STAR FUNDS, 485BPOS, 1997-07-31

STAR FUNDS
485BPOS, 1997-07-31

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1933 Act File No. 33-26915

1940 Act File No. 811-5762

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

---

Pre-Effective Amendment No. ................... _
-------- ------

Post-Effective Amendment No. 35 ................... X
------- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---

Amendment No. 36 ..................................... X
------- ---

STAR FUNDS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900

(Registrant's Telephone Number)

C. Grant Anderson, Esquire,
Federated Investors Tower,

Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on August 18, 1997, pursuant to paragraph (b)

60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).

_ 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on JANUARY 15, 1997; or
intends to file the Notice required by that Rule on or about
____________; or during the most recent fiscal year did not sell
any securities pursuant to Rule 24f-2 under the

Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2),
need not file the Notice.

Copies to: Matthew G. Maloney, Esq.
Dickstein Shapiro Morin & Oshinsky
2101 L. Street, N.W.
Washington, D.C. 20037

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of the Star Funds,
which is comprised of nine portfolios: (1) Star Tax-Free Money Market
Fund, (2) Star Treasury Fund (a) Investment Shares and (b) Trust
Shares, (3) Star Relative Value Fund (a) Investment Shares and (b)
Trust Shares, (4) The Stellar Fund (a) Investment Shares and (b) Trust
Shares, (5) Star U.S. Government Income Fund, (6) Star Capital
Appreciation Fund, (7) Star Strategic Income Fund, (8) Star Growth
Equity Fund (a) Investment Shares and (b) Trust Shares, and (9) The
Stellar Insured Tax-Free Bond Fund. This filing relates only to the
new class of shares (Trust Shares) being added to Star Relative Value
Fund and Star Growth Equity Fund and is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading

(RULE 404(C) CROSS REFERENCE)

Item 1. COVER PAGE..................................(1-9) Cover Page.
----------

Item 2. SYNOPSIS (1-9) Synopsis; (1-9) Summary of Fund

Expenses.

Item 3. CONDENSED FINANCIAL

INFORMATION (1-8) Financial Highlights; (1-9)
Performance Information.

Item 4. GENERAL DESCRIPTION OF

REGISTRANT (1-9) Objective and Investment
Policies of Each Fund; (1-2) Common
Investment Techniques of the Funds;
(3-9) Portfolio Investments and
Strategies; (3-8) Additional Risk
Considerations; (1-9) Investment
Limitations.

Item 5. MANAGEMENT OF THE TRUST (1-9) Star Funds Information; (1-9)

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

Management
of the
Trust;
(1-9)
Distribution
of Fund
Shares;
(1,
2(a),
3(a),
4(a),
5-7,8(a),9)
Distribution
Plan;
(1-9)
Administration
of the
Funds;
(2(b))
Expenses
of the
Treasury
Fund and
Trust
Shares;
(3-9)
Brokerage
Transactions.

<PAGE>

Item 6. CAPITAL STOCK AND OTHER

SECURITIES (1-2) Dividends; (1-2) Capital Gains; (3-9)

----------

Dividends
and
Capital
Gains;
(1-9)
Shareholder
Information;
(1-9)
Voting
Rights;
(1-9)
Effect
of
Banking
Laws;
(1-9)
Tax
Information;
(1-9)
Federal
Income
Tax;(1)
Tax-Free
Money
Market
Fund
Additional
Tax
Information;.(9)
The
Stellar
Bond
Fund-Additional
Federal
Income
Tax
Information;
(1-9)
State
and
Local
Taxes.

Item 7. PURCHASE OF SECURITIES

BEING OFFERED (1-9) Net Asset Value; (1-9) Investing in

-------------
the
Funds;
(1-9)
Share
Purchases;
(1-9)
Minimum
Investment
Required;
(1-9)
What
Shares
Cost;
(3-9)
Systematic
Investment
Plan;
(3(a),4(a),5,6,9)
Reducing
the
Sales
Charge;
(1-9)
Exchanging
Securities
for Fund
Shares;
(1-9)
Certificates
and
Confirmations;
(1-2)
Shareholder
Service
Organizations;
(3-9)
Frequent
Investor
Program;
(1-9)
Exchange
Privilege.

