevant Shareholder Service Organization.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional shares of the Fund on payment dates unless cash payments are
requested by writing to the Fund or Star Bank, as appropriate. Share purchase
settlements received by Star Bank before 3:00 p.m. (Eastern time) earn
dividends that day.

Shareholders investing in the Fund through a Shareholder Service Organization
should consult their account agreement with their Shareholder Service
Organization concerning any applicable dividend payment options.

CAPITAL GAINS

If the Fund experiences capital gains, it could result in an increase in
dividends for that Fund. Capital losses could result in a decrease in
dividends for that Fund. If for some extraordinary reason the Fund realizes
net long-term capital gains, the Fund will distribute them at least once every
12 months.

EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------

All shareholders of the Fund are shareholders of the Star Funds. Star Funds
currently consist of the Fund, Star Relative Value Fund, Star Tax-Free Money
Market Fund, Star Treasury Fund, Star U.S. Government Income Fund, Star
Strategic Income Fund, Star Growth Equity Fund, Star Capital Appreciation
Fund, and The Stellar Fund. Until further notice, through a telephone exchange
program, shareholders invested in the Fund can exchange only among the other
money market funds of the Trust, and shareholders invested in the non-money
market funds can exchange only among the other non-money market funds of the
Trust. Each portfolio in the Star Funds is advised by Star Bank and
distributed by Federated Securities Corp.

EXCHANGING SHARES

Shareholders of the Fund may exchange shares of the Fund for shares of other
Money Market Funds in the Trust. In addition, shares of the Fund may also be
exchanged for certain other funds distributed by Federated Securities Corp.
that are not advised by Star Bank, N.A. ("Federated Funds"). For further
information on the availability of Federated Funds for exchanges, please call
Star Bank, N.A. at the telephone number listed on the front cover.
Shareholders investing through a sweep account may not exercise this
privilege.

Shareholders who exercise this exchange privilege must exchange shares having
a net asset value of at least $1,000. Accounts established through a
Shareholder Service Organization may be subject to a smaller minimum exchange
investment, and shareholders should consult their account agreement with their
Shareholder Service Organization for information and procedures on effecting
exchanges. 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.

When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends on such shares retain the character of the
exchanged shares for purposes of exercising further exchange privileges; thus,
an exchange of such shares for shares of a fund with a sales charge would be
at net asset value.

The exchange privilege is available to shareholders residing in any state in
which the Fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, shares submitted
for exchange will be redeemed at the next-determined net asset value.

Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes, and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized. The exchange privilege may be terminated at any time.
Shareholders will be notified of the termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by
calling Star Bank at (513) 632-5547.

EXCHANGE-BY-TELEPHONE

Instructions for exchange between funds which are part of the Star Funds may
be given by telephone to Star Bank at (513) 632-5547 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 3:00 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.

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 Funds compute their 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 or by telephone through Star Bank.

Shareholders establishing accounts through a Shareholder Service Organization
should consult their account agreement for information on redeeming shares.

BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem shares
of the Fund by telephoning Star Bank at (513) 632-5547. Redemption requests
given by telephone may be electronically recorded. For calls received by Star
Bank before 10:30 a.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. Those shares will not be entitled to the dividend
declared that day. For calls received by Star Bank after 10:30 a.m. (Eastern
time), proceeds will normally be wired or a check mailed the following
business day. Those shares will be entitled to the dividend declared on the
day the redemption request was received. 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.

AUTOMATIC REDEMPTIONS. Shareholders investing through a sweep account may be
subject to automatic redemptions when their relevant deposit account falls
below the required minimum. Shareholders should refer to their sweep agreement
for details.

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. Shareholders establishing accounts through a
Shareholder Service Organization should consult their account agreement for
information regarding accounts with low balances. Shareholders who purchase
shares via a sweep account are not subject to an investment minimum.

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. As of March 7, 1995, Star Bank, N.A., Cincinnati, Ohio, acting
in various capacities for numerous accounts, was the owner of record of
88,631,632 shares (93.66%) of the Fund, and therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.

Trustees may be removed by a two-thirds vote of the number of Trustees prior
to such removal or by a two-thirds vote of the shareholders of the Trust at a
special meeting. A special meeting of shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares of all series entitled to vote.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required, by the Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.

EFFECT OF BANKING LAWS
-------------------------------------------------------------------------------

The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company Act
of 1956 or any affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end investment company continuously engaged in the issuance
of its shares, and from issuing, underwriting, selling, or distributing
securities in general. Such laws and regulations do not prohibit such a
holding company or affiliate from acting as investment adviser, transfer
agent, or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customer. The Fund's
investment adviser, Star Bank, is subject to such banking laws and
regulations.

Star Bank believes that it may perform the investment advisory services for
the Fund contemplated by its advisory agreements with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Star Bank from continuing to perform all or a part of the above services for
its customers and/or the Fund. In such event, changes in the operation of the
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Star Bank, and the Trustees would consider alternative investment
advisers and other means of continuing available investment services. It is
not expected that the Fund's shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Star Bank is
found) as a result of any of these occurrences.

TAX INFORMATION
-------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders of the Fund are required to pay federal
income tax on any dividends and other distributions, including capital gains
distributions (if any), received. This applies whether dividends and
distributions are received in cash or as additional shares. The Fund will
provide detailed tax information for reporting purposes.

Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.

PERFORMANCE INFORMATION
-------------------------------------------------------------------------------

From time to time, the Fund advertises yield and effective yield.

The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but,
when annualized, the income earned by an investment in the Fund is assumed to
be reinvested daily. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.

Advertisements and other sales literature may also refer to total return.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.

From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.

ADDRESSES
--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
Star Prime Obligations Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
-------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------

STAR BANK, N.A. Investment Adviser

--------------------------------------

FEDERATED SECURITIES CORP.
Distributor
--------------------------------------

G00522-07 (3/95) 4289TRA

STAR FUNDS MONEY MARKET FUNDS
Prospectus

March 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

STAR FUNDS
MONEY MARKET FUNDS
PORTFOLIOS OF THE STAR FUNDS

PROSPECTUS

The shares offered in this prospectus represent interests in the Star Tax-Free
Money Market Fund and Star Treasury Fund (individually referred to as the
"Fund" or collectively as the "Funds"), portfolios of the Star Funds (the
"Trust"), an open-end management investment company (a mutual fund). The Trust
consists of the following eight separate diversified investment portfolios,
each having a distinct investment objective and policies.

Money Market Funds

. Star Tax-Free Money Market Fund
. Star Treasury Fund

Stock and Bond Funds

. 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

In addition, the Trust offers by separate prospectus, Star Prime Obligations
Fund, which proposes on or about April 24, 1995 to transfer all of its assets
to Star Treasury Fund in exchange for which shareholders of Star Prime
Obligations Fund would receive shares of Star Treasury Fund equal in value to
their shares of Star Prime Obligations Fund. Star Prime Obligations Fund would
then be dissolved.

This prospectus relates only to the Star Tax Free Money Market Fund and Star
Treasury Fund and contains the information you should read and know before you
invest in either of these Funds. Keep this prospectus for future reference.

AN INVESTMENT IN EITHER OF THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO
SO.

The Trust has also filed separate Statements of Additional Information for
each Fund dated March 31, 1995, with the Securities and Exchange Commission.
The information contained in each Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information,
or make inquiries about a Fund by writing to the Fund or by calling (513) 632-
5547.

Prospectus dated March 31, 1995

TABLE OF CONTENTS
--------------------------------------------------------------------------------

SYNOPSIS 1
-------------------------------------
SUMMARY OF FUND EXPENSES 2
-------------------------------------
FINANCIAL HIGHLIGHTS 4
-------------------------------------
OBJECTIVE AND INVESTMENT POLICIES OF
EACH FUND 6
-------------------------------------

General 6

Tax-Free Money Market Fund 6
Acceptable Investments 6
Participation Interests 7
Municipal Leases 7

Variable Rate Demand Notes 7

Ratings 7

Credit Enhancement 8

Demand Features 8
Restricted and Illiquid
Securities 8
Investing in Securities of Other
Investment Companies 8
Temporary Investments 8
Municipal Securities 9
Investment Risks 9
Treasury Fund 9
Acceptable Investments 9

Reverse Repurchase Agreements 9

Common Investment Techniques of the
Funds 10
Repurchase Agreements 10
When-Issued and Delayed Delivery
Transactions 10
Regulatory Compliance 10

Investment Limitations 10
STAR FUNDS INFORMATION 11
-------------------------------------
Management of the Trust 11
Board of Trustees 11
Investment Adviser 11
Advisory Fees 11
Adviser's Background 11
Distribution of Fund Shares 12
Distribution Plan 12
Administrative Arrangements 12
Administration of the Funds 13
Administrative Services 13
Custodian 13
Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services 13

Independent Public Accountants 13
NET ASSET VALUE 13
-------------------------------------
INVESTING IN THE FUNDS 13
-------------------------------------
Minimum Investment Required 13
What Shares Cost 13
Share Purchases 14
Through Star Bank 14
Through Shareholder Service
Organizations 14
Via a Sweep Account 14
Shareholder Service Organizations 14
Exchanging Securities for Fund
Shares 14
Certificates and Confirmations 15
Dividends 15
Capital Gains 15
EXCHANGE PRIVILEGE 15
-------------------------------------

Exchanging Shares 15
Exchange-By-Telephone 16
REDEEMING SHARES 16
-------------------------------------
By Telephone 16
Automatic Redemptions 16
Accounts with Low Balances 17

SHAREHOLDER INFORMATION 17
-------------------------------------
Voting Rights 17
Massachusetts Partnership Law 17
EFFECT OF BANKING LAWS 17
-------------------------------------
TAX INFORMATION 18
-------------------------------------
Federal Income Tax 18
Tax-Free Money Market Fund--
Additional Tax Information 18
State and Local Taxes 19
PERFORMANCE INFORMATION 19
-------------------------------------

ADDRESSES 20
-------------------------------------

SYNOPSIS
-------------------------------------------------------------------------------

The Trust, an open-end, diversified management investment company, 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.

The Funds are designed primarily for customers, correspondents, or affiliates
of Star Bank, N.A., as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio limited to either short-term
municipal securities or U.S. Treasury obligations.

This prospectus relates to the shares of the following two Funds:

. Star Tax-Free Money Market Fund ("Tax-Free Money Market Fund")--seeks to
provide current income exempt from federal regular income tax consistent
with stability of principal. Tax-Free Money Market Fund pursues this
objective by investing in a diversified portfolio of short-term municipal
securities.
. Star Treasury Fund ("Treasury Fund")--seeks to achieve stability of
principal and current income consistent with stability of principal.
Treasury Fund pursues this objective by investing exclusively in short-
term U.S. Treasury obligations.

For information on how to purchase shares of either of the Funds, please refer
to "Investing in the Funds." A minimum initial investment of $1,000 ($25 for
Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family) is required for each Fund. Shares of each
Fund are sold and redeemed at net asset value. Information on redeeming shares
may be found under "Redeeming Shares." Star Bank, N.A., is the investment
adviser to the Funds.

STAR TAX-FREE MONEY MARKET FUND

SUMMARY OF FUND EXPENSES
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..... None
Exchange Fee............................................................ None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fees (after waiver) (1)...................................... 0.40%
12b-1 Fees (2).......................................................... 0.00%
Total Other Expenses.................................................... 0.28%
Shareholder Servicing Fees (3)................................... 0.03%
Total Operating Expenses (after waiver) (4)......................... 0.68%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.55%.

(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 daily 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 daily net assets as a Shareholder
Servicing Fee. For the foreseeable future, the Fund plans to limit the
Shareholder Servicing Fee to 0.03% of average daily net assets.

(4) The Total Operating Expenses in the table above are based on expenses
expected to be incurred during the fiscal year ending November 30, 1995.
The Total Operating Expenses were 0.65% for the fiscal year ended November
30, 1994 and were 0.80% absent the voluntary waiver described above in
Note 1.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

STAR TREASURY FUND

SUMMARY OF FUND EXPENSES
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..... None
Exchange Fee............................................................ None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fees......................................................... 0.50%
12b-1 Fees (1).......................................................... 0.00%
Total Other Expenses.................................................... 0.23%
Shareholder Servicing Fees (2)................................... 0.03%
Total Operating Expenses (3)........................................ 0.73%
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

STAR TAX-FREE MONEY MARKET FUND

FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

* Reflects operations for the period from March 15, 1991 (date of initial
public investment) to November 30, 1991.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

STAR TREASURY FUND

FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------
1994 1993 1992 1991 1990 1989*
------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------
INCOME FROM INVESTMENT
OPERATIONS
------------------------
Net investment income 0.03 0.03 0.03 0.06 0.07 0.05
------------------------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
------------------------
Dividends to sharehold-
ers from net investment
income (0.03) (0.03) (0.03) (0.06) (0.07) (0.05)
------------------------ ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------ ------ ------ ------ ------ ------ ------
TOTAL RETURN** 3.30% 2.56% 3.41% 5.72% 7.72% 5.36%
------------------------
RATIOS TO AVERAGE NET
ASSETS
------------------------
Expenses 0.70% 0.70% 0.71% 0.71% 0.73% 0.77%(b)
------------------------
Net investment income 3.24% 2.53% 3.33% 5.51% 7.44% 8.28%(b)
------------------------
Expense waiver/
reimbursement (a) 0.00% 0.25% 0.25% 0.10% 0.03% 0.01%(b)
------------------------
SUPPLEMENTAL DATA
------------------------
Net assets, end of pe-
riod
(000 omitted) $358,766 $386,020 $346,508 $307,278 $226,519 $174,062
------------------------
</TABLE>

* Reflects operations for the period from April 14, 1989 (date of initial
public investment) to November 30, 1989.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

OBJECTIVE AND INVESTMENT POLICIES OF EACH FUND
-------------------------------------------------------------------------------

The investment objective and policies of each Fund appear below. The
investment objective of a Fund cannot be changed without the approval of
holders of a majority of that Fund's shares. While there is no assurance that
a Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.

The investment policies and limitations described cannot be changed without
the approval of a majority of a Fund's shares, except as noted. Additional
information about investment limitations, strategies that either of the Funds
may employ, and certain investment policies mentioned below appear in the
"Common Investment Techniques" sections of this prospectus and in each Fund's
Statement of Additional Information.

GENERAL

The Money Market Funds intend to limit their investments by operating in a
manner consistent with Rule 2a-7, as amended, under the Investment Company Act
of 1940. Rule 2a-7 permits the Funds to utilize the amortized cost method of
valuation in order to offer their shares at a net asset value of $1.00 per
share. (See also the section in each Fund's Statement of Additional
Information entitled "Determining Net Asset Value.") Rule 2a-7 imposes certain
risk-limiting conditions on the Funds which, in some instances, restrict a
Fund's investment policies. These risk-limiting conditions include the
following:

. The Funds must limit their investments to "Eligible Securities," as
defined under Rule 2a-7, and which the Funds' adviser has determined
present minimal credit risks under guidelines adopted by the Trust's
Board of Trustees ("Trustees").

. Treasury Fund must limit investments in "Second Tier Securities," as
defined under Rule 2a-7, to 5% of its total assets and to 1% of its total
assets in the securities of a single Second Tier issuer.
. The Funds may invest without limit in "First Tier Securities," as
defined under Rule 2a-7, subject to the Funds' issuer diversification
limitation. In addition, the portfolio investments of each Fund must have
a maturity of 397 days or less from the time of purchase by a Fund,
although securities owned pursuant to a repurchase agreement and certain
adjustable interest rate instruments may bear longer maturities. The
dollar-weighted average maturity of each Fund's portfolio must not exceed
90 days. A Fund's yield and, under unusual circumstances, the value of
its portfolio securities may be affected by changes in interest rates.

For a description of the ratings of nationally recognized statistical rating
organizations (individually, an "NRSRO") utilized in managing each Fund's
investments, see the Appendix to each Fund's Statement of Additional
Information, if any.

TAX-FREE MONEY MARKET FUND

The investment objective of Tax-Free Money Market Fund is current income
exempt from federal regular income tax consistent with stability of principal.
Federal regular income tax refers to normal income tax that most U.S.
taxpayers compute and pay each year and does not include the federal
alternative minimum tax for individuals or corporations. Interest income of
the Fund that is exempt from federal regular income tax retains its tax-free
status when distributed to the Fund's shareholders. The Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income tax and not subject to the alternative minimum tax.
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. Unless otherwise indicated, the investment
objective and the policies and limitations described below cannot be changed
without approval of shareholders.

The Fund pursues this investment objective by investing in a portfolio of
short-term municipal securities.

ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued
by or on behalf of states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from federal regular income tax ("Municipal
Securities"). Examples of Municipal Securities include, but are not limited
to:

. tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
. bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases;
. construction loan notes insured by the Federal Housing Administration
and financed by the Federal or Government National Mortgage Associations;
and
. participation, trust and partnership interests in any of the foregoing
obligations.

PARTICIPATION INTERESTS. The Fund may purchase interests in Municipal
Securities from financial institutions such as commercial and investment
banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying Municipal Securities.

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.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are Municipal
Securities. These variable rate demand notes have variable or floating
interest rates and provide the Fund with the right to tender the security
for repurchase at its stated principal amount plus accrued interest. Such
securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually) and is normally based
on a published interest rate or interest rate index. Most variable rate
demand notes allow the Fund to demand the repurchase of the security on
not more than seven days' prior notice. Other notes only permit the Fund
to tender the security at the time of each interest rate adjustment or at
other fixed intervals. See "Demand Features." The Fund treats variable
rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which the Fund may next tender the
security for repurchase.

RATINGS. The securities in which the Fund is permitted to invest are rated in
the highest short-term rating category by one or more NRSRO or are of
comparable quality to securities having such ratings. A NRSRO's highest rating
category is determined without regard for sub-categories and gradations. For
example, securities rated A-1 or A-1+ by Standard & Poor's Ratings Group
("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or F-1 (+ or
-) by Fitch Investors Service, Inc. ("Fitch") are all considered rated in the
highest short-term rating category.

The Fund may also purchase bonds which have no short-term ratings but which
have long-term ratings by NRSROs in the two highest rating categories. The
Fund has the ability but no present intention of investing in Municipal
Securities that are rated MIG2 or VMIG2 by Moody's, FIN-2 by Fitch, or A-2 or
SP-2 by S&P and tax-exempt commercial paper that is rated P-2 by Moody's, A-2
by S&P, or F-2 by Fitch, or securities which are not rated but are deemed to
be of comparable quality. Shareholders of the Fund will be notified should the
Fund decide to invest in these securities.

The Fund will treat credit-enchanced securities as having been issued by the
credit enhancer for diversification purposes, unless the Fund has invested
more than 10% of its assets in securities issued, guaranteed, or otherwise
credit-enchanced by the credit enhancer, in which case the securities will be
treated as having been issued both by the issuer and the credit enhancer.

The bankruptcy, receivership, or default of the credit enhancer will adversely
affect the quality and marketability of the underlying security.

The Fund may have more than 25% of its total assets invested in securities
credit-enhanced by banks.

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 10% of its net assets.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund may only
invest in the securities of other investment companies that are money market
funds having investment objectives and policies similar to its own and
primarily for the purpose of investing short-term cash which has not yet been
invested in other portfolio instruments. The adviser to the Fund will waive
its investment advisory fee on that portion of its 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.

TEMPORARY INVESTMENTS. From time to time, when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term temporary investments. Interest income from
temporary investments may be taxable to shareholders as ordinary income. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality and maturity characteristics as
Municipal Securities purchased by the Fund; marketable obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
instruments issued by banks or other depository institutions which have
capital, surplus, and undivided profits in excess of $100,000,000 at the time
of investment; repurchase agreements; and prime commercial paper rated A-1 by
S&P, Prime-1 by Moody's, or F-1 by Fitch, and other short-term credit
instruments.

Although the Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular income
tax.

MUNICIPAL SECURITIES. 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.

INVESTMENT RISKS. Yields on Municipal Securities depend on a variety of
factors, including: the general conditions of the short-term municipal note
market and of the municipal bond market; the size of the particular offering;
the maturity of the obligations; and the rating 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 and demand features, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due.

TREASURY FUND

The investment objective of Treasury Fund is stability of principal and
current income consistent with stability of principal. 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. The
investment objective and the policies and limitations described below cannot
be changed without approval of shareholders.

The Fund pursues its investment objective by investing in a portfolio
consisting exclusively of short-term U.S. Treasury obligations. The Fund may
purchase these securities pursuant to repurchase agreements.

ACCEPTABLE INVESTMENTS. The short-term U.S. Treasury obligations in which the
Fund invests are issued by the U.S. government and are fully guaranteed as to
principal and interest by the United States. They mature in 397 days or less
from the date of acquisition unless they are purchased under a repurchase
agreement that provides for repurchase by the seller within 397 days from the
date of acquisition. The Fund may also retain Fund assets in cash.

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.

COMMON INVESTMENT TECHNIQUES OF THE FUNDS

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements.
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell securities to the Funds and agree
at the time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition.

The Funds or their custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from a
Fund, that Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that under the
regular procedures normally in effect for custody of the Funds' portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Funds and allow retention or disposition of such
securities. The Funds will only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
deemed by the Funds' adviser to be creditworthy pursuant to guidelines
established by the Trustees.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase short-
term U.S. government obligations, Municipal Securities, and U.S. Treasury
obligations, respectively, 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 adviser deems
it appropriate to do so. In addition, the Fund may enter in transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. The Fund may realize short-term profits or losses upon the sale
of such commitments.

REGULATORY COMPLIANCE. The Funds may follow non-fundamental operational
policies that are more restrictive than their fundamental investment
limitations, as set forth in this prospectus and in each Fund's Statement of
Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the Investment
Company Act of 1940, as amended. In particular, the Funds will comply with the
various requirements of Rule 2a-7, which regulates money market mutual funds.
For example, with limited exceptions, Rule 2a-7 prohibits the investment of
more than 5% of a Fund's total assets in the securities of any one issuer,
exclusive of U.S. government securities and repurchase agreements fully
collateralized thereby, although the Fund's investment limitations only
requires such 5% diversification with respect to 75% of its assets. Tax-Free
Money Market Fund will invest more than 5% of its assets in any one issuer
only under the circumstances permitted by Rule 2a-7. Tax-Free Money Market
Fund will also determine the effective maturity of its investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Funds may change these
operational policies to reflect changes in the laws and regulations without
the approval of their shareholders.

INVESTMENT LIMITATIONS

Tax-Free Money Market Fund will not:

. borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 15% of the value of those assets to secure such borrowings;
or

. with respect to 75% of the value of its total assets, invest more than
5% of its total assets in securities of one issuer (except cash, cash
items, repurchase agreements collateralized by U.S. government securities
and U.S. government obligations). The remaining 25% of its total assets
may be invested in a single issuer if the investment adviser believes
such a strategy is prudent.

Treasury Fund will not:

. borrow money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of
the value of its total assets and pledge up to 10% of the value of its
total assets to secure such borrowings.

Tax-Free Money Market Fund will not:

. invest more than 5% of the value of its total assets in industrial
revenue bonds where the payment of principal and interest is the
responsibility of companies (or guarantors, if applicable) that have
records of less than three years of continuous operations, including the
operation of any predecessor; or

. invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within
seven days, municipal leases not determined by the Trustees to be liquid,
and repurchase agreements providing for settlement in more than seven
days after notice.

Treasury Fund will not:

. commit more than 10% of its net assets to illiquid obligations,
including repurchase agreements providing for settlement in more than
seven days after notice.

STAR FUNDS INFORMATION
-------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

INVESTMENT ADVISER. Investment decisions for the Funds are made by Star Bank,
N.A., the Funds' investment adviser (the "Adviser" or "Star Bank"), subject to
direction by the Trustees. The Adviser continually conducts investment
research and supervision for the Funds and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from each
Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.50 of 1% of Treasury Fund's average daily net assets and 0.55
of 1% of Tax-Free Money Market Fund's average daily net assets. The
Adviser has undertaken to reimburse each Fund, up to the amount of its
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 one or all of the Funds for certain operating
expenses.

Star Bank's expertise in trust administration, investments, and estate
planning ranks it among the most predominant trust institutions in Ohio,
with assets of $13.4 billion as of December 31, 1994.

As part of their regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible from time to time, for the
Funds 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 Funds. 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"), each
Fund will pay to Federated Securities Corp. an amount computed at an annual
rate of 0.25 of 1% of the average daily net asset value of its shares to
finance any activity which is principally intended to result in the sale of
its shares subject to the Plan.

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 each Fund; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Funds reasonably request.

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.

Brokers, dealers, and administrators will receive fees from the distributor
based upon shares of each Fund owned by their clients or customers. The fees
are calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and
administrators provide services. The current annual rate of such fees is up to
0.30 of 1% for each Fund. Any fees paid for these services by the distributor
will be reimbursed by the Adviser. Payments made here are in addition to any
payments made under the Funds' Rule 12b-1 Distribution Plan or Shareholder
Services Plan.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services necessary to operate the Funds,
such as legal and accounting services. Federated Administrative Services
provides these at an annual rate as specified below:

The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.

SHAREHOLDER SERVICES PLAN. The Funds have adopted a Shareholder Services Plan
(the "Services Plan") with respect to shares of a Fund. Under the Services
Plan, financial institutions will enter into shareholder service agreements
with a Fund to provide administrative support and personal services to their
customers who from time to time may be owners of record or beneficial owners
of shares of a Fund. In return for providing these support services, a
financial institution may receive payments from a Fund at a rate not exceeding
0.25 of 1% of the average daily net assets of shares of a Fund beneficially
owned by the financial institution's customers for whom it is holder of record
or with whom it has a servicing relationship.

CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities
and cash of each Fund.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary
of Federated Investors, is transfer agent and dividend disbursing agent for
the Funds. It also provides certain accounting and recordkeeping services with
respect to each Fund's portfolio investments.

INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Funds are Arthur Andersen LLP, Pittsburgh, Pennsylvania.

NET ASSET VALUE
-------------------------------------------------------------------------------

The Funds attempt to stabilize the net asset value of their shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting total liabilities of a Fund
from that Fund's total assets and dividing the remainder by the number of that
Fund's shares outstanding. A Fund cannot guarantee that its net asset value
will always remain at $1.00 per share.

INVESTING IN THE FUNDS
-------------------------------------------------------------------------------

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in either of the Funds by an investor is $1,000
($25 for Star Bank Connections Group Banking customers and Star Bank employees
and members of their immediate family). Subsequent investments may be in any
amounts. For customers of Star Bank, an institutional investor's minimum
investment will be calculated by combining all mutual fund accounts it
maintains with Star Bank and invests with a Fund. Accounts established through
a Shareholder Service Organization may be subject to a smaller minimum
investment. (See "Shareholder Service Organizations.") Shareholders purchasing
through sweep accounts should refer to their sweep agreement or other account
agreement for required investment minimums.

WHAT SHARES COST

Fund shares are sold at their net asset value next determined after an order
is received. There is no sales charge imposed by any of the Funds.

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 a Fund through Star Bank. Texas residents should 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 Funds
reserve the right to reject any purchase request.

THROUGH STAR BANK. To place an order to purchase shares of a Fund, a customer
of Star Bank may telephone Star Bank at (513) 632-5547 or place the order in
person.

THROUGH SHAREHOLDER SERVICE ORGANIZATIONS. To purchase shares of the Funds for
an investor, the relevant Shareholder Service Organization, as defined below,
must open an account by calling Star Bank at (513) 632-5547. Information
needed to establish the account will be taken over the telephone. The Funds
reserve the right to reject any purchase request.

VIA A SWEEP ACCOUNT. If you are investing in any of the Funds as part of a
sweep program, automatic purchases and redemptions will be made by Star Bank
or by the relevant Shareholder Service Organization on your behalf pursuant to
your sweep or other account agreement. You should refer to your sweep or other
account agreement for information on the frequency of automatic purchases and
redemptions and statement and confirmation schedules.

SHAREHOLDER SERVICE ORGANIZATIONS

"Shareholder Service Organizations" are non-affiliated banks and
broker/dealers who provide certain support and/or distribution services to
their customers who are the beneficial owners of the Funds' shares. The
services provided by Shareholder Service Organizations are fully discussed in
the account agreement between the Shareholder Service Organization and its
customers but generally include assisting customers in processing purchase,
exchange, and redemption requests.

Shareholder Service Organizations are responsible for prompt transmission of
orders. These Service Organizations are the record owners of the shares of the
Funds. Shareholder Service Organizations may charge their customers for
services relating to their investment in the Funds. This prospectus should,
therefore, be read together with any account agreement between the customer
and the Shareholder Service Organization with regard to the services provided,
the fees charged for those services, and any restrictions and limitations
imposed.

EXCHANGING SECURITIES FOR FUND SHARES

The Funds may accept securities in exchange for Fund shares. Each Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and its Adviser that the securities to be exchanged
are acceptable.

Securities accepted by a 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.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.

Monthly confirmations are sent to report transactions such as purchases and
redemptions, as well as dividends, paid during the month.

Since any Shareholder Service Organization will maintain a master account with
the Funds, investors purchasing through those institutions will not receive
confirmations from Federated Services Company. Confirmations will be mailed by
the relevant Shareholder Service Organization.

DIVIDENDS

Shareholders investing in any of the Funds through a Shareholder Service
Organization should consult their account agreement with their Shareholder
Service Organization concerning any applicable dividend payment options.

CAPITAL GAINS

If any of the Funds experience capital gains, it could result in an increase
in dividends for that Fund. Capital losses could result in a decrease in
dividends for that Fund. If for some extraordinary reason any of the Funds
realize net long-term capital gains, that Fund will distribute them at least
once every 12 months.

EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------

All shareholders of the Funds are shareholders of the Star Funds. Star Funds
currently consist of those Funds listed on the cover page of this prospectus.
Until further notice, through a telephone exchange program, shareholders
invested in the money market funds can exchange only among the other money
market funds of the Trust, and shareholders invested in the non-money market
funds can exchange only among certain other non-money market funds of the
Trust. Each portfolio in the Star Funds is advised by Star Bank and
distributed by Federated Securities Corp.

EXCHANGING SHARES

Shareholders of one Fund may exchange shares of that Fund for shares of the
other Fund at net asset value. In addition, shares of a Fund may also be
exchanged for certain other funds distributed by Federated Securities Corp.
that are not advised by Star Bank, N.A. ("Federated Funds"). For further
information on the availability of Federated Funds for exchanges, please call
Star Bank, N.A. at the telephone number listed on the front cover.
Shareholders investing through a sweep account may not exercise this
privilege.

Shares may be exchanged at net asset value.

EXCHANGE-BY-TELEPHONE

Telephone exchange instructions must be received before 3:00 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 Funds may
have difficulty in making exchanges by telephone through brokers, banks, or
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker, bank, or financial
institution by telephone, it is recommended that an exchange request be made
in writing and sent by overnight mail.

If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.