Item 8. REDEMPTION OR REPURCHASE (1-9) Redeeming Shares; (1-2) Checkwriting

------------------------
Privilege; (3-9) Systematic Withdrawal Plan;
(7,8(a)) Contingent Deferred Sales Charge;
(7,8(a)) Elimination of Contingent Deferred
Sales Charge; (1-9) Accounts with Low

Balances.

Item 9. PENDING LEGAL PROCEEDINGS None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. COVER PAGE..................................(1-9) Cover Page.
----------

Item 11. TABLE OF CONTENTS (1-9) Table of Contents.

Item 12. GENERAL INFORMATION AND

HISTORY.....................................(1-9) General Information About the Fund;
(1-9) Investment Limitations.

Item 13. INVESTMENT OBJECTIVES AND

POLICIES....................................(1-9) Investment Objective(s) and Policies.

Item 14. MANAGEMENT OF THE FUND (1-9) Star Funds Management.

Item 15. CONTROL PERSONS AND PRINCIPAL

HOLDERS OF SECURITIES (1-9) Fund Ownership.

Item 16. INVESTMENT ADVISORY AND OTHER

SERVICES....................................(1-9) Investment Advisory Services; (1-8)
Administrative Services; (9) Other Services;
(1-8) Custodian.

Item 17. BROKERAGE ALLOCATION (1-9) Brokerage Transactions.

Item 18. CAPITAL STOCK AND OTHER

SECURITIES..................................Not applicable.

Item 19. PURCHASE, REDEMPTION AND

PRICING OF SECURITIES

BEING OFFERED...............................(1-9) Purchasing Shares; (1-9) Exchange
Privilege; (1-9) Determining Net Asset
Value; (1-9) Redeeming Shares; (1-9)
Redemption in Kind.

Item 20. TAX STATUS..................................(1-9) Tax Status; (1-9) Yield; (1-2)
----------
Effective Yield; (1,9) Tax-Equivalent Yield;
(1-9) Total Return.

Item 21. UNDERWRITERS................................(1-8) Administrative Arrangements;
------------
(1,2,3(a),4(a),5,6,7,8(a),9) Distribution

Plan.

Item 22. CALCULATION OF PERFORMANCE

DATA (1-9) Performance Comparisons.

Item 23. FINANCIAL STATEMENTS........................(1,2(a),3-9) Incorporated herein by
--------------------

reference
from the
Funds'
Annual
Reports
dated
November
30, 1996
;2(b)to
be filed
by
amendment;
(1-8)
incorporated
herein
by
reference
from the
Funds'
Semi-Annual
Reports
dated
May 31,
1997;
and (9)
Incorporated
herein
by
reference
the July
11,
1997,
Semi-Annual
Report
and
Supplement
to
Prospectus
dated
March
31, 1997
(File
Nos.33-26915
and
811-5762).

</TABLE>

[LOGO OF STAR FUNDS]

STOCK AND
BOND FUNDS

COMBINED
PROSPECTUS

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

Dated March 31, 1997
(Revised August 18, 1997)

Star U.S. Government Income Fund

Star Strategic Income Fund

The Stellar Fund

The Stellar Insured Tax-Free Bond Fund

Star Relative Value Fund

Star Growth Equity Fund

Star Capital Appreciation Fund

STAR FUNDS
STOCK AND BOND FUNDS

PROSPECTUS

The shares offered by this prospectus represent interests in the Stock
and Bond Funds (individually referred to as a "Fund" or collectively
as the "Funds") of the Star Funds (the "Trust"), an open-end
management investment company (a mutual fund). The Trust consists of
eight separate diversified investment portfolios and one
non-diversified investment portfolio, each having a distinct
investment objective and policies. This prospectus relates only to the
following Stock and Bond Funds of the Trust:

Stock and Bond Funds

. Star U.S. Government Income Fund
. Star Strategic Income Fund
. The Stellar Fund
. The Stellar Insured Tax-Free Bond Fund
. Star Relative Value Fund
. Star Growth Equity Fund
. Star Capital Appreciation Fund

This prospectus 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 a separate Statement of Additional
Information for each Fund dated March 31, 1997 (Revised August 18,
1997), with the Securities and Exchange Commission ("SEC"). 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, or a paper copy of this
prospectus, if you have received your prospectus electronically, free
of charge, or obtain other information or make inquiries about a Fund
by writing to the Fund or by calling 1-800-677-FUND. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding each Fund are maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE

CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated March 31, 1997

(Revised August 18, 1997)

TABLE OF CONTENTS

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

SYNOPSIS 1

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

Risk Factors 2

SUMMARY OF FUND EXPENSES 4

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

FINANCIAL HIGHLIGHTS 8

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

INVESTMENT OBJECTIVE AND POLICIES OF
EACH FUND 15

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

U.S. Government Income Fund 15

Strategic Income Fund 16

The Stellar Fund 20

Special Risk Considerations 21

The Stellar Insured Tax-Free Bond
Fund 22

Municipal Bond Insurance 24

Relative Value Fund 27

Growth Equity Fund 28

Capital Appreciation Fund 29

PORTFOLIO INVESTMENTS AND
STRATEGIES 29

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

Additional Risk Considerations 35

INVESTMENT LIMITATIONS 35

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

Borrowing Money 35

Diversification 36

Investing in New Issuers 36

Acquiring Securities 36

STAR FUNDS INFORMATION 36

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

Management of the Trust 36

Distribution of Fund Shares 38

Administration of the Funds 39

Brokerage Transactions 39

NET ASSET VALUE 40

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

INVESTING IN THE FUNDS 40

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

Minimum Investment Required 40

What Shares Cost 40

Reducing the Sales Charge 41

Systematic Investment Plan 42

Share Purchases 42

Frequent Investor Program 43

Certificates and Confirmations 43

Dividends and Capital Gains 43

EXCHANGE PRIVILEGE 43

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

Exchanging Shares of U.S.
Government Income Fund, The
Stellar Fund, The Stellar Tax-
Free Bond Fund, Relative Value
Fund and Capital Appreciation
Fund 43

Exchanging Shares of Strategic
Income Fund and Growth Equity
Fund 44

Exchange-by-Telephone 44

Other Matters Affecting the
Exchange Privilege 44

REDEEMING SHARES 44

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

Contingent Deferred Sales Charge 45

Elimination of Contingent Deferred
Sales Charge 46

Systematic Withdrawal Plan 46

Accounts with Low Balances 47

SHAREHOLDER INFORMATION 47

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

Voting Rights 47

EFFECT OF BANKING LAWS 47

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

TAX INFORMATION 48

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

Federal Income Tax 48

The Stellar Tax-Free Bond Fund--
Additional Federal Income Tax

Information 48

State and Local Taxes 48

PERFORMANCE INFORMATION 48

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

ADDRESSES 50

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

SYNOPSIS

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

The Trust, an open-end, 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.

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 seven 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 approximately 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.

.The Stellar Insured Tax-Free Bond Fund ("The Stellar Tax-Free Bond
Fund")--seeks to provide current income which is exempt from
federal income tax. The Stellar Tax-Free Bond Fund pursues this
investment objective by investing its assets in municipal
securities so that at least 80% of its annual interest income is
exempt from federal income tax including the federal alternative
minimum tax.

. 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. Shares of the
Relative Value Fund are offered in two separate classes: Investment
Shares and Trust Shares.

. 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. Shares of the Growth Equity Fund are offered in two separate
classes: Investment Shares and Trust Shares.

. 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 small to medium
sized 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,
Relative Value Fund and Growth Equity Fund are sold and redeemed at
net asset value. Shares of U.S. Government Income Fund, Capital
Appreciation Fund, and The Stellar Tax-Free Bond Fund, and Investment
Shares of The Stellar Fund and Relative Value Fund, are sold at net
asset value plus an applicable sales charge and redeemed at net asset
value. Shares of Strategic Income Fund and Investment Shares of 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 " Investment Objective and Policies of Each Fund" and
"Portfolio Investments and Strategies."

[This Page Intentionally Left Blank]

STAR STOCK AND BOND FUNDS
SUMMARY OF FUND EXPENSES

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

U.S. Gov't Strategic The Stellar Fund
Income Income Trust Investment

Fund Fund Shares Shares

---------- --------- ------ ----------
<S> <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%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering

price)................................. 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
Redemption Fee (as a percentage of
amount redeemed, if applicable)........ None None None None
Exchange Fee............................ None None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee.......................... 0.60% 0.95% 0.95% 0.95%
12b-1 Fee............................... 0.00% 0.00% None 0.25%
Total Other Expenses.................... 0.32% 0.41% 0.45% 0.45%
Shareholder Servicing Fees (2)...0.05%

Total Operating Expenses............ 0.92% 1.36% 1.40% 1.65%
</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) The estimated management fee of the Stellar Insured Tax Free Bond
Fund has been reduced to reflect the anticipated voluntary waiver
by the investment adviser. The adviser can terminate this
voluntary waiverat any time at its sole discretion. The maximum
management fee is 0.75%.

(3) As of the date of this prospectus, the Funds (except for The
Stellar Fund--Investment Shares, Relative Value Fund--Investment
Shares and Growth Equity Fund--Investment Shares) are not paying
or accruing 12b-1 fees. The Funds 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 Funds
(which would not have a 12b-1 Plan) is created and the trust and
investment agency clients' investments in the Funds are converted
to such Trust class. The Stellar Fund--Trust Shares, Relative
Value Fund--Trust Shares, and Growth Equity Fund--Trust Shares are
not subject to a 12b-1 Plan.

(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 0.05% of average daily net assets.

(5) The Total Fund Operating Expenses in the table above for the
Relative Value Fund--Trust Shares, Growth Equity Fund--Trust
Shares, and The Stellar Insured Tax Free Bond Fund are based on
expenses expected during the fiscal year ended November 30, 1997.
The Total Fund Operating Expenses for The Stellar Tax Free Insured
Bond Fund are estimated to be 1.05% absent the anticipated
voluntary waiver described in footnote (2). The Total Operating
Expenses in the table above for the Stellar Fund Trust Shares and
Investment Shares are based on expenses expected during the fiscal
year ending November 30, 1997. The total operating expenses were
1.39% and 1.66% for the Trust Shares and Investment Shares,
respectively for the fiscal year ended November 30, 1996.

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."

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

Relative Value Fund Growth Equity Fund Capital The Stellar
Trust Investment Trust Investment Appreciation Tax-Free
Shares Shares Shares Shares Fund Bond Fund

---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
None 4.50% None None 4.50% 4.50%
None None None None None None
None None None 5.00% None None
None None None None None None
None None None None None None
0.75% 0.75% 0.75% 0.75% 0.95% 0.50%
None 0.25% None 0.25% 0.00% 0.00%
0.29% 0.29% 0.44% 0.44% 0.37% 0.30%
1.04% 1.29% 1.19% 1.44% 1.32% 0.80%
</TABLE>

STAR STOCK AND BOND FUNDS

SUMMARY OF FUND EXPENSES--CONTINUED

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

LONG-TERM SHAREHOLDERS 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.

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.

U.S. Gov't Strategic The Stellar Fund
Income Income Trust Investment

Fund Fund Shares Shares

---------- --------- ------ ----------
<S> <C> <C> <C> <C>
1 Year................................... $ 44 $ 66 $ 14 $ 61
3 Year................................... $ 63 $ 76 $ 44 $ 95
5 Year................................... $ 84 $ 86 $ 77 $131
10 Year $144 $164 $168 $232

You would pay the following expenses on the same investment, assuming
no redemption.

U.S. Gov't Strategic The Stellar Fund
Income Income Trust Investment

Fund Fund Shares Shares

---------- --------- ------ ----------
<S> <C> <C> <C> <C>
1 Year................................... $ 44 $ 14 $ 14 $ 61
3 Year................................... $ 63 $ 43 $ 44 $ 95
5 Year................................... $ 84 $ 74 $ 77 $131
10 Year.................................. $144 $164 $168 $232
</TABLE>

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

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

Relative Value Fund Growth Equity Fund Capital The Stellar
Trust Investment Trust Investment Appreciation Tax-Free
Shares Shares Shares Shares Fund Bond Fund

- ---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 11 $ 58 $ 12 $ 66 $ 58 $ 53
$ 33 $ 84 $ 38 $ 79 $ 85 $ 69
$ 57 $113 $ 65 $ 91 $114 n/a
$127 $194 $144 $172 $197 n/a
$ 11 $ 58 $ 12 $ 15 $ 58 $ 53
$ 33 $ 84 $ 38 $ 46 $ 85 $ 69
$ 57 $113 $ 65 $ 79 $114 n/a
$127 $194 $144 $172 $197 n/a
</TABLE>

STAR U.S. GOVERNMENT INCOME 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 10,
1997, on the Fund's Financial Statements for the year ended November
30, 1996, 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.