REDEEMING SHARES
-------------------------------------------------------------------------------

The Funds redeem shares at their net asset value next determined after Star
Bank receives the redemption request. Redemptions will be made on days on
which the Funds compute their 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 or by telephone through Star Bank.

Shareholders establishing accounts through a Shareholder Service Organization
should consult their account agreement for information on redeeming shares.

BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem shares
of a Fund by telephoning Star Bank at (513) 632-5547. Redemption requests
given by telephone may be electronically recorded. For calls received by Star
Bank before 10:30 a.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. Those shares will not be entitled to the dividend
declared that day. For calls received by Star Bank after 10:30 a.m. (Eastern
time), proceeds will normally be wired or a check mailed the following
business day. Those shares will be entitled to the dividend declared on the
day the redemption request was received. 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 any or all of the Funds shall determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.

An authorization form permitting any of the Funds 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.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a 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. Shareholders establishing accounts through a
Shareholder Service Organization should consult their account agreement for
information regarding accounts with low balances. Shareholders who purchase
shares via a sweep account are not subject to an investment minimum.

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 a 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 a
Fund's operation and for the election of Trustees under certain circumstances.
With respect to Tax-Free Money Market Fund, Star Bank, N.A., Cincinnati, Ohio,
acting in various capacities for numerous accounts, was the owner of record of
149,019,705 Shares (100%) of the Fund, and therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders. With respect to Treasury
Fund, Star Bank, N.A., Cincinnati, Ohio, acting in various capacities for
numerous accounts, was the owner of record of 355,429,154 shares (92.66%) of
the Fund, and therefore, may, for certain purposes, be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.

MASSACHUSETTS PARTNERSHIP LAW

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 their customer. The Funds'
investment adviser, Star Bank, is subject to such banking laws and
regulations.

Star Bank believes that it may perform the investment advisory services for
the Funds contemplated by its advisory agreements with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Star Bank from continuing to perform all or a part of the above services for
its customers and/or the Funds. In such event, changes in the operation of one
or more of the Funds may occur, including the possible alteration or
termination of any automatic or other Fund share investment and redemption
services then being provided by Star Bank, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that the Funds' shareholders would
suffer any adverse financial consequences (if another adviser with equivalent
abilities to Star Bank is found) as a result of any of these occurrences.

TAX INFORMATION
-------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Funds will pay no federal income tax because they expect 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 Funds will each be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains, if any) and losses
realized by one Fund will not be combined for tax purposes with those realized
by the other Funds.

Unless otherwise exempt, shareholders of Treasury Fund are required to pay
federal income tax on any dividends and other distributions, including capital
gains distributions (if any), received. This applies whether dividends and
distributions are received in cash or as additional shares. The Funds will
provide detailed tax information for reporting purposes.

Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.

TAX-FREE MONEY MARKET FUND--ADDITIONAL TAX INFORMATION

Shareholders of Tax-Free Money Market Fund are not required to pay the federal
regular 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 some municipal bonds are
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.

The alternative minimum tax, up to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the regular
tax for the taxable year. Alternative minimum taxable income is equal to the
adjusted gross income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities,
private activity bonds provide benefits to private parties. Tax-Free Money
Market Fund may purchase all types of municipal bonds, including "private
activity" bonds. Thus, while the Fund has no present intention of purchasing
any private activity bonds, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.

In addition, in the case of a corporate shareholder, all dividends of the Fund
which represent interest on municipal bonds will become subject to the 20%
corporate alternative minimum tax because the dividends are included in
corporation's "adjusted current earnings." The corporate alternative minimum
tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current
earnings" over the taxpayer's alternative minimum taxable income as a tax
preference item. "Adjusted current earnings" is based upon the concept of a
corporation's "earnings and profits." Since "earnings and profits" generally
include the full amount of any Fund dividend and alternative minimum taxable
income does
not include the portion of the Fund's dividend attributable to municipal bonds
which are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.

Dividends of Tax-Free Money Market 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. Distributions representing net interest received on
tax-exempt municipal securities are 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.

PERFORMANCE INFORMATION
-------------------------------------------------------------------------------

From time to time the Money Market Funds advertise yield and effective yield.
In addition, Tax-Free Money Market Fund may advertise tax-equivalent yield.

For the Tax-Free Money Market Fund, 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.

From time to time, a Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.

ADDRESSES
--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
Star Tax-Free Money Market Fund Federated Investors Tower
Star Treasury Fund Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
-------------------------------------------------------------------------------------------------
</TABLE>

STAR FUNDS MONEY MARKET FUNDS
PROSPECTUS

March 31, 1995

--------------------------------------
STAR BANK, N.A. Investment Adviser
--------------------------------------
FEDERATED SECURITIES CORP.
Distributor
--------------------------------------
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

2010907A (3/95)
4289TR

STAR FUNDS

STOCK AND BOND FUNDS

PROSPECTUS

The shares offered by this prospectus represent interests in the income and
equity portfolios of the Star Funds (the "Trust"), an open-end management
investment company (a mutual fund). The Trust consists of the following eight
separate diversified investment portfolios, each having a distinct investment
objective and policies.

Stock and Bond Funds

. 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

Money Market Funds

. Star Tax-Free Money Market Fund
. Star Treasury Fund

In addition, the Trust offers, by separate prospectus, Star Prime Obligations
Fund, which proposes on or about April 24, 1995 to transfer all of its assets
to Star Treasury Fund in exchange for which shareholders of Star Prime
Obligations Fund would receive shares of Star Treasury Fund equal in value to
their shares of Star Prime Obligations Fund. Star Prime Obligations Fund would
then be dissolved.

This prospectus relates only to the Stock and Bond Funds of the Trust
(individually referred to as the "Fund" or collectively as the "Funds") and
contains the information you should read and know before you invest in any of
the Stock and Bond Funds of the Trust. Keep this prospectus for future
reference.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF STAR
BANK, N.A., OR ITS AFFILIATES, ARE NOT ENDORSED OR GUARANTEED BY STAR BANK,
N.A., OR ITS AFFILIATES, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL AND MAY INVOLVE SALES CHARGES AND OTHER FEES.

The Trust has also filed separate Statements of Additional Information for
each Fund dated March 31, 1995, with the Securities and Exchange Commission.
The information contained in each Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information
or make inquiries about a Fund by writing to the Fund or by calling 1-800-677-
FUND.

Prospectus dated March 31, 1995

TABLE OF CONTENTS
--------------------------------------------------------------------------------

SYNOPSIS 1
-------------------------------------

Risk Factors 1
SUMMARY OF FUND EXPENSES 3
-------------------------------------
FINANCIAL HIGHLIGHTS 4
-------------------------------------
OBJECTIVE AND INVESTMENT POLICIES OF
EACH FUND 11
-------------------------------------
U.S. Government Income Fund 11
Strategic Income Fund 12

The Stellar Fund 16

Relative Value Fund 18
Growth Equity Fund 18
Capital Appreciation Fund 19
PORTFOLIO INVESTMENTS AND
STRATEGIES 20
-------------------------------------

Additional Risk Considerations 25

INVESTMENT LIMITATIONS 26
-------------------------------------
Borrowing Money 26
Diversification 26
Investing in New Issuers 26

STAR FUNDS INFORMATION 27
-------------------------------------

Management of the Trust 27
Distribution of Fund Shares 28
Administration of the Funds 29

Brokerage Transactions 30
Expenses of the Funds 30
Expenses of The Stellar Fund 30
NET ASSET VALUE 30
-------------------------------------

INVESTING IN THE FUNDS 31
-------------------------------------

Minimum Investment Required 31
What Shares Cost 31
Reducing the Sales Charge 32
Systematic Investment Plan 33
Share Purchases 33
Exchanging Securities for Fund
Shares 33
Certificates and Confirmations 34
Dividends and Capital Gains 34
EXCHANGE PRIVILEGE 34
-------------------------------------
Star Funds 34
Exchanging Shares 34
Exchange-by-Telephone 35
REDEEMING SHARES 35
-------------------------------------
Contingent Deferred Sales Charge 36

Elimination of Contingent Deferred
Sales Charge 37
Systematic Withdrawal Plan 37
Accounts with Low Balances 37
SHAREHOLDER INFORMATION 37
-------------------------------------
Voting Rights 37
Massachusetts Partnership Law 38
EFFECT OF BANKING LAWS 38
-------------------------------------
TAX INFORMATION 38
-------------------------------------
Federal Income Tax 38

State and Local Taxes 39
PERFORMANCE INFORMATION 39
-------------------------------------
ADDRESSES 40
-------------------------------------

SYNOPSIS
-------------------------------------------------------------------------------

This prospectus relates only to the shares of the Stock and Bond Funds of the
Trust. The Stock and Bond Funds are designed primarily for customers,
correspondents, or affiliates of Star Bank, N.A.

As of the date of this prospectus, shares of the Stock and Bond Funds are
offered in the following six Funds:

. Star U.S. Government Income Fund ("U.S. Government Income Fund")--seeks
to provide current income. Capital appreciation is a secondary objective.
U.S. Government Income Fund pursues these objectives by investing
primarily in securities issued or guaranteed as to payment of principal
and interest by the U.S. government, its agencies or instrumentalities.
. Star Strategic Income Fund ("Strategic Income Fund")--seeks to generate
high current income. Strategic Income Fund pursues this objective by
investing at least 40% of the Fund's assets in a core asset group of U.S.
government and corporate fixed income securities, and the remainder of
the Fund's assets in international bonds, real estate investment trusts,
domestic equity securities, money market securities, and the following
structured fixed income securities: mortgage-backed securities,
collateralized mortgage obligations ("CMOs"), adjustable rate mortgage
securities ("ARMS"), and asset-backed securities.
. The Stellar Fund--seeks to maximize total return, a combination of
dividend income and capital appreciation. The Stellar Fund pursues this
objective by investing in the following security categories: domestic
equity securities, domestic fixed income securities, international
securities (equity and fixed income), real estate securities, precious
metal securities, and money market securities. Shares of The Stellar Fund
are offered in two separate classes: Investment Shares and Trust Shares.
. Star Relative Value Fund ("Relative Value Fund")--seeks to obtain the
highest total return, a combination of income and capital appreciation,
as is consistent with reasonable risk. Relative Value Fund pursues this
objective by investing primarily in equity securities.
. Star Growth Equity Fund ("Growth Equity Fund")--seeks to maximize
capital appreciation. Growth Equity Fund pursues this objective by
investing primarily in growth-oriented equity securities of U.S.
companies.
. Star Capital Appreciation Fund ("Capital Appreciation Fund")--seeks to
maximize capital appreciation. Capital Appreciation Fund pursues this
objective by investing primarily in equity securities of U.S. companies.

For information on how to purchase shares of any of the Stock or Bond Funds,
please refer to "Investing in the Funds." A minimum initial investment of
$1,000 ($25 for Star Bank Connections Group Banking customers and Star Bank
employees and members of their immediate family) is required for each Fund.
Trust Shares of The Stellar Fund are sold and redeemed at net asset value.
Shares of U.S. Government Income Fund, Relative Value Fund, and Capital
Appreciation Fund, and Investment Shares of The Stellar Fund, are sold at net
asset value plus an applicable sales charge and redeemed at net asset value.
Shares of Strategic Income Fund and Growth Equity Fund are sold at net asset
value and are redeemed at net asset value less an applicable contingent
deferred sales charge. Information on redeeming shares may be found under
"Redeeming Shares." Star Bank, N.A. is the investment adviser to the Funds.

RISK FACTORS

Investors should be aware of the following general considerations: market
values of fixed-income securities, which constitute a major part of the
investments of several Funds, may vary inversely in response to change in
prevailing interest rates. The foreign securities in which some Funds may
invest may be subject to certain risks in addition to those inherent in U.S.
investments. One or more Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities, and entering into futures
contracts and related options, entering into foreign currency transactions and
forward foreign currency
exchange contracts, borrowing money for investment purposes, and engaging in
short-selling. These risks and those associated with investing in mortgage-
backed securities, foreign securities, when-issued securities, variable rate
securities, and equity securities are described under "Objective and Investment
Policies of Each Fund" and "Portfolio Investments and Strategies."

STAR STOCK AND BOND FUNDS
SUMMARY OF FUND EXPENSES
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The
Stellar Fund
U.S. Gov't Strategic Relative Growth Capital
Income Income Trust Investment Value Equity Appreciation
Fund Fund Shares Shares Fund Fund Fund
---------- --------- ------ ---------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 3.50% None None 4.50% 4.50% None 4.50%
Maximum Sales Load
Imposed on Reinvested
Dividends (as a
percentage of offering
price)................. None None None None None None None
Contingent Deferred
Sales Charge
(as a percentage of
original purchase price
or redemption proceeds,
as applicable)(1)...... None 5.00% None None None 5.00% None
Redemption Fees (as a
percentage of amount
redeemed, if
applicable)............ None None None None None None None
Exchange Fee............ None None None None None None None
ANNUAL FUND OPERATING
EXPENSES*
(As a percentage of
average net assets)
Management Fees......... 0.60% 0.95% 0.95% 0.95% 0.75% 0.75% 0.95%
12b-1 Fees (2).......... 0.00% 0.00% None 0.25% 0.00% 0.00% 0.00%
Total Other Expenses
(after waiver) (3)...... 0.35% 0.47% 0.40% 0.40% 0.37% 0.43% 0.55%
Shareholder Servicing
Fees (4).......... 0.03%
Total Operating
Expenses
(after waiver)
(5).............. 0.95% 1.42% 1.35% 1.60% 1.12% 1.18% 1.50%
</TABLE>
(1) The contingent deferred sales charge is 5.00% in the first year, declining
to 1.00% in the fifth year, and 0.00% thereafter. (See "Contingent
Deferred Sales Charge.")

(2) As of the date of this prospectus, the Funds (except for The Stellar
Fund--Investment Shares) are not paying or accruing 12b-1 fees. The Funds
can pay up to 0.25% as a 12b-1 fee to the distributor. Trust and
investment agency clients of Star Bank or its affiliates will not be
affected by the Plan because the Plan will not be activated unless and
until a second "Trust" class of shares of the Funds (which would not have
a 12b-1 Plan) is created and trust and investment agency clients'
investments in the Funds are converted to such Trust class.

(3) Total Other Expenses are expected to be 0.57% absent the voluntary waiver
by the administrator for the Capital Appreciation Fund during the fiscal
year ending November 30, 1995. The Total Other Expenses for the fiscal
year ended November 30, 1995, are estimated to be 0.55% for the Strategic
Income Fund and 0.44% for the Growth Equity Fund absent the voluntary
waiver by the administrator.

(4) The Funds can pay up to 0.25% of average daily net assets as a Shareholder
Servicing Fee. For the foreseeable future, the Funds plan to limit the
Shareholder Servicing Fee to 0.03% of average daily net assets.

(5) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ended November 30, 1995. Total Operating
Expenses for the fiscal year ended November 30, 1995, for the Capital
Appreciation Fund are expected to be 1.52% absent the anticipated
voluntary waiver by the administrator. The Total Operating Expenses for
the fiscal year ended November 30, 1994 were 0.97% for the U.S. Government
Income Fund, 1.43% for The Stellar Fund--Trust Shares, 1.55% for The
Stellar Fund--Investment Shares, 1.15% for the Relative Value Fund, and
1.58% for the Capital Appreciation Fund. The Total Fund Operating Expenses
for the fiscal year ended November 30, 1994 for the U.S. Government Income
Fund were 1.00%, absent the voluntary waiver of the management fee. The
Total Fund Operating Expenses for the fiscal year ended November 30, 1994,
for The Stellar Fund--Investment Shares were 1.67% absent the voluntary
waiver by the distributor. The Total Fund Operating Expenses for the
fiscal year ended November 30, 1994 for the Capital Appreciation Fund were
1.68% absent the voluntary waiver by the administrator. The Total Fund
Operating Expenses for the fiscal year ended November 30, 1995, are
estimated to be 1.50% for the Strategic Income Fund and 1.19% for the
Growth Equity Fund absent the voluntary waiver by the administrator.
* Annual Fund Operating Expenses in this table for the Strategic Income Fund
and the Growth Equity Fund were calculated as a percentage of projected
average net assets, and are based on average expenses expected to be
incurred during the fiscal year ending November 30, 1995. During the course
of this period, expenses may be more or less than the average amounts shown
above.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF OF THE FUNDS WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "STAR FUNDS INFORMATION."

Long-term shareholders invested in The Stellar Fund--Investment Shares may
pay more than the economic equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of Securities Dealers,
Inc. ("NASD").
EXAMPLE

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 load.
<TABLE>
<CAPTION>
The
Stellar Fund
U.S. Gov't Strategic Relative Growth Capital
Income Income Trust Investment Value Equity Appreciation
Fund Fund** Shares Shares Fund Fund** Fund
---------- --------- ------ ---------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year..... $ 44 $66 $ 14 $ 61 $ 56 $64 $ 60
3 Years.... $ 64 $78 $ 43 $ 93 $ 79 $71 $ 90
5 Years.... $ 86 N/A $ 74 $128 $104 N/A $123
10 Years... $148 N/A $162 $226 $175 N/A $216
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

** THE STRATEGIC INCOME FUND AND GROWTH EQUITY FUND EXAMPLES ARE BASED ON
ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30, 1995.

STAR U.S. GOVERNMENT INCOME FUND

FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
-----------------
1994 1993*
-------------------------------------------------------- ------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $10.00
--------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------
Net investment income 0.55 0.51
--------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and options (0.90) 0.25
-------------------------------------------------------- ------ ------
Total from investment operations (0.35) 0.76
--------------------------------------------------------
LESS DISTRIBUTIONS
--------------------------------------------------------
Dividends to shareholders from net investment income (0.55) (0.51)
--------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (0.11) --
-------------------------------------------------------- ------ --
Total distributions (0.66) (0.51)
-------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.24 $10.25
-------------------------------------------------------- ------ ------
TOTAL RETURN** (3.53%) 7.63%
--------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------
Expenses 0.97% 1.12%(b)
--------------------------------------------------------
Net investment income 5.87% 5.55%(b)
--------------------------------------------------------
Expense waiver/reimbursement (a) 0.03% 0.30%(b)
--------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------
Net assets, end of period (000 omitted) $87,924 $44,187
--------------------------------------------------------
Portfolio turnover rate 148% 105%
--------------------------------------------------------
</TABLE>

* Reflects operations for the period from January 5, 1993 (date of initial
public investment) to November 30, 1993. For the period from November 23,
1992 (start of business) to January 4, 1993, all income was distributed to
the administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1994, which can be obtained free of charge.

STAR STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1995*
(UNAUDITED)
-------------------------------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------
Net investment income 0.07
--------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.17
--------------------------------------------------------
Total from investment operations 0.24
--------------------------------------------------------
LESS DISTRIBUTIONS
--------------------------------------------------------
Distributions to shareholders from net investment income (0.07)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.17
--------------------------------------------------------
TOTAL RETURN** 2.38%
--------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------
Expenses 1.31%(b)
--------------------------------------------------------
Net investment income 7.22%(b)
--------------------------------------------------------
Expense waiver/reimbursement (a) 0.12%(b)
--------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------
Net assets, end of period (000 omitted) $14,424
--------------------------------------------------------
Portfolio turnover rate 12%
--------------------------------------------------------
</TABLE>

* Reflects operations for the period from December 12, 1994 (date of initial
public investment) to January 31, 1995. For the period from November 10,
1994 (start of business) to December 11, 1994, all income was distributed to
the administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

THE STELLAR FUND

FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------
1994 1993 1992 1991*
----------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PE-
RIOD $11.34 $10.52 $ 9.80 $10.00
-----------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
Net investment income 0.29 0.24 0.29 0.05
-----------------------------------
Net realized and unrealized gain
(loss) on
investments (0.41) 0.99 0.74 (0.25)
----------------------------------- ------ ------ ------ ------
Total from investment operations (0.12) 1.23 1.03 (0.20)
-----------------------------------
LESS DISTRIBUTIONS
-----------------------------------
Dividends to shareholders from net
investment income (0.24) (0.28) (0.31) --
-----------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.08) (0.10) (0.00) --
-----------------------------------
Distributions in excess of net in-
vestment income -- (0.03)(a) -- --
----------------------------------- -- ------ -- --
Total distributions (0.32) (0.41) (0.31) --
----------------------------------- ------ ------ ------ --
NET ASSET VALUE, END OF PERIOD $10.90 $11.34 $10.52 $ 9.80
----------------------------------- ------ ------ ------ ------
TOTAL RETURN** (1.22%) 11.99% 10.68% (2.00%)
-----------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------
Expenses 1.55% 1.45% 1.53% 1.44%(b)
-----------------------------------
Net investment income 2.32% 1.87% 3.03% 5.32%(b)
-----------------------------------
Expense waiver/reimbursement (c) 0.12% 0.25% 0.33% 0.29%(b)
-----------------------------------
SUPPLEMENTAL DATA
-----------------------------------
Net assets, end of period (000
omitted) $50,648 $73,197 $35,544 $13,942
-----------------------------------
Portfolio turnover rate 79% 87% 98% 18%
-----------------------------------
</TABLE>

* Reflects operations for the period from October 18, 1991 (date of initial
public investment) to November 30, 1991. For the period from July 30, 1991
(start of business) to October 17, 1991, all income was distributed to the
administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions did not represent a return of capital for federal income tax
purposes for the year ended November 30, 1993.

(b) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1994, which can be obtained free of charge.

THE STELLAR FUND

FINANCIAL HIGHLIGHTS--TRUST SHARES
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated January 13, 1995, on the
Fund's Financial Statements for the year ended November 30, 1994, and on the
following table for each period presented, is included in the Fund's Annual
Report, which is incorporated herein by reference. This table should be read
in conjunction with the Fund's Financial Statements and notes thereto,
contained in the Fund's Annual Report, which may be obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
------------------------------------------------------- ------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.34
-------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------
Net investment income 0.21
-------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.48)
------------------------------------------------------- ------
Total from investment operations (0.27)
-------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
------------------------------------------------------- ------
NET ASSET VALUE, END OF PERIOD $10.90
------------------------------------------------------- ------
TOTAL RETURN** (1.81%)
-------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------
Expenses 1.43%(b)
-------------------------------------------------------
Net investment income 3.57%(b)
-------------------------------------------------------
Expense waiver/reimbursement (a) 0.00%(b)
-------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------
Net assets, end of period (000 omitted) $60,822
-------------------------------------------------------
Portfolio turnover rate 79%
-------------------------------------------------------
</TABLE>

* Reflects operations for the period from April 11, 1994 (date of initial
public investment) to November 30, 1994. For the period from April 5, 1994
(start of business) to April 10, 1994, all income was distributed to the
administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1994, which can be obtained free of charge.

STAR RELATIVE VALUE FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------
1994 1993 1992 1991*
------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.80 $10.52 $ 9.43 $10.00
-------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------
Net investment income 0.23 0.20 0.30 0.22
-------------------------------------
Net realized and unrealized gain
(loss) on
investments (0.40) 1.30 1.12 (0.66)
------------------------------------- ------- ------ ------ -------
Total from investment operations (0.17) 1.50 1.42 (0.44)
-------------------------------------
LESS DISTRIBUTIONS
-------------------------------------
Dividends to shareholders from net
investment income (0.23) (0.22) (0.33) (0.13)
-------------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.04) -- -- --
------------------------------------- ------- -- -- --
Total distributions (0.27) (0.22) (0.33) (0.13)
------------------------------------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.36 $11.80 $10.52 $ 9.43
------------------------------------- ------ ------ ------ ------
TOTAL RETURN** (1.54%) 14.47% 15.39% (4.31%)
-------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------
Expenses 1.15% 1.19% 0.47% 0.40%(b)
-------------------------------------
Net investment income 2.02% 1.79% 3.01% 4.75%(b)
-------------------------------------
Expense waiver/reimbursement (a) 0.00% 0.31% 1.00% 0.93%(b)
-------------------------------------
SUPPLEMENTAL DATA
-------------------------------------
Net assets, end of period (000 omit-
ted) $74,094 $49,701 $38,154 $33,015
-------------------------------------
Portfolio turnover rate 30% 59% 45% 38%
-------------------------------------
</TABLE>

* Reflects operations for the period from June 5, 1991 (date of initial public
investment) to November 30, 1991. For the period from January 31, 1989
(start of business) to June 4, 1991, all income was distributed to the
administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1994, which can be obtained free of charge.

STAR GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1995*
(UNAUDITED)
-------------------------------------------------------- -----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
--------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------
Net investment income 0.04
--------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.29
--------------------------------------------------------
Total from investment operations 0.33
--------------------------------------------------------
LESS DISTRIBUTIONS
--------------------------------------------------------
Distributions to shareholders from net investment income (0.04)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.29
--------------------------------------------------------
TOTAL RETURN** 3.30%
--------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------
Expenses 1.16%(a)
--------------------------------------------------------
Net investment income 1.87%(a)
--------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------
Net assets, end of period (000 omitted) $25,074
--------------------------------------------------------
Portfolio turnover rate 19%
--------------------------------------------------------
</TABLE>

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) Computed on an annualized basis.

STAR CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated January 13, 1995, on the
Fund's Financial Statements for the year ended November 30, 1994, and on the
following table for the period presented, is included in the Fund's Annual
Report, which is incorporated herein by reference. This table should be read
in conjunction with the Fund's Financial Statements and notes thereto,
contained in the Fund's Annual Report, which may be obtained from the Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
------------------------------------------------------- ------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------
Net investment income 0.003
-------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.147
-------------------------------------------------------
Total from investment operations 0.150
-------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.15
-------------------------------------------------------
TOTAL RETURN** 1.50%
-------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------
Expenses 1.58%(b)
-------------------------------------------------------
Net investment income 0.08%(b)
-------------------------------------------------------
Expense waiver/reimbursement (a) 0.10%(b)
-------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------
Net assets, end of period (000 omitted) $30,013
-------------------------------------------------------
Portfolio turnover rate 36%
-------------------------------------------------------
</TABLE>

* Reflects operations for the period from June 13, 1994 (date of initial
public investment) to November 30, 1994. For the period from May 16, 1994
(start of business) to June 12, 1994, all income was distributed to the
administrator.

** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated November 30, 1994, which can be obtained free of charge.

OBJECTIVE AND INVESTMENT POLICIES OF EACH FUND
-------------------------------------------------------------------------------

The investment objective and investment policies of each Fund appear below.
The investment objective of a Fund cannot be changed without the approval of
holders of a majority of that Fund's shares. While there is no assurance that
a Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.

Unless indicated otherwise, the investment policies of a Fund may be changed
by the Trustees without approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.

Additional information about investment limitations, strategies that one or
more Funds may employ, and certain investment policies mentioned below,
including convertible securities, zero coupon securities, options and futures,
mortgage-backed securities, ARMS, CMOs, asset-backed securities, repurchase
agreements, lending of portfolio securities, when-issued and delayed delivery
transactions, restricted and illiquid securities, investing in securities of
other investment companies, additional risk considerations and derivative
contracts and securities appear in the "Portfolio Investments and Strategies"
section of this prospectus.

U.S. GOVERNMENT INCOME FUND

The primary investment objective of U.S. Government Income Fund is current
income. Capital appreciation is a secondary objective.

Under normal circumstances, the Fund pursues its investment objectives by
investing at least 65% of the value of its total assets in securities issued
or guaranteed as to payment of principal and interest by the U.S. government,
its agencies or instrumentalities. For purposes of this 65% statement, the
Fund will consider CMOs issued by U.S. government agencies or
instrumentalities to be U.S. government securities. Additionally, up to 35% of
the value of the Fund's total assets may be invested in investment-grade
corporate debt obligations, commercial paper, time and savings deposits, and
securities of foreign issuers.

ACCEPTABLE INVESTMENTS. The types of government securities in which the Fund
may invest generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed by:

. the full faith and credit of the U.S. Treasury;
. the issuer's right to borrow from the U.S. Treasury;
. the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
. the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

. Federal Home Loan Banks;
. Federal Home Loan Mortgage Corporation;
. Federal Farm Credit Banks;
. Student Loan Marketing Association; and
. Federal National Mortgage Association.

The Fund may invest in CMOs, mortgage-backed securities, ARMS, and repurchase
agreements. See "Portfolio Investments and Strategies."

OTHER ACCEPTABLE INVESTMENTS. Up to 35% of the value of the Fund's total
assets may be invested in the following investments:

. domestic issues of corporate debt obligations having floating or fixed
rates of interest and rated at the time of purchase in one of the four
highest categories by a nationally recognized statistical rating
organization [rated Baa or better by Moody's Investors Service, Inc.
("Moody's"), or BBB or better by Standard & Poor's Ratings Group ("S&P")
or Fitch Investors Service, Inc. ("Fitch")] or which, if unrated, are of
comparable quality in the judgment of the Fund's investment adviser;

. commercial paper which matures in 270 days or less and is rated Prime-1
or Prime-2 by Moody's, A-1 or A-2 by S&P, or F-1 or F-2 by Fitch;

. time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF") which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance Fund
("SAIF"), which is also administered by the FDIC. These may include
certificates of deposit and other time deposits issued by foreign
branches of FDIC insured banks, and banker's acceptances;
. securities of foreign issuers which are freely traded on United States
securities exchanges or in the over-the-counter market in the form of
depositary receipts. (Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic
marketability, or other national or international restrictions. As a
matter of practice, the Fund will not invest in the securities of a
foreign issuer if any such risk appears to the investment adviser to be
substantial); and
. debt securities of foreign governments, foreign governmental agencies or
supranational institutions. In addition, the Fund will also invest in
investment quality debt securities issued by foreign corporations. These
securities will be rated in one of the four highest rating categories by
the above-mentioned nationally recognized statistical rating
organizations, or, if unrated, will be of comparable quality in the
judgment of the adviser. (The Fund may not invest more than 5% of its
assets in foreign debt securities).

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
restricted and illiquid securities, when-issued and delayed delivery
transactions, options and futures transactions, and the lending of portfolio
securities. See "Portfolio Investments and Strategies."

STRATEGIC INCOME FUND

The investment objective of Strategic Income Fund is to generate high current
income. The Fund pursues this investment objective by investing in a core
asset group of U.S. government and corporate fixed income securities, and the
following satellite categories: international bonds, real estate investment
trusts, domestic equity securities, money market securities, and the following
structured fixed income securities: mortgage-backed securities, CMOs, ARMS,
and asset-backed securities.

The Fund pursues its investment objective by investing at least 40% of its
assets in U.S. government and corporate fixed income securities, and 5%-20% of
its assets in each of the satellite categories listed above. Overall, the Fund
will invest at least 65% of its assets in income producing securities. The
Fund's adviser believes (but can give no assurance) that by spreading the
investment portfolio across multiple securities categories, the Fund can
reduce the impact of drastic market movements affecting any one securities
type. Other techniques include, but are not limited to, the following: the
employment of fundamental and quantitative analysis when selecting equity
securities; use of ratings assigned by nationally recognized statistical
rating organizations (where applicable); credit research; review of issuer's
historical performance; examination of issuer's dividend growth record;
consideration of market trends; and hedging through the use of options and
futures.

ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest
primarily in the following:

DOMESTIC FIXED INCOME SECURITIES. The core asset group of the Fund will
include domestic corporate debt obligations, obligations of the United States,
and notes, bonds, and discount notes of U.S. government agencies or
instrumentalities. Bonds are selected based on the outlook for interest rates
and their yield in relation to other bonds of similar quality and maturity.
The Fund will only invest in bonds which are rated Baa or higher by Moody's,
or BBB or higher by S&P or Fitch, or which, if unrated, are deemed to be of
comparable quality by the investment adviser.

The types of government securities in which the Fund may invest are those
described under "U.S. Government Income Fund--Acceptable Investments."

INTERNATIONAL BONDS. The international bond category of the Fund will include
fixed income securities of non-U.S. companies and governments denominated in
currencies other than U.S. dollars (including American Depositary Receipts and
International Depositary Receipts) and will be rated investment grade (i.e.,
Baa or better by Moody's or BBB or better by S&P) or, if unrated, deemed by
the Fund's investment adviser to be of an equivalent quality to domestic bonds
rated at least Baa by
Moody's or BBB by S&P. In the event that an international security which had
an eligible rating is downgraded below Baa or BBB, the Fund's investment
adviser will promptly reassess whether continued holding of the security is
consistent with the Fund's objective. The Fund may also invest in shares of
open-end and closed-end management investment companies which invest primarily
in international securities described above.

REAL ESTATE INVESTMENT TRUSTS. This category will include equity or mortgage
real estate investment trusts integrated to capture income. A real estate
investment trust is a managed portfolio of real estate investments. Real
estate of domestic issuers will not be considered domestic equity securities
for purposes of the asset allocation policy described above. Real estate
investment trust holdings will be diversified by sector (shopping malls,
apartment building complexes, and health care facilities) and geographic
location. An equity real estate investment trust holds equity positions in
real estate, and it seeks to provide its shareholders with income from the
leasing of its properties and with capital gains from any sales of properties.
A mortgage real estate investment trust specializes in lending money to
developers of properties, and passes any interest income it may earn to its
shareholders. Investment in Real Estate Investment trusts is subject to
certain risks. See "Portfolio Investments and Strategies."

DOMESTIC EQUITY SECURITIES. The equity category will consist of high-dividend
common and preferred stocks of U.S. companies which are listed on the New York
or American Stock Exchange or traded in the over-the-counter market and have a
history of stable earnings and/or growing dividends. As part of the equity
category, the Fund may also invest in warrants and securities convertible into
common stocks of these U.S. companies.

MONEY MARKET SECURITIES. The Fund may invest in U.S. and foreign short-term
money market instruments, including:

. commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch, and Europaper (dollar-denominated commercial
paper issued outside the United States) rated A-1, A-2, Prime-1, or
Prime-2. In the case where commercial paper of Europaper has received
different ratings from different rating services, such commercial paper
or Europaper is acceptable so long as at least one rating is in the two
highest categories of the nationally recognized statistical rating
organizations described above;
. instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the BIF or the SAIF. These instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates
of Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");
. obligations of the U.S. government or its agencies or instrumentalities;
. repurchase agreements; and
. other short-term instruments which are not rated but are determined by
the Fund's investment adviser to be of comparable quality to the other
obligations in which the Fund may invest.

STRUCTURED FIXED INCOME SECURITIES. The Fund may invest in mortgage-backed
securities, ARMS, CMOs, and asset-backed securities. See "Portfolio
Investments and Strategies."

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
options and futures transactions, repurchase agreements, the lending of
portfolio securities, when issued and delayed delivery transactions,
restricted and illiquid securities, and investment in other investment
companies. See "Portfolio Investments and Strategies."

FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the area
of options and futures contracts and options on futures contracts and any
other derivative investment which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund.

RISKS ASSOCIATED WITH FOREIGN SECURITIES. Although considered separate
securities categories for purposes of the Fund's investment policies, the
Fund's investment in money market securities issued by foreign banks and
international bonds could result in up to 40% of the Fund's net assets being
invested in securities of foreign issuers. Investment in foreign securities
carries substantial risks in addition to those associated with domestic
investments. See "Portfolio Investments and Strategies--Foreign Securities."

FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle transactions.
Currency transactions may be conducted either on a spot or cash basis at
prevailing rates or through forward foreign currency exchange contracts.

The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although,
foreign currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies and might, in certain cases,
result in losses to the Fund.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date
agreed upon by the parties.

Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund will
not enter into a forward contract with a term of more than one year. The Fund
will generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between the trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated
in that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts
and the constantly changing value of the securities involved. Although the
adviser will consider the likelihood of changes in currency values when making
investment decisions, the adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will
be served. The Fund will not enter into forward contracts for hedging purposes
in a particular currency in an amount in excess of the Fund's assets
denominated in that currency.

LEVERAGE THROUGH BORROWING. The Fund may borrow for investment purposes
pursuant to a fundamental policy. This borrowing, which is known as
leveraging, generally will be unsecured, except to the extent the Fund enters
into the reverse repurchase agreements described below. The Investment Company
Act of 1940 requires the Fund to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings)
of 300% of the amount borrowed. If the 300% asset coverage should decline as a
result of market fluctuations or other reasons, the Fund may be required to
sell some of its portfolio holdings within three days to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.

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.

Among the forms of borrowing in which the Fund may engage is the entry into
reverse repurchase agreements with banks, brokers or dealers. These
transactions involve the transfer by the Fund of an underlying debt instrument
in return for cash proceeds based on a percentage of the value of the
security. The Fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, the Fund repurchases
the security at an agreed-upon price. In certain types of agreements, there is
no agreed upon repurchase date, and interest payments are calculated daily,
often based on the prevailing U.S. government securities or other high-quality
liquid debt securities at least equal to the aggregate amount of its reverse
repurchase obligations, plus accrued interest, in certain cases, in accordance
with releases promulgated by the Securities and Exchange Commission. The
Securities and Exchange Commission views reverse repurchase transactions as
collateralized borrowings by the Fund. These agreements, which are treated as
if reestablished each day, are expected to provide the Fund with a flexible
borrowing tool.

SHORT-SELLING. The Fund may make short sales pursuant to a fundamental policy.
Short sales are transactions in which the Fund sells a security it does not
own in anticipation of a decline in the market value of that security. To
complete such a transaction, the Fund must borrow the security to make
delivery to the buyer. The Fund then is obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement. The
price at such time may be more or less than the price at which the security
was sold by the Fund. Until the security is replaced, the Fund is required to
pay to the lender amounts equal to any dividends or interest which accrue
during the period of the loan. To borrow the security, the Fund also may be
required to pay a premium, which would increase the cost of the security sold.
The proceeds of the short sale will be retained by the broker, to the extent
necessary to meet margin requirements, until the short position is closed out.

Until the Fund replaces a borrowed security in connection with a short sale,
the Fund will be required to maintain daily a segregated account, containing
cash or U.S. government securities, at such a level that (i) the amount
deposited in the account plus the amount deposited with the broker as
collateral will at all times equal to at least 100% of the current value of
the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be
less than the market value of the security at the time it was sold short.

SPECIAL RISKS ASSOCIATED WITH SHORT SELLING. The Fund will incur a loss as
a result of the short sale if the price of the security increases between
the date of the short sale and the date on which the Fund replaces the
borrowed security; conversely, the Fund will realize a gain if the
security declines in price between those dates. This result is the
opposite of what one would expect from a cash purchase of a long position
in a security. The amount of any gain will be decreased, and the amount of
any loss increased, by the amount of any premium or amounts in lieu of
interest the Fund may be required to pay in connection with a short sale.

The Fund may purchase call options to provide a hedge against an increase in
the price of a security sold short by the Fund. When the Fund purchases a call
option, it has to pay a premium to the person writing the option and a
commission to the broker selling the option. If the option is exercised by the
Fund, the premium and the commission paid may be more than the amount of the
brokerage commission charged if the security were to be purchased directly.
See "Options Transactions" in the section entitled, "Portfolio Investment and
Strategies."

The Fund anticipates that the frequency of short sales will vary substantially
under different market conditions, and it does not intend that any specified
portion of its assets, as a matter of practice, will be in short sales.
However, as an operating policy which may be changed without shareholder
approval, no securities will be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. The Fund may not sell short
the securities of any single issuer listed on a national securities exchange
to the extent of more than 2% of the value of the Fund's net assets. The Fund
may not sell short the securities of any class of an issuer to the extent, at
the time of the transaction, of more than 2% of the outstanding securities of
that class.

In addition to the short sales discussed above, the Fund also may make short
sales "against the box," a transaction in which the Fund enters into a short
sale of a security which the Fund owns. The proceeds of the short sale are
held by a broker until the settlement date, at which time the Fund delivers
the security to close the short position. The Fund receives the net proceeds
from the short sale. The Fund at no time will have more than 15% of the value
of its net assets in deposits on short sales against the box.

PORTFOLIO TURNOVER. The Fund will from time-to-time engage in the purchase
and sale of a security for the purpose of "capturing" dividends on that
security. Under this practice, the Fund will purchase the security close to
its ex-dividend date, thereby entitling the Fund to receive the anticipated
dividend, and then sell the security after the ex-dividend date. To the extent
that the sum of the sale price of the security plus the amount the dividend
received by the Fund, exceeds the purchase price of the security plus
brokerage commissions incurred in the purchase and sale transactions, the Fund
will receive a profit. The practice of capturing dividends could result in the
Fund experiencing an annual turnover rate of up to 250%. A high portfolio
turnover rate may lead to increased costs and may also result in higher taxes
paid by the Fund's shareholders.

THE STELLAR FUND

The investment objective of The Stellar Fund is to maximize total return, a
combination of dividend income and capital appreciation. The Fund pursues this
investment objective by investing in the following securities categories:
domestic equity securities, domestic fixed income securities, international
securities (equity and fixed income), real estate securities, precious metal
securities, and money market securities. As a non-fundamental policy, the Fund
will attempt to minimize overall portfolio risk by limiting investments in any
one securities category (as defined in this prospectus) to not more than 25%
of net assets. The Fund's adviser also believes that by spreading the
investment portfolio across multiple securities categories, the Fund can
reduce the impact of drastic market movements affecting any one securities
type. The Fund's adviser further attempts to reduce risk within each
securities category through careful investment analysis including, but not
limited to, the following: the employment of disciplined value measures (such
as price/earnings ratios) when selecting equity securities; use of ratings
assigned by nationally recognized statistical rating organizations (where
applicable); credit research; review of issuer's historical performance;
examination of issuer's dividend growth record; and consideration of market
trends.

The Fund pursues its investment objective by investing approximately 20% of
its assets, in roughly equal weightings, in each of the following securities
categories: domestic equity securities, domestic fixed income securities,
international securities, and real estate securities. The remaining 20% of its
assets will be invested in money market instruments and/or precious metal
securities. Positions in these categories of securities may vary from as high
as 25% of its assets to as low as 15% of its assets depending on market
factors.

ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest
primarily in domestic equity securities, domestic fixed income securities,
international securities, real estate securities, precious metal securities,
and money market securities. Each category allocation will be made based on
the definitions described below.

. Domestic Equity Securities. The equity portion of the Fund will consist
of U.S. common and preferred stocks. The stocks chosen will, in the
opinion of the Fund's investment adviser, be undervalued relative to
stocks contained in the Standard & Poor's 500 Composite Stock Price
Index. Real estate and precious metal securities of domestic issuers will
not be considered domestic equity securities for purposes of the asset
allocation policy described above;

. Domestic Fixed Income Securities. The fixed income portion of the Fund
will include domestic corporate debt obligations, obligations of the
United States, and notes, bonds, and discount notes of U.S. government
agencies or instrumentalities. Bonds are selected based on the outlook
for interest rates and their yield in relation to other bonds of similar
quality and maturity. The Fund will only invest in bonds, including
convertible bonds, which are rated Baa or higher by Moody's or BBB or
higher by S&P, or Fitch, or which, if unrated, are deemed to be of
comparable quality by the investment adviser;

. International Securities. The international portion of the Fund will
include equity securities of non-U.S. companies and corporate and
government fixed income securities denominated in currencies other than
U.S. dollars. The international equity securities in which the Fund
invests include international stocks traded domestically or abroad
through various stock exchanges, American Depositary Receipts, or
International Depositary Receipts ("ADRs" and "IDRs," respectively). The
international fixed income securities will include ADRs, IDRs, and
government securities of other nations and will be rated investment-grade
(i.e., Baa or better by Moody's or BBB or better by S&P) or deemed by the
investment adviser to be of an equivalent quality. The Fund may also
invest in shares of open-end and closed-end

management investment companies which invest primarily in international
equity securities described above;

. Real Estate Securities. The real estate portion of the Fund will include
equity securities, including convertible debt securities, of real estate
related companies, and real estate investment trusts. All real estate
securities will be publicly traded, primarily on an exchange. Real estate
securities are not considered domestic equity securities for purposes of
the Fund's asset allocation limitation;

. Precious Metal Securities. The precious metal securities in which the
Fund invests include domestic and international equity securities of
companies that explore for, extract, process, or deal in precious metals,
such as gold, silver, palladium, and platinum. The Fund may also invest
up to 5% of its net assets in domestic and international asset-based
securities, including debt securities, preferred stock, or convertible
securities for which the principal amount, redemption terms, or
conversion terms are related to the market price of some precious metals,
such as gold bullion. The Fund may purchase only asset-based securities
that are rated Baa or better by Moody's or BBB or better by S&P, or, if
unrated, are of equal quality in the determination of the investment
adviser. Precious metal securities of foreign issuers will not be
aggregated with other international securities for purposes of
calculating the Fund's investment in international securities under the
allocation policy described above; and
. Money Market Securities. The Fund may invest in U.S. and foreign short-
term money market instruments, including:
-- commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch, and Europaper (dollar-denominated
commercial paper issued outside the United States) rated A-1, A-2,
Prime-1, or Prime-2. In the case where commercial paper or Europaper
has received different ratings from different rating services, such
commercial paper or Europaper is an acceptable temporary investment so
long as at least one rating is in the two highest rating categories of
the nationally recognized statistical rating organizations described
above;
-- instruments of domestic and foreign banks and savings and loans (such
as certificates of deposit, demand and time deposits, savings shares,
and bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by BIF or the SAIF. These instruments may include
ECDs, Yankee CDs, and ETDs;
-- obligations of the U.S. government or its agencies or
instrumentalities;
-- repurchase agreements; and
-- other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
temporary obligations in which the Fund may invest.

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
repurchase agreements, when-issued and delayed delivery transactions, options
transactions, and restricted and illiquid securities. See "Portfolio
Investments and Strategies."

SPECIAL RISK CONSIDERATIONS

REAL ESTATE SECURITIES. Although the Fund's investments in real estate will be
limited to publicly traded securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein, the Fund may be subject to risks associated with direct ownership of
real estate. These include declines in the value of real estate, risks related
to general and local economic conditions and increases in interest rates. See
"Portfolio Investments and Strategies--Real Estate Investment Trusts."

PRECIOUS METAL SECURITIES AND PRECIOUS METALS. The prices of precious metal
securities and precious metals have historically been subject to high
volatility. The earnings and financial condition of precious metal companies
may be adversely affected by volatile precious metal prices.

FOREIGN SECURITIES. Although considered separate securities categories for
purposes of the Fund's investment policies, the Fund's investment in money
market securities issued by foreign banks and international securities could
result in up to 50% of the Fund's net assets being invested in securities of
foreign issuers. In addition, the Fund's investment in precious metals
securities of foreign issuers, when aggregated with the above, could result in
greater than 50% of the Fund's net assets being
invested in securities of foreign issuers. Investment in foreign securities
carries substantial risks in addition to those associated with domestic
investments. See "Portfolio Investments and Strategies--Foreign Securities."

RELATIVE VALUE FUND

The investment objective of Relative Value Fund is to obtain the highest total
return, a combination of income and capital appreciation, as is consistent
with reasonable risk.

The Fund pursues its investment objective by investing primarily in equity
securities. The equity securities ("stocks") in which the Fund may invest
include, but are not limited to, stocks which, in the opinion of the Fund's
adviser, represent characteristics consistent with low volatility, above-
average yields, and are undervalued relative to the stocks comprising the
Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). At least 70% of
the Fund's portfolio will be invested in common stocks, unless it is in a
defensive position. The Fund will also invest a portion of its assets in fixed
income securities.

ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund expects to invest
primarily in common stocks and fixed income securities (i.e., notes and bonds)
of companies selected by the Fund's investment adviser on the basis of
traditional research techniques, including assessment of earnings and dividend
growth prospects and of the risk and volatility of the company's industry.
These securities will include:

. Common Stocks. Ordinarily, these companies will be in the top 25% of
their industries with regard to revenues. However, other factors, such as
product position or market share, will be considered by the Fund's
investment adviser and may outweigh revenues;
. convertible securities;

. domestic issues of corporate debt obligations (rated Aaa, Aa, or A by
Moody's; AAA, AA, or A by S&P; or AAA, AA, or A by Fitch);

. the types of government securities that are described under "U.S.
Government Income Fund--Acceptable Investments"; and
. notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Bank for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, The Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, or National Credit Union Administration.

SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities exchanges
or in the over-the-counter market in the form of depositary receipts. See
"Portfolio Investments and Strategies--Foreign Securities." As a matter of
practice, the Fund will not invest in the securities of a foreign issuer if
any such risk appears to the investment adviser to be substantial.

TEMPORARY INVESTMENTS. In such proportions as, in the judgment of its
investment adviser, prevailing market conditions warrant, the Fund may, for
temporary defensive purposes, invest in:

. short-term money market instruments;
. securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
. repurchase agreements.

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
when-issued and delayed delivery transactions, restricted and illiquid
securities, and repurchase agreements. See "Portfolio Investments and
Strategies."

GROWTH EQUITY FUND

The investment objective of Growth Equity Fund is to maximize capital
appreciation.

Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in growth-oriented
equity securities. The Fund defines growth-oriented
equity securities as securities of U.S. companies with market capitalizations
of $1.5 billion or greater that are projected by the Fund's investment
adviser, based upon traditional research techniques, to show earnings growth
potential superior to the S&P 500. The Fund may also invest in domestic debt
securities, international securities, U.S. government securities, and money
market instruments. The Fund's investment adviser selects securities and
attempts to maintain an acceptable level of risk largely through the use of
automated quantitative measurement techniques. The data considered by the
quantitative model includes, but is not limited to, price/earnings ratios,
historical and projected earnings growth rates, historical sales growth rates,
historical return on equity, market capitalization, average daily trading
volume, and credit rankings based on nationally recognized statistical rating
organizations (where applicable). The quantitative model is used in
conjunction with the investment adviser's economic forecast and assessment of
the risk and volatility of the company's industry.

ACCEPTABLE INVESTMENTS. The securities in which the Fund may invest may
include the following:

DOMESTIC EQUITY SECURITIES. The domestic equity securities in the Fund
will usually consist of U.S. common and preferred stocks of companies with
market capitalizations of $1.5 billion or greater and which are listed on
the New York or American Stock Exchange or traded in the over-the-counter
market and warrants of such companies.

REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate
investment trusts of the type more fully described under "Strategic Income
Fund--Acceptable Investments--Real Estate Investment Trusts." Investment
in Real Estate Investment Trusts is subject to certain risks. See
"Portfolio Investments and Strategies."

DOMESTIC DEBT SECURITIES. The Fund may also invest in notes, zero coupon
bonds, and convertible securities of the U.S. companies described above,
all of which are rated investment grade, i.e., Baa or better by Moody's,
or BBB or better by S&P or Fitch (or, if unrated, are deemed to be of
comparable quality by the Fund's investment adviser). The Fund may also
invest in securities issued and/or guaranteed as to the payment of
principal and interest by the U.S. government or its agencies or
instrumentalities of the type more fully described under "U.S. Government
Income Fund--Acceptable Investments."

INTERNATIONAL SECURITIES. The Fund may invest in international securities
(including investment companies which invest primarily in international
securities) of the type more fully described under "The Stellar Fund--
Acceptable Investments." The Fund will not invest more than 10% of its
assets in international securities.

MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100% of
total assets) and to maintain liquidity (up to 35% of total assets), the
Fund may invest in U.S. and foreign short-term money market instruments of
the type more fully described under "The Stellar Fund--Acceptable
Investments."

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
repurchase agreements, when-issued and delayed delivery transactions,
investing in securities of other investment companies, restricted and
illiquid securities, options and futures transactions, and lending of
portfolio securities. See "Portfolio Investments and Strategies."

CAPITAL APPRECIATION FUND

The investment objective of Capital Appreciation Fund is to maximize capital
appreciation.

Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in equity securities
of U.S. companies. The Fund may also invest in domestic debt securities,
international securities, U.S. government securities, and money market
instruments. The Fund's investment adviser selects securities and attempts to
maintain an acceptable level of risk largely through the use of automated
quantitative measurement techniques. This quantitative model includes, but is
not limited to, price/earnings ratios, historical and projected earnings
growth rates, historical sales growth rates, historical return on equity,
market capitalization, average daily trading volume, and credit rankings based
on nationally recognized statistical rating organizations (where applicable).
The quantitative model is used in conjunction with the investment adviser's
economic forecast and assessment of the risk and volatility of the company's
industry.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include the
following:

DOMESTIC EQUITY SECURITIES. The domestic equity securities of the Fund
will usually consist of U.S. common and preferred stocks of companies with
between $200 million and $2 billion in equity and which are listed on the
New York or American Stock Exchange or traded in the over-the-counter
market and warrants of such companies.

CERTAIN OTHER PORTFOLIO STRATEGIES. The Fund may also invest or engage in
repurchase agreements, when-issued and delayed delivery transactions,
investing in securities of other investment companies, lending of
portfolio securities, restricted and illiquid securities, and options and
futures transactions.

PORTFOLIO INVESTMENTS AND STRATEGIES
-------------------------------------------------------------------------------

CONVERTIBLE SECURITIES. Relative Value Fund, Growth Equity Fund, and Capital
Appreciation Fund may invest in convertible securities. Convertible securities
are fixed income securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.

ZERO COUPON SECURITIES. Growth Equity Fund and Capital Appreciation Fund may
invest in zero coupon bonds and zero coupon convertible securities. A Fund may
invest in zero coupon bonds in order to receive the rate of return through the
appreciation of the bond. This application is extremely attractive in a
falling rate environment as the price of the bond rises rapidly in value as
opposed to regular coupon bonds. A zero coupon bond makes no periodic interest
payments and the entire obligation becomes due only upon maturity.

Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches
its face amount at maturity. Zero coupon convertible securities are
convertible into a specific number of shares of the issuer's common stock. In
addition, zero coupon convertible securities usually have put features that
provide the holder with the opportunity to sell the bonds back to the issuer
at a stated price before maturity.

Generally, the price of zero coupon securities are more sensitive to
fluctuations in interest than are conventional bonds and convertible
securities. In addition, federal tax law requires the holder of a zero coupon
security to recognize income from the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
to avoid liability of federal income taxes, the Fund will be required to
distribute income accrued from zero coupon securities which it owns, and may
have to sell portfolio securities (perhaps at disadvantageous times) in order
to generate cash to satisfy these distribution requirements.

MORTGAGE-BACKED SECURITIES. U.S. Government Income Fund and Strategic Income
Fund may invest in mortgage-backed securities. Mortgage-backed securities are
securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans on real property. There are currently three basic types of
mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation
("FHLMC"); (ii) those issued by private issuers that represent an interest in
or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and (iii)
those issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit
enhancement.

ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). U.S. Government Income Fund and
Strategic Income Fund may invest in ARMS. ARMS are actively traded, mortgage-
backed securities representing interests in adjustable rather than fixed
interest rate mortgages. A Fund invests in ARMS issued by GNMA, FNMA, and
FHLMC. Strategic Income Fund may also invest in ARMS issued by non-government
and private entities. The underlying mortgages which collateralize ARMS issued
by GNMA are fully guaranteed by the Federal Housing Administration or Veterans
Administration, while those collateralizing ARMS issued by FHLMC or FNMA are
typically conventional residential mortgages conforming to strict underwriting
size and maturity constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as a Fund, would
receive monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and
any unscheduled prepayments of principal that it receives, the holder may
receive a rate of interest which is actually lower than the rate of interest
paid on the existing ARMS. As a consequence, ARMS may be a less effective
means of "locking in" long-term interest rates than other types of U.S.
government securities.

Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and generally
rises when interest rates decline.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). U.S. Government Income Fund and
Strategic Income Fund may invest in CMOs. CMOs are debt obligations
collateralized by mortgage loans or mortgage-backed securities. Typically,
CMOs are collateralized by GNMA, FNMA, or FHLMC certificates, but may be
collateralized by whole loans or private mortgage-backed securities.

A Fund will invest only in CMOs which are rated AAA by a nationally recognized
statistical rating organization and which may be: (a) collateralized by pools
of mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (c) privately issued securities in which the
proceeds of the issuance are invested in mortgage securities and payment of
the principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government. In addition, Strategic Income Fund may
invest in CMOs which are collateralized by pools of mortgages without a
government guarantee as to payment of principal and interest, but which have
some form of credit enhancement.

ASSET-BACKED SECURITIES. Strategic Income Fund may invest in asset-backed
securities. Asset-backed securities have structural characteristics similar to
mortgage-backed securities but have underlying assets that generally are not
mortgage loans or interests in mortgage loans. The Fund may invest in asset-
backed securities rated AAA or higher by a nationally recognized statistical
rating organization including, but not limited to, interests in pools of
receivables, such as motor vehicle installment purchase obligations and credit
card receivables, equipment leases, manufactured housing (mobile home) leases,
or home equity loans. These securities may be in the form of pass-through
instruments or asset-backed bonds. The securities are issued by non-
governmental entities and carry no direct or indirect government guarantee.

INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-
backed and asset-backed securities generally pay back principal and interest
over the life of the security. At the time U.S. Government Income Fund or
Strategic Income Fund reinvests the payments and any unscheduled prepayments
of principal received, such Fund may receive a rate of interest which is
actually lower than the rate of interest paid on these securities ("prepayment
risks"). Mortgage-backed and asset-backed securities are subject to higher
prepayment risks than most other types of debt instruments with prepayment
risks because the underlying mortgage loans or the collateral supporting
asset-backed securities may be prepaid without penalty or premium. Prepayment
risks on mortgage-backed securities tend to increase during periods of
declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are
less likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities.

While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as interest
rates decline, the likelihood increases that mortgages will be prepaid.
Furthermore, if mortgage-backed securities are purchased at a premium,
mortgage foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium paid.
Conversely, if mortgage-backed securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal
would increase current and total returns and would accelerate the recognition
of income, which would be taxed as ordinary income when distributed to
shareholders.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-backed
securities backed by motor vehicle installment purchase obligations permit the
servicer of such receivables to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there
is a risk that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then re-registered because the owner and
obligor moves to another state, such re-registration could defeat the original
security interest in the vehicle in certain cases. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of asset-backed
securities backed by automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

OPTIONS TRANSACTIONS. U.S. Government Income Fund, Strategic Income Fund, The
Stellar Fund, Growth Equity Fund, and Capital Appreciation Fund may engage in
options transactions. Each Fund may purchase and sell options both to increase
total return and to hedge against the effect of changes in the value of
portfolio securities due to anticipated changes in interest rates.

Each Fund may write (i.e., sell) covered call options, and all these Funds
except U.S. Government Income Fund may also write covered put options.
Strategic Income Fund may only write covered call and put options to the
extent of 20% of the value of its net assets at the time such option contracts
are written. By writing a call option, a Fund becomes obligated during the
term of the option to deliver the securities underlying the option upon
payment of the exercise price. By writing a put option, a Fund becomes
obligated during the term of the option to purchase the securities underlying
the option at the exercise price if the option is exercised.

All options written by a Fund must be "covered" options. This means that, so
long as a Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option (or in the case of call options on
U.S. Treasury bills, substantially similar securities) or have the right to
obtain such securities without payment of further consideration (or have
segregated cash in the amount of any additional consideration).

A Fund will be considered "covered" with respect to a put option it writes if,
so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option. In the case
of The
Stellar Fund, the aggregate value of the obligations underlying the puts will
not exceed 50% of the Fund's net assets.

The principal reason for writing call or put options is to manage price
volatility (or risk). In addition, a Fund will attempt to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option, a Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise. A Fund will write put options only on securities
which a Fund wishes to have in its portfolio and where the Fund has
determined, as an investment consideration, that it is willing to pay the
exercise price of the option.

U. S. Government Income Fund, Strategic Income Fund, The Stellar Fund, Growth
Equity Fund, and Capital Appreciation Fund, may purchase put options, and all
these Funds except for U.S. Government Income Fund may also purchase call
options. Such investments in put and call options may not exceed 5% of a
Fund's assets, represented by the premium paid, and will only relate to
specific securities (or groups of specific securities) in which the Fund may
invest. A Fund may purchase call and put options for the purpose of offsetting
previously written call and put options of the same series. If a Fund is
unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Put options may also be purchased to protect against
price movements in particular securities in a Fund's portfolio. A put option
gives a Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. The Funds will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of these Funds
are qualified for offer and sale.

Strategic Income Fund, Growth Equity Fund, and Capital Appreciation Fund may
generally purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options since
options on the portfolio securities held by those Funds are not traded on an
exchange. A Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Funds' 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.

Options which The Stellar Fund will trade must be listed on national
securities exchanges. Exchanges on which such options currently are traded are
the Chicago Board Options Exchange and the New York, American, Pacific, and
Philadelphia Stock Exchanges.

FUTURES AND OPTIONS ON FUTURES. U.S. Government Income Fund, Strategic Income
Fund, Growth Equity Fund, and Capital Appreciation Fund may purchase and sell
futures contracts to hedge against the effect of changes in the value of
portfolio securities due to anticipated changes in interest rates and market
conditions. Futures contracts call for the delivery of particular debt
instruments at a certain time in the future. The seller of the contract agrees
to make delivery of the type of instrument called for in the contract, and the
buyer agrees to take delivery of the instrument at the specified future time.

Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index future
contract is an agreement to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index contract was originally written.

U.S. Government Income Fund, Strategic Income Fund, Growth Equity Fund, and
Capital Appreciation Fund may also write call options and purchase put options
on futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When a Fund writes a call option on a
futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the option
is exercised. Conversely, as purchaser of a put option on a futures contract,
a Fund is entitled (but not obligated) to sell a futures contract at the fixed
price during the life of the option.