YEAR ENDED NOVEMBER 30,

-------------------------------------
1996 1995 1994 1993(A)
- -------------------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 9.24 $10.25 $10.00
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS

- --------------------------------------
Net investment income 0.57 0.60 0.55 0.51
- --------------------------------------
Net realized and unrealized gain

(loss) on investments (0.15) 0.74 (0.90) 0.25
- -------------------------------------- -------- -------- ------- -------
Total from investment operations 0.42 1.34 (0.35) 0.76
- -------------------------------------- -------- -------- ------- -------
LESS DISTRIBUTIONS

- --------------------------------------
Distributions from net investment in-

come (0.57) (0.60) (0.55) (0.51)
- --------------------------------------
Distributions from net realized gain

on investments -- -- (0.11) --
- -------------------------------------- -------- -------- ------- -------
Total distributions (0.57) (0.60) (0.66) (0.51)
- -------------------------------------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.98 $ 9.24 $10.25
- -------------------------------------- -------- -------- ------- -------
TOTAL RETURN (B) 4.46% 14.90% (3.53%) 7.63%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS

- --------------------------------------
Expenses 0.92% 0.92% 0.97% 1.12%*
- --------------------------------------
Net investment income 5.88% 6.23% 5.87% 5.55%*
- --------------------------------------
Expense waiver/reimbursement (c) -- -- 0.03% 0.30%*
- --------------------------------------
SUPPLEMENTAL DATA

- --------------------------------------
Net assets, end of period (000 omit-

ted) $138,874 $109,666 $87,924 $44,187
- --------------------------------------
Portfolio turnover 158% 236% 148% 105%
- --------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) 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.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the
Fund's Annual Report dated November 30, 1996, which can be obtained
free of charge.

STAR STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED

NOVEMBER 30,

----------------
1996 1995(A)

- -------------------------------------------------------- -------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.53 $10.00

- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS

- --------------------------------------------------------
Net investment income 0.73 0.69
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.04) 0.55
- -------------------------------------------------------- ------ ------
Total from investment operations 0.69 1.24
- -------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS

- --------------------------------------------------------
Distributions from net investment income (0.72) (0.67)
- --------------------------------------------------------
Distributions from net realized gain on investments -- (0.04)
- --------------------------------------------------------
Distributions in excess of net realized gain on invest-
ments -- (0.00)**
- -------------------------------------------------------- ------ ------
Total distributions (0.72) (0.71)
- -------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.50 $10.53
- -------------------------------------------------------- ------ ------
TOTAL RETURN (B) 6.99% 12.71%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- --------------------------------------------------------
Expenses 1.36% 1.47%*
- --------------------------------------------------------
Net investment income 7.26% 7.41%*
- --------------------------------------------------------
Expense waiver/reimbursement (c) -- 0.10%*
- --------------------------------------------------------
SUPPLEMENTAL DATA

- --------------------------------------------------------
Net assets, end of period (000 omitted) $110,775 $47,513
- --------------------------------------------------------
Average commission rate paid $0.0043 --
- --------------------------------------------------------
Portfolio turnover 201% 258%
- --------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

** Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principals. These distributions did not represent a return of
capital for federal income tax purposes for the year ended November
30, 1995.

(a) Reflects operations for the period from December 12, 1994 (date of
initial public investment) to November 30, 1995.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the
Fund's Annual Report dated November 30, 1996, which can be obtained
free of charge.

THE STELLAR FUND

FINANCIAL HIGHLIGHTS--INVESTMENT SHARES

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED NOVEMBER 30,

-------------------------------------------------------
1996 1995 1994 1993 1992 1991(A)
- ------------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-

NING OF PERIOD $12.17 $10.90 $11.34 $10.52 $ 9.80 $10.00
- ------------------------
INCOME FROM INVESTMENT

OPERATIONS

- ------------------------
Net investment income 0.34 0.34 0.29 0.24 0.29 0.05
- ------------------------
Net realized and
unrealized gain (loss)

on investments 1.62 1.33 (0.41) 0.99 0.74 (0.25)
- ------------------------ ------- ------- ------- ------- ------- -------
Total from investment

operations 1.96 1.67 (0.12) 1.23 1.03 (0.20)
- ------------------------ ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS

- ------------------------
Distributions from net

investment income (0.34) (0.35) (0.24) (0.28) (0.31) --
- ------------------------
Distributions in excess
of net investment

income -- -- -- (0.03)** -- --
- ------------------------
Distributions from net
realized gain on

investments (0.20) (0.05) (0.08) (0.10) -- --
- ------------------------ ------- ------- ------- ------- ------- -------
Total distributions (0.54) (0.40) (0.32) (0.41) (0.31) --
- ------------------------ ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF

PERIOD $13.59 $ 12.17 $10.90 $11.34 $10.52 $ 9.80
- ------------------------ ------- ------- ------- ------- ------- -------
TOTAL RETURN (B) 16.64% 15.67% (1.22%) 11.99% 10.68% (2.00%)
- ------------------------
RATIOS TO AVERAGE NET

ASSETS

- ------------------------
Expenses 1.66% 1.65% 1.55% 1.45% 1.53% 1.44%*
- ------------------------
Net investment income 2.76% 2.98% 2.32% 1.87% 3.03% 5.32%*
- ------------------------
Expense
waiver/reimbursement

- ------------------------
Net assets, end of pe-

riod (000 omitted) $50,094 $48,902 $50,648 $73,197 $35,544 $13,942
- ------------------------
Portfolio turnover 65% 104% 79% 87% 98% 18%
- ------------------------
Average commission rate

paid $0.0671 -- -- -- -- --
- ------------------------
</TABLE>

* Computed on an annualized basis.

** 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, 1995.

(a) 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.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the
Fund's Annual Report dated November 30, 1996, which can be obtained
free of charge.

THE STELLAR FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED

NOVEMBER 30,

-------------------------
1996 1995 1994(A)
- ------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.17 $10.90 $11.34

- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS

- ------------------------------------------------
Net investment income 0.37 0.38 0.21
- ------------------------------------------------
Net realized and unrealized gain (loss) on in-

vestments 1.62 1.32 (0.48)
- ------------------------------------------------ ------ ------ -------
Total from investment operations 1.99 1.70 (0.27)
- ------------------------------------------------ ------ ------ -------
LESS DISTRIBUTIONS

- ------------------------------------------------
Distributions from net investment income (0.37) (0.38) (0.17)
- ------------------------------------------------
Distributions from net realized gain on invest-

ments (0.20) (0.05) --
- ------------------------------------------------ ------- ------- -----
Total distributions (0.57) (0.43) (0.17)
- ------------------------------------------------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $13.59 $12.17 $10.90
- ------------------------------------------------ ------ ------ ------
TOTAL RETURN (B) 16.94% 15.97% (1.81%)
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- ------------------------------------------------
Expenses 1.39% 1.40% 1.43%*
- ------------------------------------------------
Net investment income 2.85% 3.23% 3.57%*
- ------------------------------------------------
Expense waiver/reimbursement -- -- --*
- ------------------------------------------------
SUPPLEMENTAL DATA

- ------------------------------------------------
Net assets, end of period (000 omitted) $67,047 $64,754 $60,822
- ------------------------------------------------
Portfolio turnover 65% 104% 79%
- ------------------------------------------------
Average commission rate paid $0.0671 -- --
- ------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) 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.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the
Fund's Annual Report dated November 30, 1996, which can be obtained
free of charge.

STAR RELATIVE VALUE FUND

FINANCIAL HIGHLIGHTS--INVESTMENT SHARES

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED NOVEMBER 30,

-------------------------------------------------------
1996 1995 1994 1993 1992 1991(A)
- ------------------------ -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-

NING OF PERIOD $15.02 $11.36 $11.80 $10.52 $ 9.43 $10.00
- ------------------------
INCOME FROM INVESTMENT

OPERATIONS

- ------------------------
Net investment income 0.27 0.29 0.23 0.20 0.30 0.22
- ------------------------
Net realized and
unrealized gain