U.S. Government Income Fund, Strategic Income Fund, Growth Equity Fund, and
Capital Appreciation Fund may also write put options and purchase call options
on futures contracts as hedges against rising purchase prices of portfolio
securities. A Fund will use these transactions to attempt to protect its
ability to purchase portfolio securities in the future at price levels
existing at the time it enters into the transactions. When a Fund writes a put
option on a futures contract, it is undertaking to buy a particular futures
contract at a fixed price at any time during a specified period if the option
is exercised. As a purchaser of a call option on a futures contract, a Fund is
entitled (but not obligated) to purchase a futures contract at a fixed price
at any time during the life of the option.

U.S. Government Income Fund, Strategic Income Fund, Growth Equity Fund, and
Capital Appreciation Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on a Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of a Fund's total assets. When a
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 a Fund sells futures contracts, it will either own or have
the right to receive the underlying future or security, or will make deposits
to collateralize the position as discussed above.

RISKS. When U.S. Government Income Fund, Strategic Income Fund, Growth
Equity Fund, and Capital Appreciation 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 a Fund's portfolio. This may cause
the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Funds' investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these events, a
Fund may lose money on the futures contract or option.

It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. A Fund's ability to establish and close out futures and
options positions depends on this secondary market.

DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including, futures, forward, option and
swap contracts) that "derive" their value from changes in the value of an
underlying security, currency, commodity or index. Certain types of securities
that incorporate the performance characteristics of these contracts are also
referred to as "derivatives." The term has also been applied to securities
"derived" from the cash flows from underlying securities, mortgages or other
obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response
of certain derivative contracts and securities to market changes may differ
from traditional investments, such as stock and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The
Funds will only use derivative contracts for the purposes disclosed in this
prospectus to the extent that the Funds invests in securities that could be
characterized as derivatives, such as mortgage-backed securities including
CMOs and ARMS, and asset-backed securities, it will only do so in a manner
consistent with its investment objective, policies and limitations.

REPURCHASE AGREEMENTS. The securities in which each Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from a Fund, that Fund
could receive less than the repurchase price on any sale of such securities.

LENDING OF PORTFOLIO SECURITIES. Pursuant to a fundamental policy, in order to
generate additional income, U.S. Government Income Fund, Strategic Income
Fund, Growth Equity Fund, and Capital Appreciation Fund may lend portfolio
securities up to one-third of the value of its total assets, on a short-term
or long-term basis, to broker/dealers, banks, or other institutional borrowers
of securities.

The Funds will only enter into loan arrangements with broker/dealers, banks,
or other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and where the Funds will receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the value of the securities loaned at all times. There is the risk
that when lending portfolio securities, the securities may not be available to
the Funds on a timely basis and the Funds may, therefore, lose the opportunity
to sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these
transactions may cause a 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, a Fund may pay more or less than the
market value of the securities on the settlement date.

A Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, a Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. A Fund may realize short-term profits or losses upon the sale of
such commitments.

RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest in restricted
securities. Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objective and policies but which
are subject to restrictions on resale under federal securities law. However, a
Fund will limit investments in illiquid securities, including restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. U.S. Government Income
Fund, Strategic Income Fund, Growth Equity Fund, and Capital Appreciation Fund
may invest in securities of other investment companies, but will not own more
than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of total assets in any one investment company, and invest
no more than 10% of total assets in investment companies in general. A Fund
will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. It should be noted that investment companies incur certain
expenses such as management fees and, therefore, any investment by a Fund in
shares of another investment company would be subject to such duplicate
expenses. The investment adviser will waive its investment advisory fee on
assets invested in securities of such investment companies.

ADDITIONAL RISK CONSIDERATIONS

FOREIGN SECURITIES. Strategic Income Fund, The Stellar Fund, Relative Value
Fund, Growth Equity Fund, and Capital Appreciation Fund may invest in foreign
securities. Investing in foreign securities can carry higher returns and risks
than those associated with domestic investments. Foreign securities may be
denominated in foreign currencies. Therefore, the value in U.S. dollars of a
Fund's assets and income may be affected by changes in exchange rates and
regulations.

Although a Fund values its assets daily in U.S. dollars, it will not convert
its holding of foreign currencies to U.S. dollars daily. When a Fund converts
its holdings to another currency, it may incur currency conversion costs.
Foreign exchange dealers realize a profit on the difference between the prices
at which they buy and sell currencies.

FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:

. less publicly available information about foreign companies;
. the lack of uniform financial accounting standards applicable to foreign
companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign
securities exchanges, brokers, listed companies, and banks;
. generally lower foreign securities market volume;
. the likelihood that foreign securities may be less liquid or more
volatile;

. generally higher foreign brokerage commissions;
. possible difficulty in enforcing contractual obligations or obtaining
court judgments abroad because of differences in the legal systems;
. unreliable mail service between countries; and
. political or financial changes which adversely affect investments in
some countries.

U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad. Although these Funds are
unaware of any current restrictions which would materially adversely affect
its ability to meet its investment objective and policies, investors are
advised that these U.S. government policies could be reinstituted.

FIXED INCOME SECURITIES. The Funds may invest in fixed income securities. The
prices of fixed income securities fluctuate inversely in relation to the
direction of interest rates. The prices of longer-term fixed income securities
fluctuate more widely in response to market interest rate changes. Fixed
income securities rated BBB by S&P or Fitch or Baa by Moody's have more
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal
and interest payments than higher-rated fixed income securities. In the event
that a fixed income security which had an eligible rating when purchased is
downgraded below the eligible rating, the Fund's investment adviser will
promptly re-assess whether continued holding of the security is consistent
with the Fund's objective.

REAL ESTATE INVESTMENT TRUSTS. Strategic Income Fund, Growth Equity Fund, and
The Stellar Fund may purchase interests in real estate investment trusts.
Risks associated with real estate investments include the fact that equity and
mortgage real estate investment trusts are dependent upon management skill and
are not diversified, and are, therefore, subject to the risk of financing
single projects or unlimited number of projects. They are also subject to
heavy cash flow dependency, defaults by borrowers, and self-liquidation.
Additionally, equity real estate investment trusts may be affected by any
changes in the value of the underlying property owned by the trusts, and
mortgage real estate investment trusts may be affected by the quality of any
credit extended. The investment adviser seeks to mitigate these risks by
selecting real estate investment trusts diversified by sector (shopping malls,
apartment building complexes, and health care facilities) and geographic
location.

INVESTMENT LIMITATIONS
-------------------------------------------------------------------------------

BORROWING MONEY

U.S. Government Income Fund, The Stellar Fund, Relative Value Fund, Growth
Equity Fund, and Capital Appreciation Fund will not borrow money or pledge
securities except, under certain circumstances, each Fund may borrow money up
to one-third of the value of its total assets and pledge up to 10% of the
value of those assets to secure such borrowings. In the case of Growth Equity
Fund and Capital Appreciation Fund, the above prohibition against borrowing
specifically encompasses reverse repurchase agreements. This policy cannot be
changed without the approval of holders of a majority of a Fund's shares.

DIVERSIFICATION

With respect to 100% of the value of total assets, Relative Value Fund will
not, and with respect to 75% of the value of total assets, U.S. Government
Income Fund, Strategic Income Fund, The Stellar Fund, Growth Equity Fund, and
Capital Appreciation Fund will not invest more than 5% in securities of one
issuer except cash and cash items, U.S. government securities, and repurchase
agreements (in the case of Strategic Income Fund, The Stellar Fund, Relative
Value Fund, Growth Equity Fund, and Capital Appreciation Fund). The Stellar
Fund and Relative Value Fund will not acquire more than 10% of the voting
securities of any one issuer. This policy cannot be changed without the
approval of holders of a majority of a Fund's shares.

INVESTING IN NEW ISSUERS

The Stellar Fund and Relative Value Fund will not invest more than 5% of its
in securities of issuers that have records of less than three years of
continuous operations. This policy cannot be changed without the approval of
holders of a majority of a Fund's Shares.

The above investment limitations cannot be changed without shareholder
approval.

STAR FUNDS INFORMATION
-------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

ADVISORY FEES. The Adviser is entitled to receive an annual investment
advisory fee equal to a percentage of each Fund's average daily net assets
as follows: 0.60% of U.S. Government Income Fund; 0.75% of Relative Value
Fund and Growth Equity Fund; and 0.95% of Strategic Income Fund, The
Stellar Fund, and Capital Appreciation Fund. The fees of 0.75 of 1% or
more may be higher than the advisory fees paid by mutual funds in general
but are comparable to the fees paid by many mutual funds with objectives
and policies similar to the Funds. The Adviser may voluntarily choose to
waive a portion of its fee or reimburse the Funds for certain operating
expenses. The Adviser can terminate this voluntary waiver of its advisory
fees at any time at its sole discretion. The Adviser has undertaken to
reimburse the Funds, up to the amount of the advisory fees, for operating
expenses in excess of limitations established by certain states.

Star Bank's expertise in trust administration, investments, and estate
planning ranks it among the most predominant trust institutions in Ohio,
with assets of $13.4 billion as of December 31, 1994.

As part of its regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the
Funds 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.

B. Randolph Bateman is Senior Vice President and Chief Investment Officer
of Star Bank's Trust Financial Services Group and Manager of its Capital
Asset Management Division. Mr. Bateman has managed the international bonds
component of Strategic Income Fund since its inception, and the
international securities component of The Stellar Fund since May 1993. Mr.
Bateman joined Star Bank in 1988.

Joseph P. Belew is currently a Trust Officer and Investment Manager of the
Financial Services division at Star Bank, N.A., Butler County. Mr. Belew
has been Relative Value Fund's portfolio manager since its inception in
June 1991. From 1986 through December 1993, Mr. Belew was employed by Star
Bank as a Trust Officer.

Fred A. Brink joined Star Bank in 1991 and is a Fund Manager and Trust
Investment Officer for the Capital Management Division. Mr. Brink has
managed the cash equivalent securities component of The Stellar Fund since
July 1991. He also has managed the money market instruments component of
Capital Appreciation Fund since its inception. Mr. Brink graduated from
the University of Cincinnati in 1991 with a Bachelor of Business
Administration Degree in Finance.

Scott H. Dooley joined Star Bank in 1988 and is an Equity Fund Manager and
Trust Investment Officer for the Capital Management Division. Mr. Dooley
has managed the domestic and international equity and fixed income
securities components of Capital Appreciation Fund since its inception.
Mr. Dooley holds a Bachelor of Business Administration Degree in
Accounting from the University of Cincinnati and earned his Chartered
Financial Analyst designation in 1992.

Cynthia E. Henderson is a Fund Manager for the Capital Management Division
of Star Bank. She has managed the money market instruments component of
Strategic Income Fund since its inception. Ms. Henderson joined Star Bank
in September, 1990 as an Internal Auditor, moving to Trust Capital
Management in January 1994, as a Research Analyst. Prior to joining Star
Bank, Ms. Henderson was earning her degree at Miami University. She also
holds the Certified Public Accountant designation.

Donald L. Keller joined Star Bank's Capital Management Division in 1983
and has served as a Vice President and Director of Research since October
1993. Mr. Keller has been the portfolio manager for Growth Equity Fund
since its inception. He has also managed the domestic equity securities
component of Strategic Income Fund, and has supported the domestic and
international equity and fixed income securities components of Capital
Appreciation Fund since the inceptions of such Funds. Mr. Keller holds a
Bachelor of Business Administration Degree in Finance and Accounting from
the University of Cincinnati. He also earned his Masters in Finance from
Xavier University.

Kirk F. Mentzer is a Fixed Income Manager for the Capital Management
Division of Star Bank. Mr. Mentzer has been the portfolio manager for U.S.
Government Income Fund since its inception in January 1993. He has also
managed the domestic and structured fixed income components of Strategic
Income Fund and the domestic fixed income component of The Stellar Fund,
since such Funds' inceptions. Mr. Mentzer joined Star Bank in May 1989 as
a micro systems analyst, and has served as an investment analyst since
June 1990. Mr. Mentzer holds a Bachelor of Business Administration Degree
in Finance from the University of Cincinnati. He also earned has Masters
in Finance from Xavier University.

DISTRIBUTION OF FUND SHARES

DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted
in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), U.S.
Government Income Fund, The Stellar Fund (Investment Shares), Relative Value
Fund, Strategic Income Fund, Growth Equity Fund, and Capital Appreciation Fund
may pay to the distributor an amount computed at an annual rate of up to 0.25
of 1% of the average daily net assets, in each case to finance any activity
which is principally intended to result in the sale of shares subject to the
Plan.

The Funds' Plan is a compensation type plan. As such, the Funds make no
payments to the distributor except as described above. Therefore, the Funds do
not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Funds, 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 Funds under the Plan.

The Glass-Steagall Act limits the ability of a depository institution (such as
a commercial bank or a savings and loan association) to become an underwriter
or distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.

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 Funds. Such payments will be
predicated upon the amount of shares of a 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 a Fund. In addition, the distributor will pay dealers an
amount equal to 2.00% of the net asset value of all shares of Strategic Income
Fund and Growth Equity Fund, purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from assets of the Fund.

Brokers, dealers, and administrators will receive fees from the distributor
based upon shares of a 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 a 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 a Fund's Rule
12b-1 Distribution Plan or a Fund's Shareholder Services Plan.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Funds with
certain administrative personnel and services necessary to operate the Funds,
and the separate classes, as applicable, such as legal and accounting
services. Federated Administrative Services provides these at an annual rate
as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
------------------ -----------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. Federated Administrative Services may choose to voluntarily
waive a portion of its fee.

CUSTODIAN. Star Bank, N.A., Cincinnati, Ohio, is custodian for the securities
and cash of the Funds.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is transfer agent and dividend disbursing agent for the
Funds. It also provides certain accounting and recordkeeping services with
respect to each Fund's portfolio investments.

INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Funds are Arthur Andersen LLP, Pittsburgh, Pennsylvania.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally utilize
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the
Funds and other funds distributed by Federated Securities Corp. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Trustees.

EXPENSES OF THE FUNDS

Each 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 Funds, and shares of each 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 each Fund up to the amount of the advisory
fee, the amount by which operating expenses exceed limitations imposed by
certain states.

EXPENSES OF THE STELLAR FUND

Holders of each class of Shares pay their allocable portion of Fund and Trust
expenses.

The Trust expenses for which holders of each class of Shares pay their
allocable portion include, but are not limited to: the cost of organizing the
Trust and continuing its existence; registering the Trust with federal and
state securities authorities; Trustees' fees; auditor's fees; the cost of
meetings of Trustees; legal fees of the Trust; association membership dues;
and such non-recurring and extraordinary items as may arise from time to time.

The Fund expenses for which holders of each class of Shares each pay their
allocable portion include, but are not limited to: registering the Fund and
each class of Shares of the Fund; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such non-
recurring and extraordinary items as may arise from time to time.

At present, the only expenses allocated to Investment Shares as a class are
expenses under the Fund's Rule 12b-1 Plan. In addition, the Trustees reserve
the right to allocate certain other expenses to holders of each class of
Shares as they deem appropriate ("Class Expenses"). In any case, Class
Expenses would be limited to: distribution fees; transfer agent fees as
identified by the transfer agent as attributable to holders of each class of
Shares; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and to state securities commissions; expenses related to administrative
personnel and services as required to support holders of each class of Shares;
legal fees relating solely to each class of Shares; and Trustees' fees
incurred as a result of issues relating solely to each class of Shares.

NET ASSET VALUE
-------------------------------------------------------------------------------

Each Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding. With respect to The Stellar
Fund, the net asset value for Trust Shares will differ from that of Investment
Shares due to the variance in net income realized by each class. Such variance
will reflect only accrued net income to which the shareholders of a particular
class are entitled.

INVESTING IN THE FUNDS
-------------------------------------------------------------------------------

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in any of the Funds by an investor is $1,000
($25 for Star Bank Connections Group banking customers and Star Bank employees
and members of their immediate family). Subsequent investments may be in any
amounts. For customers of Star Bank, an institutional investor's minimum
investment will be calculated by combining all mutual fund accounts it
maintains with Star Bank and invests with the Funds.

WHAT SHARES COST

Shares of U.S. Government Income Fund are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS
PERCENTAGE OF PUBLIC A PERCENTAGE OF
AMOUNT OF TRANSACTION OFFERING PRICE NET AMOUNT INVESTED
---------------------- -------------------- -------------------
<S> <C> <C>
Less than $100,000 3.50% 3.62%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more 0.00% 0.00%
</TABLE>

Shares of Relative Value Fund, Capital Appreciation Fund, and Investment
Shares of The Stellar Fund, are sold at their net asset value next determined
after an order is received, plus a sales charge, as follows:

<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS
PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
--------------------- ---------------------- -------------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>

The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; 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. Shares of Strategic Income Fund, Growth Equity
Fund, and Trust Shares of The Stellar Fund, are sold at their net asset value
next determined after an order is received. There is no sales charge imposed
by such Funds at the time of purchase. Under certain circumstances described
under "Redeeming Shares," shareholders may be charged a contingent deferred
sales charge by the distributor at the time shares of the Strategic Income
Fund and Growth Equity Fund are redeemed.

In addition, shareholders of U.S. Government Income Fund, Relative Value Fund,
and Capital Appreciation Fund, and Investment Shares of The Stellar Fund, who
are private banking or Star Connections Group banking customers of StarBanc
Corporation and its subsidiaries are exempt from sales charges. In addition,
the following persons may purchase shares of such Funds at net asset value,
without a sales charge: employees and retired employees of Star Bank,
Federated Securities Corp., or their affiliates, or of any bank or investment
dealer who has a sales agreement with Federated Securities Corp. with regard
to the Funds, or of any correspondent bank of Star Bank, and members of the
families (including parents, grandparents, siblings, spouses, children, aunts,
uncles, and in-laws)
of such employees or retired employees; trust customers of StarBanc
Corporation and its subsidiaries and correspondent banks of Star Bank when
investing non-trust assets; certain non-trust customers of correspondent banks
of Star Bank; and non-trust customers of financial advisers.

SALES CHARGE REALLOWANCE. For sales of shares of the U.S. Government Income
Fund, Relative Value Fund, and Capital Appreciation Fund, and Investment
Shares of The Stellar 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 shares through:

. quantity discounts and accumulated purchases;
. signing a 13-month letter of intent;
. using the reinvestment privilege; or
. concurrent purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table,
larger purchases reduce the sales charge paid. U.S. Government Income Fund,
Relative Value Fund, Capital Appreciation Fund, and Investment Shares of The
Stellar 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 Funds will consider the
previous purchases still invested in the Funds. 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
3.00%, not 3.50% for U.S. Government Income Fund, and 3.75%, not 4.50% for
Relative Value Fund, Capital Appreciation Fund, and Investment Shares of The
Stellar Fund.

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 Funds
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 funds in the Funds (excluding money market funds) over the next
13 months, the sales load may be reduced by signing a letter of intent to that
effect. This Letter of Intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 3.50% of the total price of the
shares of U.S. Government Income Fund or 4.50% of the total price of shares of
Relative Value Fund, Capital Appreciation Fund, or Investment Shares of The
Stellar Fund, as the case may be, intended to be purchased in escrow (in
shares) 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 the end of the 13-month period, whichever comes first. If the amount
specified in the Letter of Intend is not purchased, an appropriate number of
escrowed shares may be redeemed in order to realize the difference in the
sales load.

This Letter of Intent will not obligate the shareholder to purchase shares,
but if he does, each purchase during the period will be at the sales load
applicable to the total amount intended to be purchased. At the time a Letter
of Intent is established, current balances in accounts in shares of any of the
Funds, 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 U.S. Government Income Fund, Relative
Value Fund, Capital Appreciation Fund, or Investment Shares of The Stellar
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
any of these Funds, 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 U.S. Government
Income Fund, Relative Value Fund, Capital Appreciation Fund, or Investment
Shares of The Stellar Fund, the sales charge would be reduced.

To receive this sales charge reduction, Star Bank or the distributor must be
notified by the shareholder in writing at the time the concurrent purchases
are made. The Fund will reduce the sales charge after it confirms the
purchases.

SYSTEMATIC INVESTMENT PLAN

Once a Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this plan, funds may be
withdrawn periodically from the shareholder's checking account and invested in
shares of the Funds 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 Funds through Star Bank.
Texas residents must purchase shares through Federated Securities Corp. at 1-
800-356-2805. In connection with the sale of shares of the Funds, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Funds reserve the right to reject any purchase
request.

THROUGH STAR BANK. To place an order to purchase shares of a Fund, a customer
of Star Bank may telephone Star Bank at 1-800-677-FUND or place the order in
person. Purchase orders given by telephone may be electronically recorded.

Payment may be made to Star Bank either by check or federal funds. When
payment is made with federal funds, the order is considered received when
federal funds are received by Star Bank. Purchase orders must be telephoned to
Star Bank by 3:30 p.m. (Eastern time) and payment by federal funds must be
received by Star Bank before 3:00 p.m. (Eastern time) on the following day.
Orders are considered received after payment by check is converted into
federal funds. This is normally the next business day after Star Bank receives
the check.

For purchases by employees, individual investors, or through registered
broker/dealers, requests must be received by Star Bank by 3:30 p.m. (Eastern
time) and payment is normally required in five business days. However, as of
June 1, 1995, payment will be 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 a Fund by mail, individual investors may send a
check made payable to the Fund name (and class name for The Stellar Fund) to:
Star Funds Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML 7135,
Cincinnati, Ohio 45202.

Orders by mail are considered received after payment by check is converted by
Star Bank into federal funds. This is normally the next business day after
Star Bank receives the check.

EXCHANGING SECURITIES FOR FUND SHARES

The Funds may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval of a Fund and a determination by a
Fund and the Adviser that the securities to be exchanged are acceptable.

Any securities exchanged must meet the investment objective and policies of
the particular Fund, must have a readily ascertainable market value, must be
liquid, and must not be subject to restrictions on resale. A 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 a Fund will be valued in the same manner as a Fund
values its assets. The basis of the exchange will depend upon the net asset
value of shares of the Funds on the day the securities are valued. One share
of a 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 a Fund, along with
the securities.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued.

Detailed confirmations of each purchase or redemption are sent to each
shareholder and dividend confirmations are sent to each shareholder to report
dividends paid.

DIVIDENDS AND CAPITAL GAINS

With respect to U.S. Government Income Fund, dividends are declared daily and
paid monthly. With respect to Strategic Income Fund, dividends are declared
and paid monthly. Dividends and capital gains will be automatically reinvested
in additional shares of one of these Funds on payment dates at net asset
value, unless cash payments are requested by writing to the Fund or Star Bank.

With respect to The Stellar Fund, Relative Value Fund, Growth Equity Fund, and
Capital Appreciation Fund, dividends are declared and paid quarterly.
Dividends and capital gains will be automatically reinvested in additional
shares of one of these Funds on payment dates at the ex-dividend date at net
asset value, unless cash payments are requested by writing to a Fund or Star
Bank.

Capital gains realized by the Funds, if any, will be distributed once every
twelve months.

EXCHANGE PRIVILEGE
-------------------------------------------------------------------------------

STAR FUNDS

All shareholders of each of the Funds are shareholders of the Star Funds. Star
Funds currently consist of those Funds listed on the cover page of this
prospectus. Until further notice, through a telephone exchange program,
shareholders invested in the money market funds can exchange only among the
other money market funds of the Trust, and shareholders invested in the non-
money market funds can exchange only among certain other non-money market
funds of the Trust. Each portfolio in the Star Funds is advised by Star Bank
and distributed by Federated Securities Corp.

EXCHANGING SHARES

Shareholders of U.S. Government Income Fund, The Stellar Fund, Relative Value
Fund, and Capital Appreciation Fund may exchange shares for shares of those
other non-money market funds in the Star Funds which impose a front-end sales
charge. In addition, shares in any of these Funds may also be exchanged for
certain other funds distributed by Federated Securities Corp. that are not
advised by Star Bank, N.A. ("Federated Funds"). For further information on the
availability of Federated Funds for exchanges, call Star Bank at 1-800-677-
FUND. Shareholders who exercise this exchange privilege must exchange shares
having a total net asset value of at least $1,000. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the fund into
which an exchange is to be effected.

Shares may be exchanged at net asset value, plus the difference between the
Funds' sales charge (if any) already paid and any sales charge of the fund
into which shares are to be exchanged, if higher.

Shareholders of Strategic Income Fund and Growth Equity Fund may exchange
shares of a Fund for shares of any fund in the Star Funds which imposes a
contingent deferred sales charge. Shareholders who exercise this exchange
privilege must exchange shares in either of these Funds having a total net
asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.

A contingent deferred sales charge is not assessed in connection with an
exchange of shares in either of these Funds for shares of Star Funds that
impose contingent deferred sales charges. However, if the shareholder redeems
shares within five years of the original purchase, a contingent deferred sales
charge will be imposed. For purposes of computing the contingent deferred
sales charge, the length of time the shareholder has owned shares will be
measured from the date of original purchase and will not be affected by the
exchange.

The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, shares submitted
for exchange will be redeemed at the next-determined net asset value.

Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized. The exchange privilege may be terminated at any time.
Shareholders will be notified of the termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by
calling Star Bank at 1-800-677-FUND.

EXCHANGE-BY-TELEPHONE

Instructions for exchanges between funds which are part of the Star Funds may
be given by telephone to Star Bank at 1-800-677-FUND or to the distributor.
Shares may be exchanged by telephone only between fund accounts having
identical shareholder registrations. Exchange instructions given by telephone
may be electronically recorded.

Telephone exchange instructions must be received before 3:30 p.m. (Eastern
time) in order for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers, banks, or
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker, bank, or financial
institution by telephone, it is recommended that an exchange request be made
in writing and sent by overnight mail.

If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.

REDEEMING SHARES
-------------------------------------------------------------------------------

U.S. Government Income Fund, The Stellar Fund, Relative Value Fund, and
Capital Appreciation Fund redeem shares at their net asset value next
determined after Star Bank receives the redemption request. Strategic Income
Fund and Growth Equity Fund redeem shares at their net asset value, less any
applicable contingent deferred sales charge, next determined after Star Bank
receives the redemption request. (See "Contingent Deferred Sales Charge.")
Redemptions will be made on days on which the Fund computes its net asset
value. Redemption requests cannot be executed on days on which the New York
Stock Exchange is closed or on federal holidays restricting wire transfers.
Requests for redemption for the Funds can be made in person, by telephone
through Star Bank, or by mail.

BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem shares
of the Fund by telephoning Star Bank at 1-800-677-FUND. Redemption requests
given by telephone may be electronically recorded. For calls received by Star
Bank before 3:30 p.m. (Eastern time), proceeds will normally be wired the
following day to the shareholder's account at Star Bank or a check will be
sent to the address of record. In no event will proceeds be wired or a check
mailed more than seven days after a proper request for redemption has been
received. If, at any time, the Fund shall determine it necessary to terminate
or modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Star Bank.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered.

If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.

BY MAIL. Shareholders may also redeem 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 a Fund for assistance in redeeming by mail.

SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with a Fund, or a redemption payable other than to the shareholder
of record must have signatures on written redemption requests guaranteed
by:

. a trust company or commercial bank whose deposits are insured by the
BIF, which is administered by the FDIC;
. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
. a savings bank or savings and loan association whose deposits are
insured by the SAIF, which is administered by the FDIC; or
. any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.

The Funds do 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.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming shares from Strategic Income Fund and Growth Equity
Fund within five full years of the purchase date will be charged a contingent
deferred sales charge by the Funds' distributor. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed shares at the time of purchase or the net asset value of the
redeemed shares at the time of redemption in accordance with the following
schedule:

<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
<S> <C>
Year 1 5.00%
Year 2 4.00%
Year 3 3.00%
Year 4 2.00%
Year 5 1.00%
Year 6 0.00%
</TABLE>

The contingent deferred sales charge will not be charged with respect to: (1)
shares acquired through the reinvestment of dividends or distributions of
short-term or long-term capital gains and (2) shares held for more than five
full years from the date of purchase. Redemptions will be processed in a
manner intended to maximize the amount of redemption which will not be subject
to a contingent deferred sales charge. In computing the amount of contingent
deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) shares of a Fund acquired through the reinvestment of
dividends and long-term capital gains; (2) shares of a Fund held for more than
five full years from the date of purchase; and (3) shares of a Fund held for
fewer than five full years on a first-in, first-out basis. A contingent
deferred sales charge is not assessed in connection with an exchange of shares
of a Fund for shares of certain other Star Funds that are also subject to
contingent deferred sales charges as described in this prospectus under the
section entitled "Exchanging Shares." Moreover, the contingent deferred sales
charge will be eliminated with respect to certain redemptions. (See
"Elimination of Contingent Deferred Sales Charge.")

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended,
of a shareholder; (2) redemptions representing minimum required distributions
from an Individual Retirement Account or other retirement plan to a
shareholder who has attained the age of 70 1/2; and (3) involuntary
redemptions by shares of a Fund in shareholder accounts that do not comply
with the minimum balance requirements. The exemption from the contingent
deferred sales charge for Individual Retirement Accounts or other retirement
plans does not extend to account transfers, rollovers, and other redemptions
made for purposes of reinvestment.

Shares of a Fund purchased by the following entities are not subject to the
contingent deferred sales charge to the extent that no payment was advanced
for purchases made by such entities: (a) private banking or Star Bank
Connections Group banking customers of StarBanc Corporation and its
subsidiaries; (b) employees and retired employees of Star Bank, Federated
Securities Corp., or their affiliates, or of any bank or investment dealer who
has a sales agreement with Federated Securities Corp. with regard to Strategic
Income Fund or Growth Equity Fund, or any correspondent bank of Star Bank and
members of their families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees;
(c) trust customers of StarBanc Corporation and its subsidiaries and
correspondent banks of Star Bank when investing non-trust assets; (d) certain
non-trust customers of correspondent banks of Star Bank; and (e) non-trust
customers of financial advisers.

Strategic Income Fund or Growth Equity Fund reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any shares of a Fund purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Funds' prospectus at the time of purchase of
Fund shares. If a shareholder making a redemption qualified for an elimination
of the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that the shareholder is
entitled to such elimination.

SYSTEMATIC WITHDRAWAL PLAN

Shareholders invested in shares of the Funds 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 $100 and
may be as much as 1.50% per month or 4.50% per quarter of the total net asset
value of the shares in the account when the Systematic Withdrawal Plan is
opened. Depending upon the amount of the withdrawal payments and the amount of
dividends paid with respect to shares of a Fund, redemptions may reduce, and
eventually deplete, the shareholder's investment in a Fund. For this reason,
payments under this plan should not be considered as yield or income on the
shareholder's investment in a Fund. Due to the fact that shares are sold with
a sales charge, it is not advisable for shareholders to be purchasing shares
of a Fund while participating in this plan.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a 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 Fund or
class in the Trust have equal voting rights, except that only shares of a
particular Fund or class are entitled to vote on matters affecting only that
Fund or class. 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 operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of March 7, 1995, Firstcinco,

Cincinnati, Ohio, acting in various capacities for numerous accounts, was the
owner of record of more than 25% of the outstanding shares of the designated
Fund: 7,472,484 shares (78.41%) of U.S. Government Income Fund; 1,413,024
shares (88.67%) of Strategic Income Fund; 4,200,448 shares (74.31%) of The
Stellar Fund--Trust Shares; 5,569,763 shares (78.33%) of Relative Value Fund;
2,205,155 shares (85.4%) of Growth Equity Fund; 2,896,208 shares (87.29%) of
Capital Appreciation Fund; and therefore, may, for certain purposes, be deemed
to control these Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders.

MASSACHUSETTS PARTNERSHIP LAW

EFFECT OF BANKING LAWS
-------------------------------------------------------------------------------

The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company Act
of 1956 or any affiliate thereof from sponsoring, organizing, or controlling a
registered, open-end management investment company continuously engaged in the
issuance of its shares, and from issuing, underwriting, selling, or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment adviser,
transfer agent, or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of their customer.
The Funds' investment adviser, Star Bank, is subject to such banking laws and
regulations.

Star Bank believes that it may perform the investment advisory services for
any Fund contemplated by its advisory agreements with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Star Bank from continuing to perform all or a part of the above services for
its customers and/or a Fund.

In such event, changes in the operation of a Fund may occur, including the
possible alteration or termination of any automatic or other Fund share
investment and redemption services then being provided by Star Bank, and the
Trustees would consider alternative investment advisers and other means of
continuing available investment services. It is not expected that shareholders
would suffer any adverse financial consequences (if another adviser with
equivalent abilities to Star Bank is found) as a result of any of these
occurrences.

TAX INFORMATION
-------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Funds will pay no federal income tax because each Fund 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.

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a
Fund will not be combined for tax purposes with those realized by any of the
other Funds.

Unless otherwise exempt, shareholders are required to pay federal income tax
on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions are
received in cash or as additional shares. Each Fund will provide detailed tax
information for reporting purposes.

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.

PERFORMANCE INFORMATION
-------------------------------------------------------------------------------

From time to time, each Fund may advertise its total return and yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund or class after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of a Fund or class is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by a Fund or class over a thirty-day period by the maximum offering price per
share of a Fund or class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by a Fund or class and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

With respect to U.S. Government Income Fund, Relative Value Fund, and Capital
Appreciation Fund, and Investment Shares of The Stellar Fund, the performance
information normally reflects the effect of the maximum sales load which, if
excluded, would increase the total return and yield. Occasionally, performance
information which does not reflect the effect of the sales load may be quoted
in advertising.

With respect to Strategic Income Fund and Growth Equity Fund, the performance
information normally reflects the effect of non-recurring charges, such as the
contingent deferred sales charge, which, if excluded, would increase the total
return and yield.

With respect to The Stellar Fund, total return and yield will be calculated
separately for Trust Shares and Investment Shares. Because Investment Shares
are subject to a Rule 12b-1 fee, the total return and yield for Trust Shares,
for the same period, will exceed that of Investment Shares.

From time to time, a Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.

ADDRESSES
--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
Star U.S. Government Income Fund
Star Strategic Income Fund
The Stellar Fund
Star Relative Value Fund
Star Growth Equity Fund Federated Investors Tower
Star Capital Appreciation Fund Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
-------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
-------------------------------------------------------------------------------------------------
</TABLE>

STAR FUNDS STOCK AND BOND FUNDS
COMBINED PROSPECTUS

Diversified Portfolios of the Star
Funds, an Open-End, Management
Investment Company

. 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

March 31, 1995

--------------------------------------
STAR BANK, N.A. INVESTMENT ADVISER
--------------------------------------
FEDERATED SECURITIES CORP.
Distributor
--------------------------------------

[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

G00522-02 (3/95)

Star Prime Obligations Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of Star Prime Obligations Fund (the "Fund") dated March 31,
1995. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write to the Fund or call (513) 632-5547.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Investment Limitations 2
Star Funds Management 4
Fund Ownership 7
Officers and Trustees Compensation 8
Trustee Liability 8
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 9
Administrative Services 9
Custodian 9
Brokerage Transactions 9
Purchasing Shares 10
Administrative Arrangements 10
Distribution Plan 10
Shareholder Services Plan 10
Conversion to Federal Funds 10
Use of the Amortized Cost Method 11
Exchange Privilege 11
Requirements for Exchange 11
Making an Exchange 12
Redeeming Shares 12
Redemption in Kind 12
Tax Status 12
The Fund's Tax Status 12
Shareholders' Tax Status 12
Yield 13
Effective Yield 13
Performance Comparisons 13
Financial Statements 14

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. 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 and changing the Fund's name from Losantiville
Prime Obligations Fund to Star Prime Obligations Fund.
Investment Objective and Policies
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders.
Types of Investments
The Fund invests in money market instruments which mature in 397 days or less,
and which include, but are not limited to, commercial paper and variable amount
demand master notes, bank instruments, U.S. government obligations, and
repurchase agreements.
The instruments of banks that are members of the Federal Deposit Insurance
Corporation (''FDIC''), such as certificates of deposit, demand and time
deposits, and bankers' acceptances, are not necessarily guaranteed by that
organization.
U.S. Government Obligations
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
Bank Instruments
In addition to domestic bank obligations, such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest
in:
o Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
o Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund.
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 is
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.
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
clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-
third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding. During the period any reverse repurchase
agreements are outstanding, the Fund will restrict the purchase of
portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase
agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry.
However, the Fund may invest more than 25% of the value of its total
assets in 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. (As an operating
policy, the Fund will consider ''instruments secured by these money market
instruments'' to be only repurchase agreements.)
Investing in Commodities, Commodity Contracts, or Commodity Futures Contracts
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in
the securities of issuers whose business involves the purchase or sale of
real estate or in securities which are 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.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may purchase or
hold money market instruments, including repurchase agreements and
variable amount demand master notes, in accordance with its investment
objective, policies, and limitations.
Diversification of Investments
With respect to 75% of the value of its assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities) if as a result more than 5% of the value of its total
assets would be invested in the securities of that issuer. To comply with
certain state restrictions, the Fund will not purchase securities of any
issuer if as a result more than 5% of its total assets would be invested
in securities of that issuer. (If state restrictions change, this latter
restriction may be revised without shareholder approval or notification.)
The above investment 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 become effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, and certain restricted
securities.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies.
However, this limitation will not apply if the securities are acquired in
a merger, consolidation, or acquisition of assets.
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 .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 the purpose of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
The Fund did not borrow money or pledge securities, except as a temporary,
extraordinary, or emergency measure, in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in the
coming fiscal year.
Star Funds Management___________________________________
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.

Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.

Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.

Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.

Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.

Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
_______________________________________________________________________________
________________________
John E. Murray, Jr., J.D.,S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
@Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; andWorld Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Star Bank, N.A., Cincinnati, Ohio, owned approximately 88,631,262 shares
(93.66%).
Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee

Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

* Information is furnished for the fiscal year ended November 30, 1994. The
Trust is the only investment company in the Fund Complex.
#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. 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.
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 relationship with an issuer.
Advisory Fees
For its advisory services, Star Bank receives an annual investment advisory fee
as described in the prospectus. For the fiscal years ended November 30, 1994,
1993, and 1992, the Fund's Adviser earned $469,874, $564,771, and $612,397,
respectively, none of which was voluntarily waived.
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 21/2% per year of the
first $30 million of average net assets, 2% per year of the next $70
million of average net assets, and 1.5% 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.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. For the fiscal years ended November 30, 1994, 1993, and 1992, the
Fund incurred administrative service fees of $104,792, $130,739, and $144,932,
respectively, none of which was voluntarily waived.
Custodian
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
Brokerage Transactions
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. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
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 securiites;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
Purchasing Shares
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The minimum initial investment in the Fund by an investor is $1,000 ($25 for
Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family). The minimum initial investment may be waived
from time to time for employees and retired employees of Star Bank, N.A., and
for members of the families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees.
The procedure for purchasing shares of the Fund is explained in the prospectus
under ''Investing in the Fund.''
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.
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; 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. \
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 Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the ''Rule'')
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide what,
if any, steps should be taken if there is a difference of more than .5 of
1% between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining
net asset value.
Investment Restrictions
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instruments
with a remaining maturity of more than 397 days can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon
as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
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 Fund 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 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.
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
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
Capital Gains
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
Yield
The Fund's yield for the seven-day period ended November 30, 1994, was 4.56%.
The Fund calculates its yield daily based upon the seven days ending on the day
of the calculation, called the ''base period.'' This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge fees in
connection with services and provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those fees.
Effective Yield
The Fund's effective yield for the seven-day period ended November 30, 1994, was
4.66%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum of the 365/7th power; and
o subtracting 1 from the result.
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 on money market instruments;
o changes in Fund expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ''money market instrument funds'' category in advertising
and sales literature.
o Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective)
yield. From time to time, the Fund will quote its Money ranking in
advertising and sales literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
listed on the back cover of the prospectus or by calling (513)632-5547.

9122803B (3/95)

Star Tax-Free Money Market Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of the Money Market Funds of the Star Funds dated March 31,
1995. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write to Star Tax-Free Money Market Fund (the "Fund") or call
(513) 632-5547.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 1
Temporary Investments 2
Investment Limitations 2
Concentration of Investments 3
Star Funds Management 4
Fund Ownership 7
Officers and Trustees Compensation 8
Trustee Liability 8
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 9
Administrative Services 9
Custodian 9
Brokerage Transactions 9
Purchasing Shares 10
Administrative Arrangements 10
Distribution Plan 10
Shareholder Services Plan 10
Conversion to Federal Funds 11
Use of the Amortized Cost Method 11
Exchange Privilege 12
Requirements for Exchange 12
Making an Exchange 12
Redeeming Shares 12
Redemption in Kind 12
Tax Status 12
The Fund's Tax Status 12
Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Effective Yield 14
Performance Comparisons 14
Financial Statements 15

General Information About the Fund
The Fund is an investment 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. 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 and changing the Fund's name from Losantiville
Tax-Free Money Market Fund to Star Tax-Free Money Market Fund.
Investment Objective and Policies
The Fund's investment objective is to provide current income exempt from federal
regular income tax consistent with stability of principal. The investment
objective cannot be changed without the approval of shareholders.
Acceptable Investments
The Fund invests primarily in debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivisions or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax (''Municipal Securities''). The Fund invests in
Municipal Securities with remaining maturities of 397 days or less at the time
of purchase by the Fund.
Characteristics
When determining whether a Municipal Security presents minimal credit
risks, the investment adviser considers the creditworthiness of the issuer
of a Municipal Security, the issuer of a demand feature if the Fund has
the unconditional right to demand payment from the issuer of the interest,
or the credit enhancer of payment by either of those issuers.
The Fund is not required to sell a Municipal Security if the security's
rating is reduced below the required minimum subsequent to the Fund's
purchase of the security. The Trustees and the investment adviser consider
this event, however, in the determination of whether the Fund should
continue to hold the security in its portfolio. If ratings made by Moody's
Investors Service, Inc., Standard & Poor's Corporation, or Fitch Investors
Service, Inc., 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.
Municipal Leases
The Fund may purchase Municipal Securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that the
participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund.
The Fund may also sell Municipal Securities on a delayed delivery basis with
settlement taking place more than five days after the sale as a normal form of
portfolio transaction. It is the investment adviser's experience that it is not
unusual in the Municipal Securities market for settlement periods to be slightly
longer than this period.
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 is
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 high-quality temporary investments from time to time
for temporary defensive purposes.
From time to time, such as when suitable Municipal Securities 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.
This policy may, from time to time, result in high portfolio turnover. Since the
cost of these transactions is small, high turnover is not expected to adversely
affect net asset value or yield. The adviser does not anticipate that portfolio
turnover will result in adverse tax consequences to the Fund.
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
clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money directly in amounts up to one-third of the value of its total assets
including the amount borrowed. The Fund will not borrow money for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
Restricted Securities
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933 except for certain restricted securities which meet criteria for
liquidity as established by the Trustees.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets of the Fund at the time of the pledge.
Investing in Commodities
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
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.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding bonds,
debentures, notes, certificates of indebtedness or other debt securities,
entering into repurchase agreements or engaging in other transactions
where permitted by its investment objective, policies, and limitations or
Declaration of Trust.
Diversification of Investments
With respect to 75% of the value of its assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed
by the government of the United States or its agencies or
instrumentalities) if as a result more than 5% of the value of its total
assets would be invested in the securities of that issuer. To comply with
certain state restrictions, the Fund will not purchase securities of any
issuer if as a result more than 5% of its total assets would be invested
in securities of that issuer. (If state restrictions change, this latter
restriction may be revised without shareholder approval or notification.)
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 policies becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities and municipal leases not determined by the Trustees to be
liquid.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where payment of principal and interest is
the responsibility of companies (or, in the alternative, guarantors, where
applicable) which have records of less than three years of continuous
operations, including the operation of any predecessor.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases.
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 more than 5% of its total assets in any one investment
company, or invest 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 of money market funds
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 acqusition 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 adviser will waive its investment advisory fee on assets 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 .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 did not borrow money or pledge securities (except as a temporary,
extraordinary, or emergency measure) in excess of 5% of the value of its net
assets and did not invest in securities of closed-end investment companies
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase, more
than 25% of the value of the Fund's assets would be invested in any one
industry.
However, the Fund may invest more than 25% of the value of its assets in cash or
cash items, 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 that would increase the
percentage of its assets invested in the securities of governmental subdivisions
located in any one state, territory, or U.S. possession to more than 25%.
However, the Fund may invest more than 25% of the value of its assets in tax-
exempt project notes guaranteed by the U.S. government, regardless of the
location of the issuing municipality.
If the value of Fund assets invested in the securities of a governmental
subdivision changes because of changing values, the Fund will not be required to
make any reduction in its holdings.
Star Funds Management
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Manageme
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds.

John E. Murray, Jr., J.D.,S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.

@Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Star Bank, N.A., Cincinnati, Ohio, owned approximately 149,019,705 shares
(100%).
Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee

John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee

Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

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. 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.
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.
Advisory Fees
For its advisory services, Star Bank receives an annual investment advisory fee
as described in the prospectus. For the fiscal years ended November 30, 1994 and
1993, the Fund's adviser earned $756,063 and $730,826, respectively, of which
$206,199 and $198,276, respectively, was voluntarily waived. From April 27,
1992, to the year ended November 30, 1992, the Fund's Adviser earned $485,180.
For the periods from December 1, 1991, to April 26, 1992, and from March 15,
1991 (date of initial public investment), to November 30, 1991, the Fund's
former adviser, Federated Management, earned $151,090 and $394,825,
respectively, of which $41,197 and $97,680, respectively, were voluntarily
waived because of undertakings to limit the Fund's expenses.
Also for the period from December 1, 1991, to April 26, 1992, and from March 15,
1991 (date of initial public investment), to November 30, 1991, Star Bank, as
the Fund's former sub-adviser, earned $151,090 and $197,412, respectively, for
sub-advisory services and voluntarily agreed to accept $109,893 and $148,572,
respectively, as compensation for these services from the former adviser,
Federated Management.
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 21/2% per year of the
first $30 million of average net assets, 2% per year of the next $70
million of average net assets, and 1.5% 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.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. For the fiscal years ended November 30, 1994, 1993 and 1992, the
Fund incurred administrative service fees of $168,559, $169,055, and $186,171
respectively, none of which was voluntarily waived.
Custodian
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
Brokerage Transactions
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. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
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 securiites;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
Purchasing Shares
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The minimum initial investment in the Fund by an investor is $1,000 ($25 for
Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family). The minimum initial investment may be waived
from time to time for employees and retired employees of Star Bank, N.A., and
for members of the families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees.
The procedure for purchasing shares of the Fund is explained in the Prospectus
under ''Investing in the Funds.''
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.
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 shares
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;
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.
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 Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the ''Rule'')
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide what,
if any, steps should be taken if there is a difference of more than .5 of
1% between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining
net asset value.
Investment Restrictions
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organization. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instruments
with a remaining maturity of more than 397 days can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon
as possible. Shares of investment companies purchased by the Fund will
meet these same criteria and will have investment policies consistent with
Rule 2a-7.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
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 Fund 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 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.
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.
Capital Gains
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
Yield
The Fund's yield for the seven-day period ended November 30, 1994, was 3.05%.
The Fund calculates its yield daily based upon the seven days ending on the day
of the calculation, called the ''base period.'' This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one share are the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
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 Fund's tax-equivalent yield for the seven-day period ended November 30,
1994, was 4.42%.
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 31% tax rate 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 bonds in the Fund's portfolio
generally remains free from federal regular income tax* and is often free from
state and local taxes as well. As the table below indicates, a ''tax-free''
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
Taxable Yield Equivalent For 1995 Multistate Municipal Fund
Federal Income Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%
Joint Return:$1-39,000$39,001-94,250$94,251-143,600$143,601-256,500Over $256,500
Single Return:$1-23,350$23,351-56,55056,551-117,950$117,951-256,500Over $256,500
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.
The chart on the previous page is for illustrative purposes only. It is not an
indicator of past or future performance of the Fund.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
Effective Yield
The Fund's effective yield for the seven-day period ended November 30, 1994, was
3.10%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum to me 365/7th power; and
o subtracting 1 from the result.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instrument sin which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in Fund expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ''tax-free money market funds'' category in advertising and
sales literature.
o Salomon Brothers Six-Month Prime Muni Notes is an index of selected
municipal notes, maturing in six months, whose yields are chosen as
representative of this market. Calculations are made weekly and monthly.
o Salomon Brothers One-Month Tax-Exempt Commercial Paper is an index of
selected tax-exempt commercial paper issues, maturing in one month, whose
yields are chosen as representative of this particular market.
Calculations are made weekly and monthly. Ehrlich-Bober & Co., Inc., also
tracks this Salomon Brothers index.
o Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective)
yield. From time to time, the Fund will quote its Money ranking in
advertising and sales literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund can be obtained without charge by contacting Star Bank, N.A. at the address
located on the back cover of the Money Market Funds Combined Prospectus or by
calling (513) 632-5547.

1010901B (3/95)

Star Treasury Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of the Money Market Funds of the Star Funds dated March 31,
1995. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write to Star Treasury Fund (the "Fund") or call (513) 632-
5547.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
When-Issued and Delayed Delivery
Transactions 1
Investment Limitations 1
Star Funds Management 2
Fund Ownership 5
Officers and Trustees Compensation 6
Trustee Liability 6
Investment Advisory Services 7
Adviser to the Fund 7
Advisory Fees 7
Administrative Services 7
Custodian 7
Brokerage Transactions 7
Purchasing Shares 8
Administrative Arrangements 8
Distribution Plan 8
Shareholder Services Plan 8
Conversion to Federal Funds 8
Use of the Amortized Cost Method 9
Exchange Privilege 9
Requirements for Exchange 9
Making an Exchange 10
Redeeming Shares 10
Redemption in Kind 10
Tax Status 10
The Fund's Tax Status 10
Shareholders' Tax Status 10
Yield 11
Effective Yield 11
Performance Comparisons 11
Financial Statements 12
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. 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 and changing the Fund's name from Losantiville
Treasury Fund to Star Treasury Fund.
Investment Objective and Policies
The Fund's investment objective is to provide stability of principal and current
income consistent with stability of principal. The investment objective and
policies cannot be changed without approval of shareholders.
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 is
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.
Investment Limitations
Selling Short and Buying on Margin
The Fund will not sell any portfolio instruments short or purchase any
portfolio instruments on margin but may obtain such short-term credits as
may be necessary for clearance of purchases and sales of portfolio
instruments.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements as a temporary
measure for extraordinary or emergency purposes and then only in amounts
not in excess of 5% of the value of its total assets or in an amount up to
one-third of the value of its total assets, including the amount borrowed,
in order to meet redemption requests without immediately selling portfolio
instruments. Any such borrowings need not be collateralized.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage purposes.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. Treasury obligations, including repurchase agreements.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment companies.
However, this limitation will not apply if the securities are acquired in
a merger, consolidation, or acquisition of assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money or pledge securities, except as a temporary,
extraordinary, or emergency measure, in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in the
coming fiscal year.
Star Funds Management
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Tr
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.

John E. Murray, Jr., J.D.,S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.

Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee

John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee

Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

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. 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.
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.
Advisory Fees
For its advisory services, Star Bank receives an annual investment advisory fee
as described in the prospectus. For the fiscal years ended November 30, 1994,
1993, and 1992, the Fund's Adviser earned $1,672,434, $1,721,236, and
$1,550,260, respectively, none of which was voluntarily waived.
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 21/2% per year of the
first $30 million of average net assets, 2% per year of the next $70
million of average net assets, and 11/2% per year of the remaining average
net assets, the Adviser has agreed to reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. For the fiscal years ended November 30, 1994, 1993, and 1992, the
Fund incurred administrative service fees of $409,841, $442,239, and $402,900,
respectively, none of which was voluntarily waived.
Custodian
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
Brokerage Transactions
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. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
Purchasing Shares
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The minimum initial investment in the Fund by an investor is $1,000 ($25 for
Star Bank Connections Group Banking customers and Star Bank employees and
members of their immediate family). The minimum initial investment may be waived
from time to time for employees and retired employees of Star Bank, N.A., and
for members of the families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees.
The procedure for purchasing shares of the Fund is explained in the prospectus
under ''Investing in the Funds.''
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.
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; 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.
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 Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the ''Rule'')
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide what,
if any, steps should be taken if there is a difference of more than .5 of
1% between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining
net asset value.
Investment Restrictions
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instruments
with a remaining maturity of more than 397 days can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon
as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
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
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. Redemption 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 Fund 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 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.
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
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
Capital Gains
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
Yield
The Fund's yield for the seven-day period ended November 30, 1994, was 4.76%.
The Fund calculates its yield daily based upon the seven days ending on the day
of the calculation, called the ''base period.'' This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge fees in
connection with services and provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those fees.
Effective Yield
The Fund's effective yield for the seven-day period ended November 30, 1994, was
4.87%.
The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum of the 365/7th power; and
o subtracting 1 from the result.
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 on money market instruments;
o changes in Fund expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ''short-term U.S. government funds'' category in
advertising and sales literature.
o Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective)
yield. From time to time, the Fund will quote its Money ranking in
advertising and sales literature.
o Salomon 30-Day Treasury Bill Index is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
located on the back cover of the Money Market Funds Combined Prospectus or by
calling (513) 632-5547.
9022104B (3/95)

Star U.S. Government Income Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds dated March 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the prospectus,
write to the Star U.S. Government Income Fund (the "Fund") or call 1-800-
677-FUND.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objectives and Policies 1
Types of Investments 1
Investments in Foreign Securities 2
Restricted and Illiquid Securities 2
When-Issued and Delayed Delivery
Transactions 3
Futures and Options Transactions 3
Futures Contracts 3
Put Options on Futures Contracts 3
Call Options on Futures Contracts 4
"Margin" in Futures Transactions 4
Purchasing Put Options on Portfolio
Securities 4
Writing Covered Call Options on
Portfolio Securities 4
Lending of Portfolio Securities 4
Portfolio Turnover 5
Investment Limitations 5
Star Funds Management 7
Fund Ownership 10
Officers and Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Administrative Services 12
Custodian 12
Purchasing Shares 13
Distribution Plan 13
Administrative Arrangements 13
Shareholder Services Plan 13
Conversion to Federal Funds 13
Determining Net Asset Value 13
Determining Market Value of
Securities 14
Exchange Privilege 14
Requirements for Exchange 14
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 14
Tax Status 15
The Fund's Tax Status 15
Shareholders' Tax Status 15
Total Return 15
Yield 15
Performance Comparisons 15
Financial Statements 16
Appendix 17
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. 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 and changing the Fund's name from Losantiville
U.S. Government Income Fund to Star U.S. Government Income Fund.
Investment Objectives and Policies
The primary investment objective of the Fund is current income. Capital
appreciation is a secondary objective. The investment objectives cannot be
changed without the approval of shareholders. The policies described below may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Types of Investments
Under normal circumstances, the Fund pursues its investment objectives by
investing at least 65% of the value of its total assets in securities issued or
guaranteed as to payment of principal and interest by the U.S. government, its
agencies or instrumentalities. For purposes of this 65% statement, the Fund will
consider collateralized mortgage obligations issued by U.S. government agencies
or instrumentalities to be U.S. government securities. Additionally, up to 35%
of the value of the Fund's total assets may be invested in investment-grade
corporate debt obligations, commercial paper, time and savings deposits, and
securities of foreign issuers.
Mortgage-Backed Securities
Mortgage-backed securities generally pay back principal and interest over
the life of the security. At the time the Fund reinvests the payments and
any unscheduled prepayments of principal received, the Fund may receive a
rate of interest which is actually lower than the rate of interest paid on
these securities ("prepayments risks"). Mortgage-backed securities are
subject to higher prepayments risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans
may be prepaid without penalty or premium. Prepayment risk on mortgage-
backed securities tends to increase during periods of declining mortgage
interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as the frequency with
which people sell their homes or elect to make unscheduled payments on
their mortgages.
Adjustable Rate Mortgage Securities ("ARMS")
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, a holder of the ARMS, such as the
Fund, would receive monthly scheduled payments of principal and interest
and may receive unscheduled principal payments representing prepayments on
the underlying mortgages. At the time that a holder of the ARMS reinvests
the payments and any unscheduled prepayments of principal that it
receives, the holder may receive a rate of interest which is actually
lower than the rate of interest paid on the existing ARMS. As a
consequence, ARMS may be a less effective means of "locking in" long-term
interest rates than other types of U.S. government securities.
Like other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (Z bond)
typically receives any excess income from the underlying investments
after payments are made to the other classes and receives no
principal or interest payments until the shorter maturity classes
have been retired, but then receives all remaining principal and
interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bond). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity security (or
B bond). This process continues until all of the classes have been
paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that, under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Investments in Foreign Securities
The Fund may invest in foreign securities. Investments in foreign securities
involve special risks that differ from those associated with investments in
domestic securities. The risks associated with investments in foreign securities
relate to political and economic developments abroad, as well as those that
result from the differences between the regulation of domestic securities and
issuers and foreign securities and issuers. These risks may include, but are not
limited to, expropriation, confiscatory taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of Fund
assets, political or social instability and adverse diplomatic developments. In
addition, there are restrictions on foreign investments in other jurisdictions
and there tends to be difficulty in obtaining judgments from abroad and
effecting repatriation of capital invested abroad. Delays could occur in
settlement of foreign transactions, which could adversely affect shareholder
equity. Moreover, individual foreign economies may differ favorably or
unfavorably from the domestic economy in such respects as growth of gross
national product, the rate of inflation, captial reinvestment, resource self-
sufficiency and balance of payments position.
Restricted and Illiquid Securities
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the Staff of the SEC has left the question of determining the
liquidity of all restricted securities (eligible for resale under Rule 144A) to
the Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund.
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 is
settled.
As a matter of policy, 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.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling futures contracts, buying put options on portfolio securities and listed
put options on futures contracts, and writing call options on futures contracts.
The Fund may also write covered call options on portfolio securities to attempt
to increase its current income.
Futures Contracts
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future.
In the fixed income securities market, price moves 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.
Put Options on Futures Contracts
The Fund may purchase listed put options on futures contracts. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
Call Options on Futures Contracts
In addition to purchasing put options on futures, the Fund may write listed 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 fixed income or indexed portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio, plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good-faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may also write covered call options to generate income. As writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Portfolio Turnover
Securities in the Fund's portfolio will be sold whenever the investment adviser
believes it is appropriate to do so in light of the Fund's investment objectives
without regard to the length of time a particular security may have been held.
For the fiscal year ended November 30, 1994, the Fund's portfolio turnover rate
was 148%. From January 5, 1993 (date of initial public investment), to November
30, 1993, the Fund's portfolio turnover rate was 105%.
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
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amount borrowed. The Fund will not borrow money for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to, for example, meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10% of
the value of total assets at the time of the borrowing. For purposes of
this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related
options and segregation or collateral arrangements made in connection with
options activities or the purchase of securities on a when-issued basis.
Diversification of Investments
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer if, as a result, more than 5%
of the value of its total assets would be invested in the securities of
that issuer. Also, the Fund will not purchase more than 10% of the
outstanding voting securities of any one issuer.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts, except that the Fund may purchase and sell
futures contracts and related options.
Underwriting
The Fund will not underwrite any issue of securities, except as the Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objectives, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objectives, policies, and limitations or the
Trust's Declaration of Trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
Investing in Restricted Securities
The Fund will not invest more than 15% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Board of Trustees. To
comply with certain state restrictions, the Fund will limit these
transactions to 10% of its total assets. (If state restrictions change,
this latter restriction may be revised without shareholder approval or
notification.)
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
certain restricted securities not determined by the Trustees to be liquid.
To comply with certain state restrictions, the Fund will limit these
transactions to 10% of its net assets. (If state restrictions change, this
latter restriction may be revised without shareholder approval or
notification.)
Investing in Issuers Whose Securities are Owned by Officers and Trustees of
the Trust
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers 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, will not invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will purchase securities of
investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees, and, therefore, any investment
by a fund in shares of another investment company would be subject to such
duplicate expenses. The Fund will invest in other investment companies
primarily for the purpose of investing its short-term cash on a temporary
basis. The adviser will waive its investment advisory fee on assets
invested in securities of open-end investment companies.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
Investing in Foreign Securities
The Fund will not invest more than 5% of its total assets in securities of
foreign issuers.
Investing in Put Options
The Fund will not purchase put options on securities unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the
Fund's total assets would be invested in premiums on open put option
positions.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 20% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
The Fund has no present intent to borrow money in excess of 5% of the value of
its net assets during the coming fiscal year.
Star Funds Management___________________________________
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Cor
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds.

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.

@Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; andWorld Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Firstcinco, Cincinnati, Ohio, owned approximately 7,472,484 shares (78.41%).
Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee

John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

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 adjusted over the period by any additional
shares, assuming the quarterly reinvestment of any dividends and distributions.
Yield
The Fund's SEC yield for the thirty-day period ended November 30, 1994, was
6.78%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the thirty-
day period is assumed to be generated each month over a twelve-month period and
is reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
Performance Comparisons
The 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 Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and maximum offering price per share fluctuate daily. Both net earnings and
maximum offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the "U.S. government fund" category in advertising and sales
literature.
o Merrill Lynch 1-10 Year Government Index is an unmanaged index comprised
of U.S. government securities with maturities between 1 and 10 years.
Index returns are calculated as total returns for periods of one, three,
six, and twelve months as well as year-to-date. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Lehman Brothers Government (LT) Index, for example, is an index composed
of bonds issued by the U.S. government or its agencies which have at least
$1 million outstanding in principal and which have maturities of ten years
or longer. Index figures are total return figures calculated monthly.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
located on the back cover of the Stock and Bond Funds Combined Prospectus or by
calling 1-800-677-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. 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.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
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.
Fitch Investors Service, Inc., Long-Term Debt Ratings
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Standard and Poor's Corporation Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding timely
payment is 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
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
Prime-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:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternative liquidity.
Prime-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 alternate liquidity is maintained.
Fitch Investors Service, Inc., Commercial Paper Ratings
Fitch-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated F-
1+.
Fitch-2--Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
2102102B (3/95)

STAR STRATEGIC INCOME FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1995

-----------------------------------------------------
STAR BANK, N.A.
INVESTMENT ADVISER

-----------------------------------------------------
FEDERATED SECURITIES CORP.
Distributor
TABLE OF CONTENTS

--------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------

Warrants 1

Convertible Securities 1

Collateralized Mortgage Obligations ("CMOs") 1

When-Issued and Delayed Delivery Transactions 2

Repurchase Agreements 2

Lending of Portfolio Securities 2

Restricted and Illiquid Securities 2

Futures and Options Transactions 3

Futures Contracts 3

"Margin" in Futures Transactions 3

Put Options on Financial Futures Contracts 4

Call Options on Financial and Stock Index
Futures Contracts 4

Stock Index Options 4

Over-the-Counter Options 5

Reverse Repurchase Agreements 5

INVESTMENT LIMITATIONS 5

---------------------------------------------------------------

STAR FUNDS MANAGEMENT 7
---------------------------------------------------------------

Fund Ownership 11

Officers and Trustees Compensation 11

Trustee Liability 11

INVESTMENT ADVISORY SERVICES 11
---------------------------------------------------------------

Adviser to the Fund 11

Advisory Fees 12

ADMINISTRATIVE SERVICES 12
---------------------------------------------------------------

CUSTODIAN 12
---------------------------------------------------------------

BROKERAGE TRANSACTIONS 12
---------------------------------------------------------------

PURCHASING SHARES 12
---------------------------------------------------------------

Distribution Plan 13
Administrative Arrangements 13
Shareholder Services Plan 13
Conversion to Federal Funds 13

DETERMINING NET ASSET VALUE 13
---------------------------------------------------------------

Determining Market Value of Securities 13
Trading in Foreign Securities 14

EXCHANGE PRIVILEGE 14
---------------------------------------------------------------

Requirements for Exchange 14
Making an Exchange 14

REDEEMING SHARES 14
---------------------------------------------------------------

Redemption in Kind 14

TAX STATUS 15
---------------------------------------------------------------

The Fund's Tax Status 15
Foreign Taxes 15
Shareholders' Tax Status 15
Capital Gains 15

TOTAL RETURN 15
---------------------------------------------------------------

YIELD 15
---------------------------------------------------------------

PERFORMANCE COMPARISONS 16
---------------------------------------------------------------

FINANCIAL STATEMENTS 17
---------------------------------------------------------------

APPENDIX 27
---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
--------------------------------------------------------------------------------

The Fund is a portfolio of the Star Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
January 23, 1989. The Declaration of Trust permits the Trust to offer separate
series of shares of beneficial interest representing interests in separate
portfolios of securities. On
May 1, 1993, the Board of Trustees (the "Trustees") approved changing the name
of the Trust, effective
May 1, 1993, from Losantiville Funds to Star Funds.

INVESTMENT OBJECTIVE AND POLICIES
--------------------------------------------------------------------------------

The Fund's investment objective is to generate high current income. The
investment objective cannot be changed without the approval of shareholders.
Unless indicated otherwise, the policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.

WARRANTS

The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock. The Fund will not invest more than 5% of the value of its
total assets in warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges. Warrants required in
units or attached to securities may be deemed to be without value for purposes
of this policy.

CONVERTIBLE SECURITIES

Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds of
appropriate rating or comparable quality (as described in the prospectus) that
can be used, in whole or in part, customarily at full face value, in lieu of
cash to purchase the issuer's common stock. When owned as part of a unit along
with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.

The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs--most of the CMOs in which the Fund invests use the same basic
structure:

(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four tranches of securities:
the first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date and the final tranche (Z bonds) typically
receives any excess income from the underlying investments after payments
are made to the other tranches and receives no principal or interest
payments until the shorter maturity tranches have been retired, but then
receives all remaining principal and interest payments.

(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

(3) The tranches of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity tranche (or A bonds). When those
securities are completely retired, all principal payments are then directed
to the next-shortest-maturity tranche (or B bonds). This process continues
until all of the tranches have been paid off.

Because the cash flow is distributed sequentially instead of pro rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
tranches often bear interest at an adjustable rate. The interest portion of
these payments is distributed by the Fund as income, and the principal portion
is reinvested.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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.

REPURCHASE AGREEMENTS

The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.

LENDING OF PORTFOLIO SECURITIES

As a fundamental policy of the Fund, the Fund may lend portfolio securities. The
collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.

The Rule was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under the Rule. The Fund believes that the
staff of the SEC has left the question of determining the liquidity of all
restricted securities to the Trustees. The Trustees may consider the following
criteria in determining the liquidity of certain restricted securities:

.the frequency of trades and quotes for the security;

.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;

.dealer undertakings to make a market in the security; and

.the nature of the security and the nature of the marketplace trades.

FUTURES AND OPTIONS TRANSACTIONS

As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and put options on financial futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income. The Fund will
maintain its positions in securities, options rights, and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures contracts may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series.

FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against change in prices. The Fund will not engage in futures
transactions for speculative purposes.

A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in the rate
means a drop in the price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter into
contracts to deliver securities at a predetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.

Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.

"MARGIN" IN FUTURES TRANSACTIONS

Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.

A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.

The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an 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 sales of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.

Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.

CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS

In addition to purchasing put options on futures, the Fund may write listed and
over-the-counter call options on financial and stock index futures contracts
(including cash-settled stock index options) to hedge its portfolio against an
increase in market interest rates or a decrease in stock prices. When the Fund
writes a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option is
exercised. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase.

In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value off the Fund's portfolio securities.

Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.

The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.

STOCK INDEX OPTIONS

The Fund may purchase put options on stock indices listed on national securities
exchanges or traded in the over-the-counter market. A stock index fluctuates
with changes in the market value of the stocks included in the index.

The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of the option on
an index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
availability of the Fund's adviser to predict correctly movements in the
directions of the stock market generally or of a particular industry. This
requires different skills and techniques than predicting changes in the prices
of individual stocks.

OVER-THE-COUNTER OPTIONS

The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange.

REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements pursuant to a
fundamental policy. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the Fund
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.

INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------

BUYING ON MARGIN

The Fund will not purchase securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions, except
that the Fund may make margin payments in connection with its use of
financial futures contracts or related options and transactions.

BORROWING MONEY

The Fund will not issue senior securities, except that (a) the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
borrowed, either (i) as a temporary, extraordinary, or emergency measure
or to facilitate management of the Fund by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenience or disadvantageous, or (ii) for investment
purposes. The Fund will not purchase any securities for the purpose
stated under clause "(i)" above while any borrowings in excess of 5% of
its total assets are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets:

(a) the deposit of assets in escrow in connection with the writing of
covered put or call options and the purchase of securities on a
when-issued or delayed delivery basis; and (b) collateral arrangement
with respect to (i) the purchase and sale of stock options (and options
on stock indices) and (ii) initial or variation margin for futures
contracts. Margin deposits for the purchase and sale of futures contracts
and related options are not deemed to be a pledge.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than
5% of the value of its total assets would be invested in the securities
of that issuer, or if it would own more than 10% of the outstanding
voting securities of that issuer.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving financial futures contracts or options on
financial futures contracts.

SELLING SHORT

The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities or (2) if it does
not own the securities, it has segregated an amount of its other assets
equal to the lesser of the market value of the securities sold short or
the amount required to acquire such securities. While in a short
position, the Fund will retain the securities, rights, or segregated
assets.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government,
its agencies or instrumentalities).

The above investment limitations cannot be changed without shareholder approval.
The following investment limitations may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.

INVESTING IN NEW ISSUERS

The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, and invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition of
assets.

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid.

INVESTING IN MINERALS

The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN WARRANTS

The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be warrants which are not listed
on the New York Stock Exchange or the American Stock Exchange.

INVESTING IN PUT OPTIONS

The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on put
option positions.

WRITING COVERED CALL OPTIONS

The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."

As operating policies of the Fund, which may be changed without shareholder
approval, (a) no securities will be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets; (b) the Fund may not sell
short the securities of any single issuer listed on a national securities
exchange to the extent of more than 5% of the value of the Fund's net assets;
(c) the Fund may not sell short the securities of any class of an issuer to the
extent, at the time of the transaction, of more than 5% of the outstanding
securities of that class; and (d) the Fund at no time will have more than 15% of
the value of its net assets in deposits on short sales against the box.

To comply with registration requirements in certain states, the Fund will limit
the aggregate value of the assets underlying covered call options or put options
written by the Fund to not more than 25% of its net assets.

STAR FUNDS MANAGEMENT
--------------------------------------------------------------------------------

Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

--------------------------------------------------------------------------------

John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA

Birthdate: July 28, 1924

Chairman and Trustee

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds.
--------------------------------------------------------------------------------

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA

Birthdate: February 3, 1934

Trustee

Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
--------------------------------------------------------------------------------

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL

Birthdate: June 23, 1937

Trustee

President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
--------------------------------------------------------------------------------

William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Trustee

Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
--------------------------------------------------------------------------------

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
--------------------------------------------------------------------------------

Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Trustee

Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center--Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
--------------------------------------------------------------------------------

Edward L. Flaherty, Jr.+
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, PA

Birthdate: June 18, 1924

Trustee

Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
--------------------------------------------------------------------------------

Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930

President, Treasurer, and Trustee

Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
--------------------------------------------------------------------------------

Peter E. Madden
225 Franklin Street
Boston, MA

Birthdate: April 16, 1942

Trustee

Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
--------------------------------------------------------------------------------

Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, PA

Birthdate: October 6, 1926

Trustee

Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
--------------------------------------------------------------------------------

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282

Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
--------------------------------------------------------------------------------

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Trustee

Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
--------------------------------------------------------------------------------

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: July 21, 1935

Trustee

Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
--------------------------------------------------------------------------------

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 26, 1938

Vice President and Secretary

Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
--------------------------------------------------------------------------------
*This Trustee is deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.

+Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc.--1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of
the Fund:

Firstcinco, Cincinnati, Ohio, owned approximately 1,413,024 shares (88.67%).

OFFICERS AND TRUSTEES COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
NAME, POSITION COMPENSATION
WITH TRUST FROM TRUST*POUND
<S> <C>
John F. Donahue, $-0-
Chairman and Trustee
Thomas G. Bigley, $438
Trustee
John T. Conroy, Jr., $1,916.50
Trustee
William J. Copeland, $1,916.50
Trustee
James E. Dowd, $1,916.50
Trustee
Lawrence D. Ellis, M.D., $1,739.30
Trustee
Edward L. Flaherty, Jr., $1,916.50
Trustee
Edward C. Gonzales, $-0-
President and Trustee
Peter E. Madden, $1,476
Trustee
Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D., $-0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee
Marjorie P. Smuts, $1,739.30
Trustee
</TABLE>

*Information is furnished for the fiscal year ended November 30, 1994. The Trust
is the only investment company in the Fund Complex.

_PoundThe 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
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. For the period from November 10, 1994 (start of
business) to January 31, 1995, the Fund's Adviser earned $17,412.

STATE EXPENSE LIMITATIONS

The Fund has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation.

If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.

This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.

ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the period from November 10, 1994 (start of business) to January
31, 1995, the Fund incurred administrative service fees of $2,132, of which
$2,132 was voluntarily waived.

CUSTODIAN
--------------------------------------------------------------------------------

Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.

BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:

.advice as to the advisability of investing in securities;

.security analysis and reports;

.economic studies;

.industry studies;

.receipt of quotations for portfolio evaluations; and

.similar services.

The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. It
determines in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.

PURCHASING SHARES
--------------------------------------------------------------------------------

Except under certain circumstances described in the prospectus, shares of the
Fund are sold at their net asset value on days the New York Stock Exchange and
the Federal Reserve Wire System are open for business.

Except under the circumstances described in the prospectus, the minimum initial
investment in the Fund by an investor is $1,000. The minimum initial investment
may be waived from time to time for employees and retired employees of Star
Bank, N.A., and for members of the families (including parents, grandparents,
siblings, spouses, children, aunts, uncles, and in-laws) of such employees or
retired employees. The procedure for purchasing shares of the Fund is explained
in the prospectus under "Investing in the Funds."

DISTRIBUTION PLAN

With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 (the "Plan"). The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is principally
intended to result in the sale of the Fund's shares subject to the Plan. Such
activities may include the advertising and marketing of shares of the Fund;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay
fees to brokers and others for such services.

The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.

ADMINISTRATIVE ARRANGEMENTS

The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.

SHAREHOLDER SERVICES PLAN

This arrangement permits the payment of fees to the Fund and, indirectly, to
financial institutions to cause services to to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.

CONVERSION TO FEDERAL FUNDS

It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Star Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.

DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------

The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES

Market or fair values of the Fund's portfolio securities are determined as
follows:

.for equity securities, according to the last sale price on a national
securities exchange, if applicable;

.in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;

.for unlisted equity securities, latest bid prices;

.for bonds and other fixed income securities, as determined by an independent
pricing service;

.for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost; or

.for all other securities, at fair value as determined in good faith by the
Trustees.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.

The Fund will value options at their market values established by the exchanges
at the close of options trading on such exchanges unless the Trustees determine
in good faith that another method of valuing option positions is necessary.

Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.

EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------

REQUIREMENTS FOR EXCHANGE

Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling Star Bank at the
number on the cover of this Statement.

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.

REDEEMING SHARES
--------------------------------------------------------------------------------

The Fund redeems shares at the next computed net asset value after Star Bank
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus under "Redeeming Shares."

REDEMPTION IN KIND

Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If this state's policy changes, the Fund reserves the right to redeem
in kind by delivering those securities it deems appropriate.

Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.

The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.

TAX STATUS
--------------------------------------------------------------------------------

THE FUND'S TAX STATUS

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:

.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

.derive less than 30% of its gross income from the sale of securities held less
than three months;

.invest in securities within certain statutory limits; and

.distribute to its shareholders at least 90% of its net income earned during the
year.

FOREIGN TAXES

Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term capital
gains distributed to them regardless of how long they have held Fund shares.

TOTAL RETURN
--------------------------------------------------------------------------------

The Fund's cumulative total return for the period from December 12, 1994 (date
of initial public investment) to January 31, 1995, was (2.65%).

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. The Fund's total return is representative of only 1.5 months
of fund activity since the Fund's date of initial public investment. 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
shares redeemed.

YIELD
--------------------------------------------------------------------------------

The Fund's yield for the thirty-day period ended January 31, 1995 was 5.97%.

The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.

PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------

The performance of the Fund depends upon such variables as:

.portfolio quality;

.average portfolio maturity;

.type of instruments in which the portfolio is invested;

.changes in interest rates and market value of portfolio securities;

.changes in the Fund's expenses; and

.various other factors.

The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:

.LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "growth"
category in advertising and sale literature.

.STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's Index assumes reinvestments of all dividends paid by stocks listed on
its index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.

Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.

Advertisements may quote performance information which does not reflect the
effect of the contingent deferred sales charge.

STAR STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS

JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
------------- ----------------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--25.4%

<CAPTION>
--------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
AEROSPACE--0.8%
<CAPTION>
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
2,500 Boeing Co. $ 111,250
----------------------------------------------------------------------------------------------------- -------------
HEALTH CARE--1.1%
<CAPTION>
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
2,500 Bristol Myers Squibb Co. 153,750
----------------------------------------------------------------------------------------------------- -------------
REAL ESTATE--18.6%
<CAPTION>
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
28,300 Crown American Realty 385,588
-----------------------------------------------------------------------------------------------------
7,600 Federal Realty Investment Corp. 158,650
-----------------------------------------------------------------------------------------------------
20,500 Haagen Alexander Properties, Inc. 317,750
-----------------------------------------------------------------------------------------------------
32,550 Liberty Property 642,862
-----------------------------------------------------------------------------------------------------
25,600 Omega Healthcare Investors 624,000
-----------------------------------------------------------------------------------------------------
14,750 South West Properties Trust, Inc. 182,531
-----------------------------------------------------------------------------------------------------
22,000 Summit Properties, Inc. 374,000
----------------------------------------------------------------------------------------------------- -------------
Total 2,685,381
----------------------------------------------------------------------------------------------------- -------------
UTILITIES--4.9%
<CAPTION>
-----------------------------------------------------------------------------------------------------
<C> <S> <C>
8,000 Cinergy Corp. 197,000
-----------------------------------------------------------------------------------------------------
8,900 General Public Utilities Corp. 251,425
-----------------------------------------------------------------------------------------------------
5,000 Pacific Telesis Group 153,125
-----------------------------------------------------------------------------------------------------
5,000 Panhandle Eastern Corp. 105,000
----------------------------------------------------------------------------------------------------- -------------
Total 706,550
----------------------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $3,565,854) 3,656,931
----------------------------------------------------------------------------------------------------- -------------
PREFERRED STOCKS--4.1%
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
BANKING--3.5%
-----------------------------------------------------------------------------------------------------
4,500 *Citicorp 503,519
----------------------------------------------------------------------------------------------------- -------------
TRANSPORTATION--0.6%
-----------------------------------------------------------------------------------------------------
1,700 Burlington Northern, Inc. 92,437
----------------------------------------------------------------------------------------------------- -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $601,863) 595,956
----------------------------------------------------------------------------------------------------- -------------
CORPORATE BONDS--36.8%
--------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--1.8%
-----------------------------------------------------------------------------------------------------
$ 250,000 International Paper Co., 5.75%, 9/23/2002 262,500
----------------------------------------------------------------------------------------------------- -------------
CHEMICAL--6.2%
-----------------------------------------------------------------------------------------------------
458,000 Dow Chemical Co., 9.35%, 3/15/2002 479,018
-----------------------------------------------------------------------------------------------------
415,000 Eastman Kodak Co., 9.125%, 3/1/1998 416,029
----------------------------------------------------------------------------------------------------- -------------
Total 895,047
----------------------------------------------------------------------------------------------------- -------------
</TABLE>

STAR STRATEGIC INCOME FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
------------- ----------------------------------------------------------------------------------------------------- -------------
CORPORATE BONDS--CONTINUED
--------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.9%
-----------------------------------------------------------------------------------------------------
$ 400,000 Philip Morris Cos., Inc., 9.25%, 12/1/1997 $ 412,072
----------------------------------------------------------------------------------------------------- -------------
ENERGY--2.0%
-----------------------------------------------------------------------------------------------------
250,000 Amoco CDA Petroleum Co., 7.375%, 9/1/2013 283,950
----------------------------------------------------------------------------------------------------- -------------
FINANCIAL--5.7%
-----------------------------------------------------------------------------------------------------
400,000 Ford Motor Credit Corp., 9.63%, 12/1/1997 418,088
-----------------------------------------------------------------------------------------------------
400,000 U.S. West Financial Services, Inc., 8.85%, 9/20/1999 411,360
----------------------------------------------------------------------------------------------------- -------------
Total 829,448
----------------------------------------------------------------------------------------------------- -------------
INSURANCE--3.5%
-----------------------------------------------------------------------------------------------------
500,000 Ohio National Life Insurance Co., 8.875%, 7/15/2004 502,635
----------------------------------------------------------------------------------------------------- -------------
INTERNATIONAL--6.3%
-----------------------------------------------------------------------------------------------------
400,000 Alcan Aluminum Ltd., 9.20%, 3/15/2001 412,276
-----------------------------------------------------------------------------------------------------
500,000 Philips Electrs NV, 8.375%, 9/15/2006 496,405
----------------------------------------------------------------------------------------------------- -------------
Total 908,681
----------------------------------------------------------------------------------------------------- -------------
OFFICE EQUIPMENT--2.8%
-----------------------------------------------------------------------------------------------------
400,000 International Business Machines, 9.00%, 5/1/1998 402,444
----------------------------------------------------------------------------------------------------- -------------
RETAIL--1.1%
-----------------------------------------------------------------------------------------------------
155,000 Penney (J.C.) Co., Inc., 9.45%, 4/15/1998 155,832
----------------------------------------------------------------------------------------------------- -------------
UTILITIES--4.5%
-----------------------------------------------------------------------------------------------------
500,000 Cincinnati Gas & Electric Co., 8.95%, 12/15/2021 503,700
-----------------------------------------------------------------------------------------------------
150,000 Southern California Edison Co., 9.25%, 6/15/2021 153,003
----------------------------------------------------------------------------------------------------- -------------
Total 656,703
----------------------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $5,279,596) 5,309,312
----------------------------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT OBLIGATIONS--32.0%
--------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANKS--7.0%
-----------------------------------------------------------------------------------------------------
500,000 8.235%, 12/13/1999 500,305
-----------------------------------------------------------------------------------------------------
500,000 9.02%, 1/19/2005 507,210
----------------------------------------------------------------------------------------------------- -------------
Total 1,007,515
----------------------------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP--3.5%
-----------------------------------------------------------------------------------------------------
500,000 8.625%, 11/29/2004 512,375
----------------------------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP--REMIC--2.5%
-----------------------------------------------------------------------------------------------------
355,188 9.00%, Series 34, Class C, 11/15/2019 360,605
----------------------------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--REMIC--6.7%
-----------------------------------------------------------------------------------------------------
500,000 9.00%, 11/25/2019 511,895
-----------------------------------------------------------------------------------------------------
450,125 9.40%, 6/25/2019 461,514
----------------------------------------------------------------------------------------------------- -------------
Total 973,409
----------------------------------------------------------------------------------------------------- -------------
</TABLE>

STAR STRATEGIC INCOME FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
CONTRACTS VALUE
<C> <S> <C>
------------- ----------------------------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
--------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS--5.4%
-----------------------------------------------------------------------------------------------------
$ 750,000 8.125%, 8/15/2019 $ 775,680
----------------------------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--6.9%
-----------------------------------------------------------------------------------------------------
750,000 6.875%, 10/31/1996 746,070
-----------------------------------------------------------------------------------------------------
250,000 7.125%, 9/30/1999 245,872
----------------------------------------------------------------------------------------------------- -------------
Total 991,942
----------------------------------------------------------------------------------------------------- -------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $4,561,447) 4,621,526
----------------------------------------------------------------------------------------------------- -------------
PUT OPTION PURCHASED--0.05%
--------------------------------------------------------------------------------------------------------------------
120 Citicorp (identified cost, $10,980) 6,750
----------------------------------------------------------------------------------------------------- -------------
**REPURCHASE AGREEMENT--2.1%
--------------------------------------------------------------------------------------------------------------------
302,000 Donaldson, Lufkin & Jenrette Securities Corp., 5.80%, dated 1/31/1995, due 2/1/1995
(at amortized cost) 302,000
----------------------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $14,321,740) $ 14,492,475+
----------------------------------------------------------------------------------------------------- -------------
</TABLE>

_*_ The security is held in connection with a purchased put option which expires
on July 21, 1995.

** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.

+ The cost of investments for federal tax purposes amounts to $14,321,740. The
net unrealized appreciation of investments on a federal tax basis amounts to
$170,735, which is comprised of $215,507 appreciation and $44,772
depreciation at January 31, 1995.

The following abbreviation is used in this portfolio:

REMIC--Real Estate Mortgage Investment Conduit

Note: The categories of investments are shown as a percentage of net assets
($14,423,813) at January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
---------------------------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost and value (identified and tax cost; $14,321,740) $ 14,492,475
---------------------------------------------------------------------------------------------------------------------
Cash 376
---------------------------------------------------------------------------------------------------------------------
Interest receivable 190,008
---------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 92,271
---------------------------------------------------------------------------------------------------------------------
Dividends receivable 44,066
---------------------------------------------------------------------------------------------------------------------
Receivable for options written/sold 8,180
---------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 5,038
--------------------------------------------------------------------------------------------------------------------- -------------
Total assets 14,832,414
---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
---------------------------------------------------------------------------------------------------------
Payable for investments purchased $ 261,816
---------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 68,395
---------------------------------------------------------------------------------------------------------
Income distribution payable 55,352
---------------------------------------------------------------------------------------------------------
Options written, at value (premium received $29,917) 20,819
---------------------------------------------------------------------------------------------------------
Accrued expenses 2,219
--------------------------------------------------------------------------------------------------------- ----------
Total liabilities 408,601
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,418,653 shares of beneficial interest outstanding $ 14,423,813
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------
Paid-in capital $ 14,218,266
---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and options written
(includes $9,098 appreciation on options written) 179,833
---------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 25,714
--------------------------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 14,423,813
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
($14,423,813 / 1,418,653 shares of beneficial interest outstanding) $10.17
--------------------------------------------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

STAR STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS

PERIOD ENDED JANUARY 31, 1995*
(UNAUDITED)

--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
------------------------------------------------------------------------------------------------------------------------
Interest income $ 107,475
------------------------------------------------------------------------------------------------------------------------
Dividend income 48,862
------------------------------------------------------------------------------------------------------------------------ ----------
Total income 156,337
------------------------------------------------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------------------------------------
Investment advisory fee $ 17,412
-------------------------------------------------------------------------------------------------------------
Administrative personnel and services fees 2,132
-------------------------------------------------------------------------------------------------------------
Custodian fees 458
-------------------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 917
-------------------------------------------------------------------------------------------------------------
Legal fees 275
-------------------------------------------------------------------------------------------------------------
Printing and postage 1,191
-------------------------------------------------------------------------------------------------------------
Portfolio accounting fees 2,841
-------------------------------------------------------------------------------------------------------------
Insurance premiums 458
-------------------------------------------------------------------------------------------------------------
Miscellaneous 458
------------------------------------------------------------------------------------------------------------- ---------
Total expenses 26,142
-------------------------------------------------------------------------------------------------------------
Deduct--
-------------------------------------------------------------------------------------------------------------
Waiver of administrative personnel and services fees 2,132
------------------------------------------------------------------------------------------------------------- ---------
Net expenses 24,010
------------------------------------------------------------------------------------------------------------------------ ----------
Net investment income 132,327
------------------------------------------------------------------------------------------------------------------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (includes $9,833 gain on options written) 25,714
------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and options written 179,833
------------------------------------------------------------------------------------------------------------------------ ----------
Net realized and unrealized gain (loss) on investments 205,547
------------------------------------------------------------------------------------------------------------------------ ----------
Change in net assets resulting from operations $ 337,874
------------------------------------------------------------------------------------------------------------------------ ----------
</TABLE>

*Reflects operations for the period from November 10, 1994 (start of business)
to January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1995*
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------------------------------------------------------
Net investment income $ 132,327
--------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($69,547 gain as computed for federal tax purposes) 25,714
--------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments 179,833
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets resulting from operations 337,874
-------------------------------------------------------------------------------------------------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (132,327)
-------------------------------------------------------------------------------------------------------------- --------------------
FUND SHARES (PRINCIPAL) TRANSACTIONS--
--------------------------------------------------------------------------------------------------------------
Proceeds from sale of shares 14,672,411
--------------------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 18,460
--------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (472,705)
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets from Fund share transactions 14,218,166
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets 14,423,713
--------------------------------------------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------------------------------------------
Beginning of period 100
-------------------------------------------------------------------------------------------------------------- --------------------
End of period $ 14,423,813
-------------------------------------------------------------------------------------------------------------- --------------------
</TABLE>

*Reflects operations for the period from November 10, 1994 (start of business)
to January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>

<S> <C>
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------
Net investment income
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
--------------------------------------------------------------------------------------------------------------
Total from investment operations
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN**
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------
Expenses
--------------------------------------------------------------------------------------------------------------
Net investment income
--------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a)
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
--------------------------------------------------------------------------------------------------------------

<CAPTION>
PERIOD ENDED
<S> <C>
-------------------------------------------------------------------------------------------------------------- --------------------
-
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------
Net investment income 0.07
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.17
-------------------------------------------------------------------------------------------------------------- -------
Total from investment operations 0.24
-------------------------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.07)
-------------------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.17
-------------------------------------------------------------------------------------------------------------- -------
TOTAL RETURN** 2.38%
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------
Expenses 1.31%(b)
--------------------------------------------------------------------------------------------------------------
Net investment income 7.22%(b)
--------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.12%(b)
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $14,424
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12
%
--------------------------------------------------------------------------------------------------------------
</TABLE>

** Based on net asset value, which does not reflect sales load or contingent
deferred sales charge, if applicable.

(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(b) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

STAR STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------

(1) ORGANIZATION

Star Funds (the "Trust"), is registered under the Investment Company Act of
1940, as amended (the "Act"), as an open-end management investment company. The
Trust consists of nine, diversified portfolios (individually referred to as the
"Fund"). The following portfolios comprise the Trust:

Portfolio Name
Star Capital Appreciation Fund
Star Relative Value Fund
The Stellar Fund
Star Growth Equity Fund
Star U.S. Government Income Fund
Star Prime Obligations Fund
Star Strategic Income Fund
Star Tax-Free Money Market Fund
Star Treasury Fund

The financial statements included herein present only those of Star Strategic
Income Fund (the "Fund").

The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

A. INVESTMENT VALUATIONS--Listed equity securities, and other fixed income
securities are valued at the last sale price reported on national
securities exchanges. Listed corporate bonds, unlisted securities, and
short-term securities are generally valued at the price provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.

B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Funds to monitor, on
a daily basis, the market value of each repurchase agreement's collateral
to ensure that the value of collateral at least equals the repurchase price
to be paid under the repurchase agreement transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").

Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.

C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").

D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the

settlement date.

STAR STRATEGIC INCOME FUND
--------------------------------------------------------------------------------

F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.

G. OPTIONS CONTRACTS WRITTEN--The Fund may write option contracts. A written
option obligates the Fund to deliver (a call), or to receive (a put), the
contract amount upon exercise by the holder of the option. The value of the
option contract is recorded as a liability and unrealized gain or loss is
measured by the difference between the current value and the premium
received.

At January 31, 1995, the Fund had the following outstanding options:

<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION EXERCISE NUMBER OF APPRECIATION
ISSUER TYPE DATE PRICE CONTRACTS (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
U.S. Treasury Note Call 3/27/95 $ 99 8/32 7,500 ($ 937)
International Paper Call 4/21/95 85 30 5,820
Panhandle Eastern Call 7/21/95 22-1/2 50 656
Bristol Myers Call 1/1/96 60 25 (2,756)
Boeing Call 2/17/95 45 25 6,803
U.S. Treasury Note Call 2/13/95 7 1/8 2,500 (488)
--------
Total $ 9,098
--------
--------

MARKET
ISSUER VALUE
<S> <C>
U.S. Treasury Note $ 2,578
International Paper 1,875
Panhandle Eastern 1,719
Bristol Myers 11,718
Boeing 1,484
U.S. Treasury Note 1,445
-----------
Total $ 20,819
-----------
-----------
</TABLE>

The following is a summary of the Fund's written options activity:

<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at November 10, 1994 0 $ 0
-----------------------------------------------------------------------------------------------------
Contracts opened 10,320 81,190
-----------------------------------------------------------------------------------------------------
Contracts expired (25) (1,187)
-----------------------------------------------------------------------------------------------------
Contracts exercised (10) (5,315)
-----------------------------------------------------------------------------------------------------
Contracts closed (155) (44,771)
----------------------------------------------------------------------------------------------------- ------------- ------------
Outstanding at January 31, 1995 10,130 $ 29,917
----------------------------------------------------------------------------------------------------- ------------- ------------
</TABLE>

*Represents premium received less commissions paid.

H. OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1995*
(UNAUDITED)
<S> <C> <C>
SHARES DOLLARS
Shares sold 1,463,540 $ 14,672,411
--------------------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends 1,823 18,460
--------------------------------------------------------------------------------------------------------
Shares redeemed (46,720) (472,705)
-------------------------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from Fund share transactions 1,418,643 $ 14,218,166
-------------------------------------------------------------------------------------------------------- ---------- -------------
</TABLE>

*For the period from November 10, 1994 (start of business) to January 31, 1995.

STAR STRATEGIC INCOME FUND
--------------------------------------------------------------------------------

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Star Bank, N.A., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.95 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides each Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES-- Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund. The fee is based on the size, type, and
number of accounts and transactions made by shareholders.

FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.

Star Bank, N.A., is the Fund's custodian for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.

ORGANIZATIONAL EXPENSES--Organizational expenses will be borne initially by FAS
and are estimated to be $30,000. The Fund has agreed to reimburse FAS for the
organizational expenses during the five year period following November 14, 1994
(the date the Fund first became effective). For the period ended January 31,
1995, the Funds paid $500 pursuant to this agreement.

Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1995, were as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C>
$ 15,288,269 $ 1,298,145
</TABLE>

26
APPENDIX
--------------------------------------------------------------------------------

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B--Debt rated BB or B, 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 a low degree of speculation.

NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
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 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 safeguared 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.

NR--Not rated by Moody's.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or 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 a 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., LONG-TERM DEBT RATINGS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered 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 satisifying 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.

NR--NR indicates that Fitch does not rate the specific issue.

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 ued in the AAA category.

STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS

PRIME-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:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.

PRIME-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 alternate liquidity is maintained.

FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS

F-1+--EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--VERY STRONG CREDIT QUALITY. Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payment but the margin of safety is not as great as the
F-1+ and F-1 ratings.

1 G00522-03 (3/95)

The Stellar Fund
Investment Shares
Trust Shares
(A Portfolio of the Star Funds)
Combined Statement of Additional Information

This Combined Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds of the Star Funds dated March 31,
1995. This Combined Statement is not a prospectus itself. To receive a
copy of the prospectus, write to The Stellar Fund (the "Fund") or call 1-
800-677-FUND.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
Convertible Securities 1
When-Issued and Delayed Delivery
Transactions 2
Repurchase Agreements 2
Restricted Securities 2
Reverse Repurchase Agreements 2
Portfolio Turnover 3
Investment Limitations 3
Star Funds Management 5
Fund Ownership 8
Officers and Trustees Compensation 9
Trustee Liability 9
Investment Advisory Services 10
Adviser to the Fund 10
Advisory Fees 10
Administrative Services 10
Custodian 10
Brokerage Transactions 10
Purchasing Shares 11
Distribution Plan ( Investment
Shares and Trust Shares) 11
Administrative Arrangements 11
Shareholder Services Plan 11
Conversion to Federal Funds 11
Determining Market Value of
Securities 12
Trading in Foreign Securities 12
Exchange Privilege 12
Requirements for Exchange 12
Making an Exchange 12
Redeeming Shares 12
Redemption in Kind 12
Tax Status 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
Total Return 13
Yield 14
Performance Comparisons 14
Financial Statements 15
Appendix 16

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.
Shares of the Fund are offered in two classes, Investment Shares and Trust
Shares (individually and collectively referred to as ''Shares'' as the context
may require). This Combined Statement of Additional Information relates to both
classes of the above-mentioned Shares of the Fund.
Investment Objective and Policies
The Fund's investment objective is to maximize total return, a combination of
dividend income and capital appreciation. The investment objective cannot be
changed without the approval of shareholders. The policies described below may
be changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Types of Investments
Below are securities in which the Fund may invest from time to time.
U.S. Government Obligations
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities. These securities
are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
Convertible Securities
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund.
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 is
settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of an amount of more
than 20% of the total value of its assets.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
Restricted Securities
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that it is purchasing paper for investment purposes and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Funds' investment adviser, as liquid and not subject to the
investment limitations applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Fund intends to not subject such
paper to the limitation applicable to restricted securities.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreement.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the fiscal years ended
November 30, 1994 and 1993, the Fund's portfolio turnover rates were 79% and
87%, respectively.

Investment Limitations
The Fund will not change any of the investment limitations described below
without approval of shareholders.
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
Borrowing Money
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to
meet redemption requests without immediately selling portfolio securities.
This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities would be
inconvenient or disadvantageous. Interest paid on borrowed funds will not
be available for investment. The Fund will liquidate any such borrowings
as soon as possible and may not purchase any portfolio securities while
any borrowings are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.
Diversification of Investments
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer, except in cash or cash investments,
securities guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements collateralized by such
securities nor will it purchase more than 10% of any class of voting
securities of any one issuer.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may acquire as much as
10% of the voting securities of an issuer and may exercise its voting
power in the Fund's best interest. From time to time, the Fund, together
with other investment companies advised by affiliates or subsidiaries of
Star Bank, may together buy and hold substantial amounts of a company's
voting stock. All such stock may be voted together. In some cases, the
Fund and the other investment companies might collectively be considered
to be in control of the company in which they have invested. Officers or
affiliates of the Fund might possibly become directors of companies in
which the Fund holds stock.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
Investing in Issuers Whose Securities are Owned by Officers and Trustees of
the Trust
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment advisers owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies and limitations.
Investing in Real Estate
The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate.
Investing in Commodities or Minerals
The Fund will not purchase or sell commodities or commodity contracts. The
Fund will not purchase or sell oil, gas, or other mineral development
programs, except for precious metal securities as described in the
prospectus.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may purchase or
hold corporate or government bonds, debentures, notes, certificates of
indebtedness or other debt securities permitted by its investment
objective and policies.
Concentration of Investments in One Industry
The Fund will not invest more than 25% or more of the value of its total
assets in one industry.
Issuing Senior Securities
The Fund will not issue senior securities except as permitted by its
investment objective and policies.
Dealing in Puts and Calls
The Fund will not sell puts, calls, straddles or spreads or any
combination of them, except as permitted by its investment policies as
described in the prospectus.
Restricted Securities
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933 except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
Investing in 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, or invest more than 10% of its total assets in investment
companies in general. 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 incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in these securities would be subject
to duplicate expenses.
The following investment limitations may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid.
Investing in Warrants
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be warrants which are not listed
on the New York Stock Exchange or the American Stock Exchange.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money in excess of 5% of the value of its net assets
during the last fiscal year. Additionally, the Fund does not expect to borrow
money, pledge securities, or purchase restricted securities in excess of 5% of
the value of its total assets in the coming fiscal year.
In connection with investing in shares of other investment companies, it should
be noted that investment companies incur certain expenses such as management
fees, and, therefore, any investment by the Fund in such shares would be subject
to customary expenses.
In addition, to comply with requirements of a particular state, the Fund (i)
will not invest in real estate limited partnerships and (ii) will not purchase
interests in oil, gas, and mineral leases, except it may purchase the securities
of issuers which invest in or sponsor such programs.
Star Funds Management___________________________________
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
or
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding Trust Shares of the Fund:
Firstcinco, Cincinnati, Ohio, owned approximately 4,200,448 Shares (74.31%);
Star Bank, N.A., Cincinnati, Ohio, owned approximately 347,706 Shares (6.15%).As
of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding Investment Shares of the Fund:
BHC Securities, Inc., Philadelphia, Pennsylvania, owned approximately 233,222
Shares (5.27%)
Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

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. For the fiscal years ended November 30, 1994,
1993, and 1992, the Adviser earned $923,344, $465,417, and $235,165,
respectively, of which $0, $1,248, and $18,156, respectively, were voluntarily
waived. All advisory fees were computed on the same basis 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 21/2% per
year of the first $30 million of average net assets, 2% per year of the
next $70 million of average net assets, and 11/2% per year of the
remaining average net assets, the Adviser has agreed to reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended November 30, 1994, 1993, and 1992, the
Fund incurred administrative service fees of $118,964, $62,298, and $32,167,
respectively, of which $0, $0, and $787, respectively, were voluntarily waived.
Custodian
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. It
determines in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
For the fiscal years ended November 30, 1994, 1993, and 1992, the Fund paid
total brokerage commissions of $247,930, $195,196, and $212,801, respectively.
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. With respect to the Investment Shares, the
minimum initial investment may be waived from time to time for employees and
retired employees of Star Bank, N.A., and for members of the families (including
parents, grandparents, siblings, spouses, children, aunts, uncles, and in-laws)
of such employees or retired employees. The procedure for purchasing Shares is
explained in the prospectus under ''Investing in the Funds.''
Distribution Plan (Investment Shares and Trust Shares)
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 (the ''Plan''). The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is principally
intended to result in the sale of the Fund's Shares subject to the Plan. Such
activities may include the advertising and marketing of Shares of the Fund;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay
fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objectives. For the fiscal year ended November 30, 1994,
the Fund paid $157,982, of which $78,451 was voluntarily waived, to the
distributor on behalf of Investment Shares.
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 the net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales of equity securities, according to the
mean between the last closing bid and asked prices and for bonds and other
fixed income securities as determined by an independent pricing service;
o for unlisted equity securities, the latest bid prices; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Trust values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
Exchange Privilege
Requirements for Exchange
Shareholders using the exchange privilege must exchange Shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling Star Bank at the
number on the cover of this Statement.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
Redeeming Shares
The Fund redeems Shares at the next computed net asset value after Star Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus under ''Redeeming Shares.''
Redemption in Kind
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If this state's policy changes, the Fund reserves the right to redeem
in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation, and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Shares.
Total Return
The Fund's average annual total returns for Investment Shares for the fiscal
years ended November 30, 1994, and for the period from October 18, 1991 (date of
initial public investment), to November 30, 1994, were (5.63%) and 4.46%,
respectively.
The average annual total return for both classes of Shares of 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
load, adjusted over the period by any additional Shares, assuming the quarterly
reinvestment of all dividends and distributions.
The cumulative total return for Trust Shares for the period from April 11, 1994
(date of initial public investment) to November 30, 1994, was (1.81%).
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. The Fund's total return is representative of only seven
months of fund activity since the Fund's effective date. 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 shares redeemed.
Yield
The Fund's yield for Investment Shares for the thirty-day period ended November
30, 1994, was 3.05%. The Fund's yield for Trust Shares for the thirty-day period
ended November 30, 1994, was 3.45%.
The yield for both classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the Securities and Exchange
Commission) earned by either class of Shares over a thirty-day period by the
maximum offering price per Share of either class of Shares 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 either class of Shares 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 either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
Performance Comparisons
The performance of both classes of Shares 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 or either class of Shares' expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely because
net earnings and the maximum offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of either class of Shares' performance. When comparing
performance, investors should consider all relevent factors such as the
composition of any index used, prevailing market conditions, portfolio
compositions of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ''balanced'' category in advertising and sales literature.
o Dow Jones Industrial Average (''DJIA'') represents share prices of
selected blue-chip industrial corporations, as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA's index movements are leading economic indicators for
the stock market as a whole.
o Lehman Brothers Government/Corporate Total Index is comprised of
approximately 5,000 issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. Tracked by Shearson Lehman
Brothers, Inc., the index has an average maturity of nine years. It
calculates total return for one-month, three-month, twelve-month, and ten-
year periods, and year-to-date.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's index assumes reinvestments of
all dividends paid by stocks listed on its index. Taxes due on any of
these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures.
Advertisements and other sales literature for either class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on quarterly reinvestment of dividends over a
specified period of time.
Advertisements for Investment Shares may quote performance information which
does not reflect the effect of the sales load.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
on the back cover of the Stock and Bond Funds Combined Prospectus or by calling
1-800-677-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA-Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-):-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as ''gilt
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.
NR-Not rated by Moody's.
Fitch Investors Service, Inc., Long-Term Debt Ratings
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA. " Because bonds rated in the "AAA" and
AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+. "
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
NR-NR indicates that Fitch does not rate the specific issue.
1072404B (3/95)

Star Relative Value Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds dated March 31, 1995. This
Statement is not a prospectus itself. To receive a copy of the prospectus,
write or call Star Relative Value Fund (the "Fund"). If you are a trust
customer of Star Bank, N.A., or its affiliates (i.e., you have an account
held by such entity in a fiduciary, agency, custodial or similar
capacity), please call 1-513-867-5134. If you are purchasing shares other
than as a trust customer, please call 1-800-677-FUND.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
Convertible Securities 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Reverse Repurchase Agreements 3
Portfolio Turnover 3
Investment Limitations 3
Star Funds Management 6
Fund Ownership 9
Officers and Trustees Compensation 10
Trustee Liability 10
Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 11
Administrative Services 11
Custodian 11
Brokerage Transactions 11
Distribution Plan 12
Administrative Arrangements 12
Shareholder Services Plan 12
Conversion to Federal Funds 12
Determining Net Asset Value 12
Determining Market Value of
Securities 12
Exchange Privilege 13
Requirements for Exchange 13
Making an Exchange 13
Redeeming Shares 13
Redemption in Kind 13
Tax Status 13
The Fund's Tax Status 13
Shareholders' Tax Status 14
Total Return 14
Yield 14
Performance Comparisons 14
Financial Statements 15
Appendix 16

General Information About the Fund
The Fund is a portfolio of Star Funds (the ''Trust''). The Trust was established
as a Massachusetts business trust under a Declaration of Trust dated January 23,
1989. 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 and changing the Fund's name from Losantiville Relative Value Fund to Star
Relative Value Fund.
Investment Objective and Policies
The Fund's investment objective is to obtain the highest total return, a
combination of income and capital appreciation, as is consistent with reasonable
risk. The investment objective cannot be changed without the approval of
shareholders. The policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
Types of Investments
Although the Fund may invest in other securities of these companies and in
short-
term money market instruments, it is the Fund's policy to invest at least 70% of
its portfolio in common stocks of high-quality companies. Below are other
securities in which the Fund may invest from time to time.
U.S. Government Obligations
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities. These securities
are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of they agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
Bank Instruments
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest
in:
o Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
o Candian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
hled in the United States.
Convertible Securities
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument, and the investments
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund.
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 maintained until the transaction is
settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
Temporary Investments
The Fund may also invest in temporary investments from time to time for
defensive purposes.
The Fund may invest in money market instruments such as:
o instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is federally insured; or
o commercial paper rated A-1 by Standard and Poor's Corporation, Prime-1 by
Moody's Investors Service, Inc., or F-1 by Fitch Investors Service, Inc.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines estabished by the Trustees.
Restricted and Illiquid Securities
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for
certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace
trades.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreement.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the fiscal years ended November 30, 1994 and 1993, the Fund's
portfolio turnover rates were 30% and 59%, respectively.
Investment Limitations
The Fund will not change any of the investment limitations described below
without approval of shareholders.
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amount borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding. During the period any reverse repurchase
agreements are outstanding, the Fund will restrict the purchase of
portfolio securities to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase
agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.
Diversification of Investments
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer, except in cash or cash investments,
securities guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements collateralized by such
securities.
Acquiring Securities
The Fund will not purchase more than 10% of the outstanding voting
securities of any one issuer.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may acquire up to 10%
of the voting securities of an issuer and may exercise its voting power in
the Fund's best interest. From time to time, the Fund, together with other
investment companies advised by affiliates or subsidiaries of Star Bank,
N.A., may together buy and hold substantial amounts of a company's voting
stock. All such stock may be voted together. In some cases, the Fund and
the other investment companies might collectively be considered to be in
control of the company in which they have invested. Officers or affiliates
of the Fund might possibly become directors of companies in which the Fund
holds stock.
Purchasing Securities of Other Issuers
The Fund will not purchase securities of other investment companies,
except:
o by purchase in the open market involving only customary brokerage
commissions; or
o as part of a merger, consolidation, reorganization, or other
acquisition.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
Investing in Issuers Whose Securities Are Owned by Officers and Trustees of
the Trust
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies and limitations.
Investing in Real Estate
The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate.
Investing in Commodities or Minerals
The Fund will not purchase or sell commodities or commodity contracts or
oil, gas, or other mineral development programs.
Lending Cash or Securities
The Fund will not lend any of its assets, except that it may purchase or
hold corporate or government bonds, debentures, notes, certificates of
indebtedness or other debt securities permitted by its investment
objective and policies.
Concentration of Investments in One Industry
The Fund will not invest 25% or more of the value of its total assets in
one industry. However, investing in U.S. government obligations shall not
be considered investments in any one industry.
Dealing in Puts and Calls
The Fund will not write, purchase or sell puts, calls, straddles or
spreads or any combination of them.
Restricted Securities
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933 except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
The following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, and certain restricted
securities not determined by the Trustees to be liquid.
Investing in Warrants
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be in warrants which are not
listed on the New York Stock Exchange or American Stock Exchange.
Foreign Securities
The Fund will not invest more than 10% of its total assets in securities
of foreign issuers.
In order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the investment limitations described
above. Accordingly, the Fund has undertaken not to invest in oil, gas, or other
mineral leases, or real estate limited partnerships. Should the Fund determine
that any such commitment is no longer in the best interests of the Fund and its
shareholders, it will revoke the commitment by terminating sales of its shares
in the states invovled.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
The Fund did not borrow money, pledge securities, or purchase restricted
securities in excess of 5% of the value of its net assets during the last fiscal
year and has no present intent to do so in the coming fiscal year.
In connection with investing in shares of other investment companies, it should
be noted that investment companies incur certain expenses such as management
fees, and, therefore, any investment by the Fund in such shares would be subject
to duplicate expenses.
Star Funds Management___________________________________
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Firstcinco, Cincinnati, Ohio, owned approximately 5,569,763 shares (78.33%).
Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

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. 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 the fiscal years ended November 30, 1994, 1993 and 1992, the Fund paid the
Adviser $471,665, $308,723, and $264,728, respectively, of which $0, $24,401,
and $264,728, respectively, were voluntarily waived.
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 21/2% per year of the
first $30 million of average net assets, 2% per year of the next $70
million of average net assets, and 11/2% per year of the remaining average
net assets, the Adviser has agreed to reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended November 30, 1994, 1993, and 1992, the
Fund incurred administrative service fees of $76,966, $52,377, and $45,917,
respectively, none of which was voluntarily waived.
Custodian
Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to 0.025 of 1% of the Fund's
average daily net assets.
Brokerage Transactions
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securiites;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. It
determines in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
For the fiscal years ended November 30, 1994, 1993 and 1992, the Fund paid total
brokerage commissions of $109,775, $108,605, and $64,220, respectively.
Purchasing Shares
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales charge on days the New York Stock Exchange
and the Federal Reserve Wire System are open for business. The minimum initial
investment in the Fund by an investor is $1,000 ($25 for Star Connections Group
Banking customers and Star Bank employees and members of their immediate
family). The minimum initial investment may be waived from time to time for
employees and retired employees of Star Bank, N.A., and for members of the
families (including parents, grandparents, siblings, spouses, children, aunts,
uncles, and in-laws) of such employees or retired employees. The procedure for
purchasing shares of the Fund is explained in the prospectus under ''Investing
in the Fund.''
Distribution Plan
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 (the ''Plan''). The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is principally
intended to result in the sale of the Fund's shares subject to the Plan. Such
activities may include the advertising and marketing of shares of the Fund;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay
fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
liability. 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 the net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange, if
available;
o in the absence of recorded sales of equity securities, according to the
mean between the last closing bid and ask prices and for bonds and other
fixed income securities as determined by an independent pricing service;
o for unlisted equity securities, the latest bid prices; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
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 Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities withim certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. Otherwise, these dividends and any short-term capital gains are
taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
Total Return
The Fund's average annual total return for the fiscal year ended November 30,
1994, and for the period from June 5, 1991 (date of initial public investment),
to November 30, 1994, were (6.01%) and 5.08%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum 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 load,
adjusted over the period by any additional shares, assuming the quarterly
reinvestment of all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended November 30, 1994, was 2.33%.
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 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
Performance Comparisons
The 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 Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
the maximum offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the ''equity, growth and income'' category in advertising and
sales literature.
o Dow Jones Industrial Average (''DJIA'') represents share prices of
selected blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA's index movements are leading economic indicators for
the stock market as a whole.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and
financial and public utility companies can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks.
In addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
located on the back cover of the Stock and Bond Funds Combined Prospectus or by
calling 1-800-677-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as ''gilt
edge.'' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Fitch Investors Service, Inc., Long-Term Debt Ratings
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
0110906B (3/95)

STAR GROWTH EQUITY FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1995
TABLE OF CONTENTS
--------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND 1
---------------------------------------------------------------

INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------

Convertible Securities 1
Warrants 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 2
"Margin" in Futures Transactions 3
Put Options on Financial Futures Contracts 3

Call Options on Financial and Stock Index

Futures Contracts 3
Stock Index Options 4
Over-the-Counter Options 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4

INVESTMENT LIMITATIONS 4
---------------------------------------------------------------

STAR FUNDS MANAGEMENT 7
---------------------------------------------------------------

Fund Ownership 10
Officers and Trustees Compensation 10
Trustee Liability 10

INVESTMENT ADVISORY SERVICES 11
---------------------------------------------------------------

Adviser to the Fund 11
Advisory Fees 11

ADMINISTRATIVE SERVICES 11
---------------------------------------------------------------

CUSTODIAN 11
---------------------------------------------------------------

BROKERAGE TRANSACTIONS 11
---------------------------------------------------------------

PURCHASING SHARES 12
---------------------------------------------------------------

Distribution Plan 12
Administrative Arrangements 12
Shareholder Services Plan 12
Conversion to Federal Funds 12

DETERMINING NET ASSET VALUE 12
---------------------------------------------------------------

Determining Market Value of Securities 12
Trading in Foreign Securities 13

EXCHANGE PRIVILEGE 13
---------------------------------------------------------------

Requirements for Exchange 13
Making an Exchange 13

REDEEMING SHARES 13
---------------------------------------------------------------

Redemption in Kind 13

TAX STATUS 14
---------------------------------------------------------------

The Fund's Tax Status 14
Foreign Taxes 14
Shareholders' Tax Status 14

TOTAL RETURN 14
---------------------------------------------------------------

YIELD 14
---------------------------------------------------------------

PERFORMANCE COMPARISONS 15
---------------------------------------------------------------

FINANCIAL STATEMENTS 16
---------------------------------------------------------------

APPENDIX 27
---------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND
--------------------------------------------------------------------------------

The Fund is a portfolio of Star Funds (the "Trust"). The Trust was established
as a Massachusetts business trust under a Declaration of Trust dated January 23,
1989. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. On May 1, 1993, the Board of Trustees (the "Trustees") approved
changing the name of the Trust, effective May 1, 1993, from Losantiville Funds
to Star Funds.

INVESTMENT OBJECTIVE AND POLICIES
--------------------------------------------------------------------------------

The Fund's investment objective is to maximize capital appreciation. The
investment objective cannot be changed without the approval of shareholders.
Unless indicated otherwise, the policies described below may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.

CONVERTIBLE SECURITIES

Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.

WARRANTS

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.

REPURCHASE AGREEMENTS

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for
certain secondary market transactions involving registration for resales of
otherwise restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for securities
eligible for resale under the Rule. The Fund believes that the staff of the SEC
has left the question of determining the liquidity of all restricted securities
to the Trustees. The Trustees may consider the following criteria in determining
the liquidity of certain restricted securities:

.the frequency of trades and quotes for the security;

.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;

.dealer undertakings to make a market in the security; and

.the nature of the security and the nature of the marketplace trades.

FUTURES AND OPTIONS TRANSACTIONS

As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and put options on financial futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income. The Fund will
maintain its positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series.

FUTURES CONTRACTS

The Fund may purchase and sell financial futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against changes in prices. The Fund will not engage in futures
transactions for speculative purposes.

A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" (agree to purchase
securities in the future at a predetermined price) to hedge against a decline
in market interest rates.

"MARGIN" IN FUTURES TRANSACTIONS

The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

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.

CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS

STOCK INDEX OPTIONS

The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
ability of the Fund's adviser to predict correctly movements in the directions
of the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.

OVER-THE-COUNTER OPTIONS

REVERSE REPURCHASE AGREEMENTS

PORTFOLIO TURNOVER

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the period from December 12, 1994 (date of initial public
investment) to January 31, 1995, the Fund's portfolio turnover rate was 19%.

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
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the

--------------------------------------------------------------------------------
amount borrowed; and except to the extent that the Fund may enter into
futures contracts. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
Fund by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings and reverse repurchase agreements in excess of 5% of its total
assets are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the pledge. For purposes of this
limitation, the following will not be deemed to be pledges of the Fund's
assets: (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on
a when-issued basis; and (b) collateral arrangements with respect to (i)
the purchase and sale of stock options (and options on stock indices) and
(ii) initial or variation margin for futures contracts. Margin deposits
for the purchase and sale of futures contracts and related options are
not deemed to be a pledge.

DIVERSIFICATION OF INVESTMENTS

UNDERWRITING

INVESTING IN REAL ESTATE

INVESTING IN COMMODITIES

LENDING CASH OR SECURITIES

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government,
its agencies or instrumentalities).

INVESTING IN NEW ISSUERS

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.

INVESTING IN ILLIQUID SECURITIES

INVESTING IN MINERALS

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN WARRANTS

The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of the Fund's net assets, to be included within
the overall 5% limit on investments in warrants may be warrants which are
not listed on the New York Stock Exchange or the American Stock Exchange.

INVESTING IN PUT OPTIONS

The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.

WRITING COVERED CALL OPTIONS

The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets in the coming fiscal year.

To comply with registration requirements in certain states, the Fund (a) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (b) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, (c) will limit the margin deposits on futures contracts entered into by
the Fund to 5% of its net assets, and (d) will limit
investment in warrants to 5% of its net assets. No more than 2% of the Fund's
net assets will be in warrants which are not listed on the New York or American
Stock Exchanges. (If state requirements change, these restrictions may be
revised without shareholder notification.)

STAR FUNDS MANAGEMENT
--------------------------------------------------------------------------------

Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.
--------------------------------------------------------------------------------

John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA

Birthdate: July 28, 1924

Chairman and Trustee

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA

Birthdate: February 3, 1934

Trustee

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL

Birthdate: June 23, 1937

Trustee

William J. Copeland
One PNC Plaza--23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Trustee

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Trustee

Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Trustee

Edward L. Flaherty, Jr.+
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, PA

Birthdate: June 18, 1924

Trustee

Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930

President, Treasurer, and Trustee

Peter E. Madden
225 Franklin Street
Boston, MA

Birthdate: April 16, 1942

Trustee

Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center--Suite 674
Pittsburgh, PA

Birthdate: October 6, 1926

Trustee

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282

Birthdate: December 20, 1932

Trustee

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Trustee

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: July 21, 1935

Trustee

Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
--------------------------------------------------------------------------------

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 26, 1938

Vice President and Secretary

*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.

+Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.

Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc.--1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; New York Municipal
Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.

FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund: Firstcinco, Cincinnati, Ohio, owned
approximately 2,205,155 shares (85.4%).

OFFICERS AND TRUSTEES COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
NAME, POSITION COMPENSATION
WITH TRUST FROM TRUST*POUND
<S> <C>
John F. Donahue, $-0-
Chairman and Trustee
Thomas G. Bigley, $438
Trustee
John T. Conroy, Jr., $1,916.50
Trustee
William J. Copeland, $1,916.50
Trustee
James E. Dowd, $1,916.50
Trustee
Lawrence D. Ellis, M.D., $1,739.30
Trustee
Edward L. Flaherty, Jr., $1,916.50
Trustee
Edward C. Gonzales, $-0-
President and Trustee
Peter E. Madden, $1,476
Trustee
Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D. $-0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee
Marjorie P. Smuts, $1,739.30
Trustee
</TABLE>

*Information is furnished for the fiscal year ended November 30, 1994. The
Trust is the only investment company in the Fund Complex.

PoundThe aggregate compensation is provided for the Trust which is comprised of
nine portfolios.

TRUSTEE LIABILITY

INVESTMENT ADVISORY SERVICES
--------------------------------------------------------------------------------

ADVISER TO THE FUND

ADVISORY FEES

STATE EXPENSE LIMITATIONS

This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.

ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------

CUSTODIAN
--------------------------------------------------------------------------------

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:

.advice as to the advisability of investing in securities;

.security analysis and reports;

.economic studies;

.industry studies;

.receipt of quotations for portfolio evaluations; and

.similar services.

Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses. For the period from December 12, 1994
(date of initial public investment) to January 31, 1995, the Fund paid total
brokerage commissions of $31,167.

PURCHASING SHARES
--------------------------------------------------------------------------------

Except under certain circumstances described in the prospectus, shares of the
Fund are sold at their net asset value, on days the New York Stock Exchange and
the Federal Reserve Wire System are open for business. Except under the
circumstances described in the prospectus, the minimum initial investment in the
Fund by an investor is $1,000. The minimum initial investment may be waived from
time to time for employees and retired employees of Star Bank, N.A., and for
members of the families (including parents, grandparents, siblings, spouses,
children, aunts, uncles, and in-laws) of such employees or retired employees.
The procedure for purchasing shares of the Fund is explained in the prospectus
under "Investing in the Funds."

DISTRIBUTION PLAN

ADMINISTRATIVE ARRANGEMENTS

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

DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------

The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES

Market or fair values of the Fund's portfolio securities are determined as
follows:

.for equity securities, according to the last sale price on a national
securities exchange, if applicable;

.in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;

.for unlisted equity securities, latest bid prices;

.for bonds and other fixed income securities, as determined by an independent
pricing service;

.for all other securities, at fair value as determined in good faith by the
Trustees.

The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.

TRADING IN FOREIGN SECURITIES

EXCHANGE PRIVILEGE
--------------------------------------------------------------------------------

REQUIREMENTS FOR EXCHANGE

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.

REDEEMING SHARES
--------------------------------------------------------------------------------

REDEMPTION IN KIND

TAX STATUS
--------------------------------------------------------------------------------

THE FUND'S TAX STATUS

.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

.derive less than 30% of its gross income from the sale of securities held less
than three months;

.invest in securities within certain statutory limits; and

.distribute to its shareholders at least 90% of its net income earned during the
year.

FOREIGN TAXES

SHAREHOLDERS' TAX STATUS

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.

TOTAL RETURN
--------------------------------------------------------------------------------

For the period from December 12, 1994 (date of initial public investment) to
January 31, 1995, the Fund's cumulative total return was (1.72%).

YIELD
--------------------------------------------------------------------------------

The Fund's yield for the thirty-day period ended January 31, 1995, was 2.08%.

PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------

The performance of the Fund depends upon such variables as:

.portfolio quality;

.average portfolio maturity;

.type of instruments in which the portfolio is invested;

.changes in interest rates and market value of portfolio securities;

.changes in the Fund's expenses; and

.various other factors.

.STANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON STOCKS are
composite indices of common stocks in industry, transportation, and financial
and public utility companies that can be used to compare the total returns of
funds whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's indices assume reinvestments of all dividends paid by
stocks listed on its indices. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in Standard & Poor's
figures.

Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.

Advertisements may quote performance information which does not reflect the
effect of the contingent deferred sales charge.

STAR GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
------------ ------------------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--83.3%
---------------------------------------------------------------------------------------------------------------------
AEROSPACE--2.0%
-------------------------------------------------------------------------------------------------------
11,081 Boeing Co. $ 493,105
------------------------------------------------------------------------------------------------------- -------------
AUTOMOBILE--0.8%
-------------------------------------------------------------------------------------------------------
8,000 Ford Motor Co. 202,000
------------------------------------------------------------------------------------------------------- -------------
BANKING--3.4%
-------------------------------------------------------------------------------------------------------
11,340 *Citicorp 460,687
-------------------------------------------------------------------------------------------------------
7,000 Corestates Financial Corp. 188,125
-------------------------------------------------------------------------------------------------------
6,518 Signet Banking Corp. 212,650
------------------------------------------------------------------------------------------------------- -------------
Total 861,462
------------------------------------------------------------------------------------------------------- -------------
BASIC INDUSTRY--3.3%
-------------------------------------------------------------------------------------------------------
5,216 Aluminum Co. of America 410,108
-------------------------------------------------------------------------------------------------------
3,086 International Paper Co. 219,492
-------------------------------------------------------------------------------------------------------
5,000 Weyerhaeuser Co. 189,375
------------------------------------------------------------------------------------------------------- -------------
Total 818,975
------------------------------------------------------------------------------------------------------- -------------
BROADCASTING & PUBLISHING--1.7%
-------------------------------------------------------------------------------------------------------
5,263 Capital Cities ABC, Inc. 436,829
------------------------------------------------------------------------------------------------------- -------------
CHEMICALS--4.1%
-------------------------------------------------------------------------------------------------------
8,127 duPont (EI) deNemours & Co. 432,763
-------------------------------------------------------------------------------------------------------
15,536 Lyondell Petrochemical Co. 343,734
-------------------------------------------------------------------------------------------------------
3,280 Monsanto Co. 241,080
------------------------------------------------------------------------------------------------------- -------------
Total 1,017,577
------------------------------------------------------------------------------------------------------- -------------
COMPUTERS & SOFTWARE--4.1%
-------------------------------------------------------------------------------------------------------
4,311 Hewlett Packard Co. 433,256
-------------------------------------------------------------------------------------------------------
2,200 International Business Machines 158,675
-------------------------------------------------------------------------------------------------------
3,911 Microsoft Corp. 232,216
-------------------------------------------------------------------------------------------------------
7,866 Stratus Computer, Inc. 209,432
------------------------------------------------------------------------------------------------------- -------------
Total 1,033,579
------------------------------------------------------------------------------------------------------- -------------
CONSUMER CYCLICALS--3.1%
-------------------------------------------------------------------------------------------------------
10,000 Fleetwood Enterprises, Inc. 181,250
-------------------------------------------------------------------------------------------------------
6,518 Johnson Controls, Inc. 309,605
-------------------------------------------------------------------------------------------------------
5,747 Whirlpool Corp. 286,632
------------------------------------------------------------------------------------------------------- -------------
Total 777,487
------------------------------------------------------------------------------------------------------- -------------
CONSUMER STAPLES--9.6%
-------------------------------------------------------------------------------------------------------
4,000 CPC International, Inc. 217,500
-------------------------------------------------------------------------------------------------------
</TABLE>

STAR GROWTH EQUITY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
------------ ------------------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--CONTINUED
---------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--CONTINUED
-------------------------------------------------------------------------------------------------------
4,125 Gillette Co. $ 317,109
-------------------------------------------------------------------------------------------------------
7,029 Philip Morris Cos., Inc. 419,104
-------------------------------------------------------------------------------------------------------
16,926 Premark International, Inc. 696,082
-------------------------------------------------------------------------------------------------------
11,407 Procter & Gamble Co. 744,307
------------------------------------------------------------------------------------------------------- -------------
Total 2,394,102
------------------------------------------------------------------------------------------------------- -------------
ELECTRICAL EQUIPMENT--3.9%
-------------------------------------------------------------------------------------------------------
8,473 Emerson Electric Co. 533,799
-------------------------------------------------------------------------------------------------------
6,734 General Electric Co. 346,801
-------------------------------------------------------------------------------------------------------
5,000 Mark IV Industries, Inc. 96,250
------------------------------------------------------------------------------------------------------- -------------
Total 976,850
------------------------------------------------------------------------------------------------------- -------------
ELECTRONICS--1.6%
-------------------------------------------------------------------------------------------------------
3,014 Intel Corp. 209,096
-------------------------------------------------------------------------------------------------------
3,029 Motorola, Inc. 179,090
------------------------------------------------------------------------------------------------------- -------------
Total 388,186
------------------------------------------------------------------------------------------------------- -------------
ENERGY--11.8%
-------------------------------------------------------------------------------------------------------
4,000 Amoco Corp. 232,000
-------------------------------------------------------------------------------------------------------
13,036 Ashland Oil Co. 425,299
-------------------------------------------------------------------------------------------------------
2,000 Atlantic Richfield Co. 213,000
-------------------------------------------------------------------------------------------------------
15,057 Chevron Corp. 671,919
-------------------------------------------------------------------------------------------------------
9,125 Energy Services, Inc. 108,359
-------------------------------------------------------------------------------------------------------
17,599 Enron Corp. 512,571
-------------------------------------------------------------------------------------------------------
3,000 Mobil Corp. 259,125
-------------------------------------------------------------------------------------------------------
25,000 Panhandle Eastern Corp. 525,000
------------------------------------------------------------------------------------------------------- -------------
Total 2,947,273
------------------------------------------------------------------------------------------------------- -------------
ENTERTAINMENT--1.2%
-------------------------------------------------------------------------------------------------------
6,084 Disney (Walt) Co. 309,524
------------------------------------------------------------------------------------------------------- -------------
HEALTH CARE--8.1%
-------------------------------------------------------------------------------------------------------
7,000 Bristol Myers Squibb Co. 430,500
-------------------------------------------------------------------------------------------------------
10,038 Columbia/HCA Healthcare 402,775
-------------------------------------------------------------------------------------------------------
8,232 Health Systems International, Inc. 222,264
-------------------------------------------------------------------------------------------------------
5,000 Johnson & Johnson 290,625
-------------------------------------------------------------------------------------------------------
9,322 Merck & Co., Inc. 375,210
-------------------------------------------------------------------------------------------------------
6,779 U.S. Healthcare, Inc. 310,139
------------------------------------------------------------------------------------------------------- -------------
Total 2,031,513
------------------------------------------------------------------------------------------------------- -------------
INSURANCE--4.5%
-------------------------------------------------------------------------------------------------------
7,339 American International Group, Inc. 764,173
-------------------------------------------------------------------------------------------------------
</TABLE>

STAR GROWTH EQUITY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
------------ ------------------------------------------------------------------------------------------------------- -------------
COMMON STOCKS--CONTINUED
---------------------------------------------------------------------------------------------------------------------
INSURANCE--CONTINUED
-------------------------------------------------------------------------------------------------------
8,539 Protective Life Corp. $ 371,446
------------------------------------------------------------------------------------------------------- -------------
Total 1,135,619
------------------------------------------------------------------------------------------------------- -------------
MACHINERY--2.0%
-------------------------------------------------------------------------------------------------------
7,000 Illinois Tool Works, Inc. 281,750
-------------------------------------------------------------------------------------------------------
6,518 Varity Corp. 221,612
------------------------------------------------------------------------------------------------------- -------------
Total 503,362
------------------------------------------------------------------------------------------------------- -------------
MISCELLANEOUS--3.9%
-------------------------------------------------------------------------------------------------------
11,277 Allied Signal, Inc. 403,153
-------------------------------------------------------------------------------------------------------
4,000 Applied Materials, Inc. 154,000
-------------------------------------------------------------------------------------------------------
6,518 Horsham Corp. 76,587
-------------------------------------------------------------------------------------------------------
3,911 ITT Corp. 350,034
------------------------------------------------------------------------------------------------------- -------------
Total 983,774
------------------------------------------------------------------------------------------------------- -------------
REAL ESTATE--0.5%
-------------------------------------------------------------------------------------------------------
9,777 South West Property Trust, Inc. 120,990
------------------------------------------------------------------------------------------------------- -------------
RESTAURANTS--0.2%
-------------------------------------------------------------------------------------------------------
2,150 Morrison Restaurants, Inc. 55,900
------------------------------------------------------------------------------------------------------- -------------
RETAIL--2.4%
-------------------------------------------------------------------------------------------------------
8,500 May Department Stores Co. 298,563
-------------------------------------------------------------------------------------------------------
3,000 Nordstrom, Inc. 121,500
-------------------------------------------------------------------------------------------------------
6,518 Toys R Us, Inc. 190,651
------------------------------------------------------------------------------------------------------- -------------
Total 610,714
------------------------------------------------------------------------------------------------------- -------------
TRANSPORTATION--0.9%
-------------------------------------------------------------------------------------------------------
4,329 Conrail, Inc. 231,601
------------------------------------------------------------------------------------------------------- -------------
UTILITIES--10.2%
-------------------------------------------------------------------------------------------------------
9,777 AT & T Co. 487,628
-------------------------------------------------------------------------------------------------------
12,081 Duke Power Co. 487,770
-------------------------------------------------------------------------------------------------------
31,462 General Public Utilities Corp. 888,802
-------------------------------------------------------------------------------------------------------
22,399 Pacific Telesis Group 685,969
------------------------------------------------------------------------------------------------------- -------------
Total 2,550,169
------------------------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $20,593,755) 20,880,591
------------------------------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT OBLIGATIONS--8.9%
---------------------------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANKS--3.9%
-------------------------------------------------------------------------------------------------------
$ 500,000 5.50%, 12/8/1995 494,505
-------------------------------------------------------------------------------------------------------
500,000 5.85%, 4/29/1996 493,350
------------------------------------------------------------------------------------------------------- -------------
Total 987,855
------------------------------------------------------------------------------------------------------- -------------
</TABLE>

STAR GROWTH EQUITY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR CONTRACTS VALUE
<C> <S> <C>
------------ ------------------------------------------------------------------------------------------------------- -------------
U.S. GOVERNMENT OBLIGATIONS--CONTINUED
---------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--5.0%
-------------------------------------------------------------------------------------------------------
$ 1,000,000 5.875%, 5/15/1995 $ 999,260
-------------------------------------------------------------------------------------------------------
250,000 6.875%, 10/31/1996 248,690
------------------------------------------------------------------------------------------------------- -------------
Total 1,247,950
------------------------------------------------------------------------------------------------------- -------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $2,230,414) 2,235,805
------------------------------------------------------------------------------------------------------- -------------
PUT OPTION PURCHASED--0.02%
---------------------------------------------------------------------------------------------------------------------
100 Citicorp (IDENTIFIED COST, $11,650) 5,625
------------------------------------------------------------------------------------------------------- -------------
**REPURCHASE AGREEMENT--9.6%
---------------------------------------------------------------------------------------------------------------------
$ 2,410,000 Donaldson, Lufkin & Jenrette Securities Corp., 5.80%, dated 1/31/1995, due 2/1/1995 (AT AMORTIZED COST) 2,410,000
------------------------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $25,245,819) $25,532,021+
------------------------------------------------------------------------------------------------------- -------------
</TABLE>

*_ The security is held in connection with a purchased put option which expires
on July 21, 1995.

** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.

The cost of investments for federal tax purposes amounts to $25,245,819. The
net unrealized appreciation of investments on a federal tax basis amounts to
$286,202, which is comprised of $725,530 appreciation and $439,328
depreciation at January 31, 1995.

Note: The categories of investments are shown as a percentage of net assets
($25,074,433) at
January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
---------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $25,245,819) $ 25,532,021
---------------------------------------------------------------------------------------------------------------------
Cash 417
---------------------------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 242,442
---------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 408,106
---------------------------------------------------------------------------------------------------------------------
Dividends receivable 40,894
---------------------------------------------------------------------------------------------------------------------
Interest receivable 25,778
--------------------------------------------------------------------------------------------------------------------- -------------
Total assets 26,249,658
---------------------------------------------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------------------------------
Payable for investments purchased $ 1,121,248
-------------------------------------------------------------------------------------------------------
Options written, at value (premium received $83,314) 49,484
-------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,610
-------------------------------------------------------------------------------------------------------
Accrued expenses 2,883
------------------------------------------------------------------------------------------------------- ------------
Total liabilities 1,175,225
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 2,435,854 shares of beneficial interest outstanding $ 25,074,433
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------------------------
Paid-in capital $ 24,691,551
---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and options written (includes $33,830 appreciation on
options written) 320,032
---------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 69,547
---------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (6,697)
--------------------------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 25,074,433
--------------------------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE and Offering Proceeds Per Share:
($25,074,433 / 2,435,854 shares of beneficial interest outstanding) $10.29
--------------------------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (95/100 of $10.29) $9.78*
--------------------------------------------------------------------------------------------------------------------- -------------
</TABLE>

*See "Redeeming Shares" in the prospectus.

(See Notes which are an integral part of the Financial Statements)

STAR GROWTH EQUITY FUND
STATEMENT OF OPERATIONS

PERIOD ENDED JANUARY 31, 1995*
(UNAUDITED)

--------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
------------------------------------------------------------------------------------------------------------------------
Interest income $ 29,205
------------------------------------------------------------------------------------------------------------------------
Dividend income 46,434
------------------------------------------------------------------------------------------------------------------------ ----------
Total income 75,639
------------------------------------------------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------------------------------------
Investment advisory fee $ 18,760
-------------------------------------------------------------------------------------------------------------
Administrative personnel and services fees 2,905
-------------------------------------------------------------------------------------------------------------
Custodian fees 625
-------------------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,076
-------------------------------------------------------------------------------------------------------------
Legal fees 325
-------------------------------------------------------------------------------------------------------------
Printing and postage 1,251
-------------------------------------------------------------------------------------------------------------
Portfolio accounting fees 3,002
-------------------------------------------------------------------------------------------------------------
Insurance premiums 425
-------------------------------------------------------------------------------------------------------------
Miscellaneous 550
------------------------------------------------------------------------------------------------------------- ---------
Total expenses 28,919
------------------------------------------------------------------------------------------------------------- ----------
Net investment income 46,720
------------------------------------------------------------------------------------------------------------------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)
(includes $25,559 loss on options written) 69,547
------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and options written 320,032
------------------------------------------------------------------------------------------------------------------------ ----------
Net realized and unrealized gain (loss) on investments 389,579
------------------------------------------------------------------------------------------------------------------------ ----------
Change in net assets resulting from operations $ 436,299
------------------------------------------------------------------------------------------------------------------------ ----------
</TABLE>

*Reflects operations for the period from November 10, 1994 (start of business)
to January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED
JANUARY 31, 1995*
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------------------------------------------------------
Net investment income $ 46,720
--------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($69,547 gain as computed for federal tax purposes) 69,547
--------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments 320,032
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets resulting from operations 436,299
-------------------------------------------------------------------------------------------------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from Net Investment Income (46,720)
--------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (6,697)
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets from distributions to shareholders (53,417)
-------------------------------------------------------------------------------------------------------------- --------------------
FUND SHARES (PRINCIPAL) TRANSACTIONS--
--------------------------------------------------------------------------------------------------------------
Proceeds from sale of shares 24,864,305
--------------------------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 44,555
--------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (217,409)
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets from Fund share transactions 24,691,451
-------------------------------------------------------------------------------------------------------------- --------------------
Change in net assets 25,074,333
--------------------------------------------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------------------------------------------
Beginning of period 100
-------------------------------------------------------------------------------------------------------------- --------------------
End of period $ 25,074,433
-------------------------------------------------------------------------------------------------------------- --------------------
</TABLE>

*Reflects operations for the period from November 10, 1994 (start of business)
to January 31, 1995.

(See Notes which are an integral part of the Financial Statements)

STAR GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>

<S> <C>
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------
Net investment income
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
--------------------------------------------------------------------------------------------------------------
Total from investment operations
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN**
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------
Expenses
--------------------------------------------------------------------------------------------------------------
Net investment income
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
--------------------------------------------------------------------------------------------------------------

<CAPTION>
PERIOD ENDED
<S> <C>
-------------------------------------------------------------------------------------------------------------- --------------------
-
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------------------------------------------------------------
Net investment income 0.04
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.29
-------------------------------------------------------------------------------------------------------------- -------
Total from investment operations 0.33
-------------------------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
--------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.04)
-------------------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.29
-------------------------------------------------------------------------------------------------------------- -------
TOTAL RETURN** 3.30%
--------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
--------------------------------------------------------------------------------------------------------------
Expenses 1.16%(a)
--------------------------------------------------------------------------------------------------------------
Net investment income 1.87%(a)
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $25,074
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19
%
--------------------------------------------------------------------------------------------------------------
</TABLE>

* Reflects operations for the period from December 12, 1994 (date of initial
public investment) to January 31, 1995. For the period from November 10,
1994 (start of business) until December 11, 1994, all income was distributed
to the administrator.

** Based on net asset value, which does not reflect sales load or contingent
deferred sales charge, if applicable.

(a) Computed on an annualized basis.

(See Notes which are an integral part of the Financial Statements)

STAR GROWTH EQUITY FUND
NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 1995
(UNAUDITED)
--------------------------------------------------------------------------------

(1) ORGANIZATION

The financial statements included herein present only those of Star Growth
Equity Fund (the "Fund").

(2) SIGNIFICANT ACCOUNTING POLICIES

E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

STAR GROWTH EQUITY FUND

--------------------------------------------------------------------------------

At January 31, 1995, the Fund had the following outstanding options:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE NUMBER OF
ISSUER TYPE DATE PRICE CONTRACTS
<S> <C> <C> <C> <C>
Whirlpool Call 2/17/95 $ 50 50
International Paper Call 2/17/95 75 10
Applied Materials Call 2/17/95 45 40
Health Systems International Call 2/17/95 30 80
Stratus Computers Call 4/21/95 40 50
Ashland Oil Co. Call 2/17/95 35 25
CitiCorp Call 7/21/95 40 30
CitiCorp Call 7/21/95 40 70
Mosnato Co. Call 4/21/95 80 30
Premark Intl. Inc. Call 2/17/95 45 80
Aluminum Co. of America Call 4/21/95 90 5
Morrisons Restaurant Call 3/17/95 25 20
Treasury Note Call 3/27/95 99 8/32 250
Total

<CAPTION>
UNREALIZED
ISSUER (DEPRECIATION) VALUE
<S> <C> <C>
Whirlpool $ 6,260 $ 3,500
International Paper 3,127 313
Applied Materials 6,384 1,375
Health Systems International 1,050 2,750
Stratus Computers 8,918 781
Ashland Oil Co. 562 313
CitiCorp (1,245) 9,375
CitiCorp (3,781) 21,874
Mosnato Co. 1,474 2,156
Premark Intl. Inc. 11,930 1,750
Aluminum Co. of America 793 313
Morrisons Restaurant (1,330) 4,125
Treasury Note (312) 859
----------------- -----------
Total $ 33,830 $ 49,484
----------------- -----------
</TABLE>

The following is a summary of the Fund's written options activity:

<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PROCEEDS*
<S> <C> <C>
Outstanding at November 10, 1994 0 $ 0
-----------------------------------------------------------------------------------------------------
Contracts opened 1,140 240,810
-----------------------------------------------------------------------------------------------------
Contracts expired 0 0
-----------------------------------------------------------------------------------------------------
Contracts exercised (400) (157,496)
-----------------------------------------------------------------------------------------------------
Contracts closed 0 0
----------------------------------------------------------------------------------------------------- ------ ------------
Outstanding at January 31, 1995 740 $ 83,314
----------------------------------------------------------------------------------------------------- ------ ------------
</TABLE>

*Represents premium received less commissions paid.

H. OTHER--Investment transactions are accounted for on the trade date.

STAR GROWTH EQUITY FUND

--------------------------------------------------------------------------------

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED JANUARY 31,
<S> <C> <C>
1995*
(UNAUDITED)

<CAPTION>
SHARES DOLLARS
<S> <C> <C>
Shares sold 2,452,714 $ 24,864,305
---------------------------------------------------------------------------------------------------
Shares issued to shareholders in
payment of dividends 4,372 44,555
---------------------------------------------------------------------------------------------------
Shares redeemed (21,242) (217,409)
--------------------------------------------------------------------------------------------------- ---------- -------------
Net change resulting from
Fund share transactions 2,435,844 $ 24,691,451
--------------------------------------------------------------------------------------------------- ---------- -------------
</TABLE>

*For the period from November 10, 1994 (start of business) to January 31, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Star Bank, N.A., the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.

FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.

Star Bank, N.A., is the Fund's custodian for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.

Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1995, were as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C>
$ 26,016,049 $ 3,288,004
</TABLE>

APPENDIX
--------------------------------------------------------------------------------

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS

AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

BB,B--Debt rated BB or B, 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 a low degree of speculation.

PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

Aaa--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
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.

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 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.

NR--Not rated by Moody's.

Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate or 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 a 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., LONG-TERM DEBT RATINGS

--------------------------------------------------------------------------------

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of those bonds will fall below
investment grade is higher than for bonds with higher ratings.

NR--NR indicates that Fitch does not rate the specific issue.

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.

STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A-1--This highest category indicates that the degree of safety regarding timely
payment is 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
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

PRIME-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:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.

PRIME-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 alternate liquidity is maintained.

FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS

F-1+--EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--VERY STRONG CREDIT QUALITY. Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.

F-2--GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payment but the margin of safety is not as great as the
F-1+ and F-1 categories.

1 G00522-04 (3/95)

Star Capital Appreciation Fund

(A Portfolio of the Star Funds)
Statement of Additional Information

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds of the Star Funds dated March 31,
1995. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write to the Star Capital Appreciation Fund (the "Fund") or
call 1-800-677-FUND.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Convertible Securities 1
Warrants 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 2
"Margin" in Futures Transactions 3
Put Options on Financial Futures
Contracts 3
Call Options on Financial and Stock
Index Futures Contracts 3
Stock Index Options 4
Over-the-Counter Options 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
Investment Limitations 4
Star Funds Management 7
Fund Ownership 10
Officers and Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Administrative Services 12
Custodian 12
Brokerage Transactions 12
Distribution Plan 13
Administrative Arrangements 13
Shareholder Services Plan 13
Conversion to Federal Funds 13
Determining Net Asset Value 13
Determining Market Value of
Securities 14
Trading in Foreign Securities 14
Exchange Privilege 14
Requirements for Exchange 14
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 15
Tax Status 15
The Fund's Tax Status 15
Foreign Taxes 15
Shareholders' Tax Status 15
Total Return 15
Yield 16
Performance Comparisons 16
Financial Statements 16
Appendix 17

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 maximize capital appreciation. The
investment objective cannot be changed without the approval of shareholders. The
policies described below may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
Convertible Securities
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
Warrants
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock. The Fund will not invest more than 5% of the value of its
total assets in warrants. No more than 2% of this 5% may be in warrants which
are not listed on the New York or American Stock Exchanges. Warrants required in
units or attached to securities may be deemed to be without value for purposes
of this policy.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price and 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 is
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.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
Restricted and Illiquid Securities
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor for certain
secondary market transactions involving registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was expected
to further enhance the liquidity of the secondary market for securities eligible
for resale under the Rule. The Fund believes that the staff of the SEC has left
the question of determining the liquidity of all restricted securities to the
Trustees. The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Futures and Options Transactions
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and put options on financial futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options on
portfolio securities to attempt to increase its current income. The Fund will
maintain its positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out over-the-
counter or on a nationally recognized exchange which provides a secondary market
for options of the same series.
Futures Contracts
The Fund may purchase and sell financial futures contracts to hedge against the
effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against changes in prices. The Fund will not engage in futures
transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed income
securities market, prices move inversely to interest rates. A rise in rates
means a drop in price. Conversely, a drop in rates means a rise in price. In
order to hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the possibility
that the prices of its fixed income securities may decline during the Fund's
anticipated holding period. The Fund would "go long" (agree to purchase
securities in the future at a predetermined price) to hedge against a decline in
market interest rates.
Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
Call Options on Financial and Stock Index Futures Contracts
In addition to purchasing put options on futures, the Fund may write listed and
over-the-counter call options on financial and stock index futures contracts
(including cash-settled stock index options) to hedge its portfolio against an
increase in market interest rates or a decrease in stock prices. When the Fund
writes a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option is
exercised. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
Stock Index Options
The Fund may purchase put options on stock indices listed on national securities
exchanges or traded in the over-the-counter market. A stock index fluctuates
with changes in the market values of the stocks included in the index.
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in the Fund's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
ability of the Fund's adviser to predict correctly movements in the directions
of the stock market generally or of a particular industry. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
Over-the-Counter Options
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the period from June 13, 1994 (date of initial public investment)
to November 30, 1994, the Fund's portfolio turnover rate was 36%.
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
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed;
and except to the extent that the Fund may enter into futures contracts.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the Fund by enabling the
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the pledge. For purposes of this limitation,
the following will not be deemed to be pledges of the Fund's assets: (a)
the deposit of assets in escrow in connection with the writing of covered
put or call options and the purchase of securities on a when-issued basis;
and (b) collateral arrangements with respect to (i) the purchase and sale
of stock options (and options on stock indices) and (ii) initial or
variation margin for futures contracts. Margin deposits for the purchase
and sale of futures contracts and related options are not deemed to be a
pledge.
Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than
5% of the value of its total assets would be invested in the securities of
that issuer. The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving financial futures contracts or options on
financial futures contracts.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government, its
agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
Investing in Issuers Whose Securities are Owned by Officers and Trustees of
the Trust
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Investing in Securities of Other Investment Companies
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, and invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets.
Investing in Restricted Securities
The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
certain restricted securities not determined by the Trustees to be liquid.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
Investing in Warrants
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be warrants which are not listed
on the New York Stock Exchange or the American Stock Exchange.
Investing in Put Options
The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open put
option positions.
Writing Covered Call Options
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, (3) will limit the margin deposits on futures contracts entered into by
the Fund to 5% of its net assets, and (4) will limit investment in warrants to
5% of its net assets. No more than 2% will be in warrants which are not listed
on the New York or American Stock Exchanges. Also, to comply with certain state
restrictions, the Fund will limit its investment in restricted securities to 5%
of total assets. (If state requirements change, these restrictions may be
revised without shareholder notification.)
Star Funds Management___________________________________
Officers and Trustees are listed with their addresses, present positions with
Star Funds, and principal occupations.

Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer, and Trustee
C
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.

John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA 15282
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.

*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government Trust;
Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1995, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Firstcinco, Cincinnati, Ohio, owned approximately 2,896,208 shares (87.29%).

Officers and Trustees Compensation

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*#

John F. Donahue, $ -0-
Chairman and Trustee

Thomas G. Bigley, $438
Trustee

John T. Conroy, Jr., $1,916.50
Trustee

William J. Copeland, $1,916.50
Trustee

James E. Dowd, $1,916.50
Trustee

Lawrence D. Ellis, M.D., $1,739.30
Trustee

Edward L. Flaherty, Jr., $1,916.50
Trustee

Edward C. Gonzales, $ -0-
President and Trustee

Peter E. Madden, $1,476
Trustee

Gregor F. Meyer, $1,739.30
Trustee
John E. Murray, Jr., J.D., S.J.D. $ -0-
Trustee
Wesley W. Posvar, $1,739.30
Trustee

Marjorie P. Smuts, $1,739.30
Trustee

Purchasing Shares
Except under certain circumstances described in the prospectus, shares of the
Fund 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, aunts, uncles, and in-laws)
of such employees or retired employees. The procedure for purchasing shares of
the Fund is explained in the prospectus under "Investing in the Funds."
Distribution Plan
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 (the "Plan"). The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is principally
intended to result in the sale of the Fund's shares subject to the Plan. Such
activities may include the advertising and marketing of shares of the Fund;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay
fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
Administrative Arrangements
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
Shareholder Services Plan
This arrangement permits the payment of fees to the Fund and, indirectly, to
financial institutions to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Star Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
Determining Net Asset Value
The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according
to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.
Over-the-counter put options will be valued at the mean between the bid and the
asked prices. Covered call options will be valued at the last sale price on the
national exchange on which such option is traded. Unlisted call options will be
valued at the latest bid price as provided by brokers.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
Exchange Privilege
Requirements for Exchange
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling Star Bank at the
number on the cover of this Statement.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
Redeeming Shares
The Fund redeems shares at the next computed net asset value after Star Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
Redemption in Kind
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If this state's policy changes, the Fund reserves the right to redeem
in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
Total Return
For the period from June 13, 1994 (date of initial public investment) to
November 30, 1994, the cumulative total return for the Fund was (3.06%).
Cumulative total return reflects a 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. The Fund's total return is representative of only five
months invesment activity since the Fund's effective date.
Yield
The Fund's yield for the thirty-day period ended November 30, 1994, was 0.14%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the thirty-
day period is assumed to be generated each month over a twelve-month period and
is reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
Performance Comparisons
The performance of the Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the "growth" category in advertising and sales literature.
o Standard & Poor's Daily Stock Price Indices of 500 and 400 Common Stocks
are composite indices of common stocks in industry, transportation, and
financial and public utility companies that can be used to compare the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's indices assume reinvestments of
all dividends paid by stocks listed on its indices. Taxes due on any of
these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Financial Statements
The financial statements for the fiscal period ended November 30, 1994, are
incorporated herein by reference from the Fund's Annual Report dated November
30, 1994 (File Nos. 33-26915 and 811-5762). A copy of the Annual Report for the
Fund may be obtained without charge by contacting Star Bank, N.A. at the address
located on the back cover of the Stock and Bond Funds Combined Prospectus or by
calling 1-800-677-FUND.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Plus (+) or Minus (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Moody's Investors Service, Inc., Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
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.
NR--Not rated by Moody's.
Fitch Investors Service, Inc., Long-Term Debt Ratings
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
Prime-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:
leading market posititions in well established industries; high rates of return
on funds employed; conservative capitalization structure with moderate reliance
on debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
Prime-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 alternate liquidity is
maintained.
Fitch Investors Service, Inc., Short-Term Ratings
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment but the margin of safety is not as great as the
F-1+ and F-1 ratings.
4041408B (3/95)