(loss) on investments 4.01 3.65 (0.40) 1.30 1.12 (0.66)
- ------------------------ -------- -------- ------- ------- ------- -------
Total from investment

operations 4.28 3.94 (0.17) 1.50 1.42 (0.44)
- ------------------------ -------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS

- ------------------------
Distributions from net

investment income (0.26) (0.28) (0.23) (0.22) (0.33) (0.13)
- ------------------------
Distributions from net
realized

gain on investments (0.01) -- (0.04) -- -- --
- ------------------------ -------- -------- ------- ------- ------- -------
Total distributions (0.27) (0.28) (0.27) (0.22) (0.33) (0.13)
- ------------------------ -------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF

PERIOD $19.03 $15.02 $11.36 $11.80 $10.52 $ 9.43
- ------------------------ -------- -------- ------- ------- ------- -------
TOTAL RETURN (B) 28.86% 35.10% (1.54%) 14.47% 15.39% (4.31%)
- ------------------------
RATIOS TO AVERAGE NET

ASSETS

- ------------------------
Expenses 1.04% 1.06% 1.15% 1.19% 0.47% 0.40%*
- ------------------------
Net investment income 1.71% 2.17% 2.02% 1.79% 3.01% 4.75%*
- ------------------------
Expense
waiver/reimbursement

- ------------------------
Net assets, end of pe-

riod (000 omitted) $215,843 $131,979 $74,094 $49,701 $38,154 $33,015
- ------------------------
Average commission rate

paid $0.0905 -- -- -- -- --
- ------------------------
Portfolio turnover 16% 24% 30% 59% 45% 38%
- ------------------------
</TABLE>

*Computed on an annualized basis.

(a) 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.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

The Trust Shares class of the Fund was not effective until August 18,
1997. Further information about the Fund's performance is
contained in the Fund's Annual Report dated November 30, 1996, which
can be obtained free of charge.

STAR GROWTH EQUITY FUND

FINANCIAL HIGHLIGHTS--INVESTMENT SHARES

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED

NOVEMBER 30,

----------------
1996 1995(A)

- ------------------------------------------------------- ------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.70 $10.00

- -------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS

- -------------------------------------------------------
Net investment income 0.17 0.24
- -------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.12 2.67
- ------------------------------------------------------- ------- -------
Total from investment operations 3.29 2.91
- ------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS

- -------------------------------------------------------
Distributions from net investment income (0.16) (0.21)
- -------------------------------------------------------
Distributions from net realized gain on investments (0.66) --
- ------------------------------------------------------- ------- -------
Total distributions (0.82) (0.21)
- ------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $15.17 $12.70
- ------------------------------------------------------- ------- -------
TOTAL RETURN (B) 27.34% 29.44%
- -------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- -------------------------------------------------------
Expenses 1.19% 1.17%*
- -------------------------------------------------------
Net investment income 1.31% 2.00%*
- -------------------------------------------------------
Expense waiver/reimbursement (c) -- 0.03%*
- -------------------------------------------------------
SUPPLEMENTAL DATA

- -------------------------------------------------------
Net assets, end of period (000 omitted) $85,311 $48,699
- -------------------------------------------------------
Average commission rate paid $0.0007 --
- -------------------------------------------------------
Portfolio turnover 96% 171%
- -------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 12, 1994 (date of
initial public investment) to November 30, 1995.

(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.

STAR CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED

NOVEMBER 30,

----------------------------
1996 1995 1994(A)
- ----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.82 $10.15 $10.00

- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS

- -----------------------------------------------
Net investment income (0.03) 0.03 --
- -----------------------------------------------
Net realized and unrealized gain (loss) on in-

vestments 1.05 1.72 0.15
- ----------------------------------------------- ------- ------- -------
Total from investment operations 1.02 1.75 0.15
- ----------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS

- -----------------------------------------------
Distributions from net investment income -- (0.04) --
- -----------------------------------------------
Distributions in excess of net investment in-

come -- (0.00)** --
- -----------------------------------------------
Distributions from net realized gain on in-

vestments (0.29) (0.04) --
- ----------------------------------------------- ------- ------- -------
Total distributions (0.29) (0.08) --
- ----------------------------------------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $12.55 $11.82 $10.15
- ----------------------------------------------- ------- ------- -------
TOTAL RETURN (B) 8.95% 17.35% 1.50%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS

- -----------------------------------------------
Expenses 1.32% 1.47% 1.58%*
- -----------------------------------------------
Net investment income (0.24)% 0.28% 0.08%*
- -----------------------------------------------
Expense waiver/reimbursement (c) -- 0.01% 0.10%*
- -----------------------------------------------
SUPPLEMENTAL DATA

- -----------------------------------------------
Net assets, end of period (000 omitted) $79,163 $56,430 $30,013
- -----------------------------------------------
Average commission rate paid $0.0703 -- --
- -----------------------------------------------
Portfolio turnover 174% 144% 36%
- -----------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 13, 1994 (date of
initial public investment) to November 30, 1995.

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

Further information about the Fund's performance is contained in the
Fund's Annual Report dated November 30, 1996, which can be obtained
free of charge.

INVESTMENT OBJECTIVE AND 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 debt 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, asset-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; 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, the lending of portfolio
securities and investment in other investment companies. 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 securities, 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 approximately
40% of its assets in U.S. government and corporate fixed income
securities, and 0%- 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 SECURITIES. The international portion of the Fund will
include equity securities of non-U.S. companies and corporate and
government fixed income securities. 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, if unrated, deemed by the
investment adviser to be of an equivalent quality. 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 Exchanges 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 BIF or 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 investments 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 securities 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.

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 (including structured 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 (including structured 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. The fixed income
portion of the Fund will also include mortgage-backed securities,
ARMS, CMOs, and asset-backed securities. See "Portfolio Investments
and Strategies."

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.

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, restricted and illiquid securities, and investment in other
investment companies. 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."

THE STELLAR INSURED TAX-FREE BOND FUND

The investment objective of the Stellar Bond Fund is to provide
current income which is exempt from federal income tax. As a matter of
fundamental investment policy, the Fund will normally invest its
assets so that at least 80% of its annual interest income is exempt
from federal income tax including the federal alternative minimum tax.
Under normal circumstances, at least 65% of the value of the Fund's
total assets will be invested in municipal securities that are insured
as to timely payment. Interest income of the Fund that is exempt from
federal income taxes retains its tax-free status when distributed to
the Fund's shareholders.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by
investing primarily in a portfolio of municipal securities that are
covered by insurance guaranteeing the timely payment of principal and
interest. Insurance will not guarantee the market value of the
municipal securities or the value of shares of the Fund.

MUNICIPAL SECURITIES. Municipal securities are debt obligations issued
by or on behalf of states, territories, and possessions of the United
States, including the District of Columbia, and their political
subdivisions, agencies, and instrumentalities, the interest from which
is exempt from federal income tax. Shareholders who are subject to
alternative minimum tax may be required to include interest from a
portion of the municipal securities owned by the Fund in calculating
the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations, to the extent that the Fund
invests in securities subject to the alternative minimum tax. No more
than 20% of the Fund's income will be subject to the federal
alternative minimum tax.

Municipal securities are generally issued to finance public works,
such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works.
They are also issued to repay outstanding obligations, to raise funds
for general operating expenses, and to make loans to other public
institutions and facilities. Municipal securities include industrial
development bonds issued by or on behalf of public authorities to
provide financing aid to acquire sites or construct and equip
facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local
employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. Interest on and principal
of revenue bonds, however, are payable only from the revenue generated
by the facility financed by the bond or other specified sources of
revenue. Revenue bonds do not represent a pledge of credit or create
any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically
classified as revenue bonds.

Examples of municipal securities include, but are not limited to:

. 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.

CHARACTERISTICS. The municipal securities which the Fund buys are subject to
the following quality standards:

. rated, at the time of purchase, investment grade (within the four
highest rating categories for municipal securities) by a nationally
recognized statistical rating organization ("NRSRO") [such as Baa or
above by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa),
BBB

or above by Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch") (AAA, AA, A or BBB), or by Duff & Phelps Credit
Rating Co. ("D&P")];

. insured by a municipal bond insurance company which is rated in the top
rating category by an NRSRO;

. guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;

. fully collateralized by an escrow of U.S. government securities; or
. unrated if determined to be of comparable quality to one of the

foregoing rating categories by the Fund's investment adviser.

Securities rated Baa or BBB by an NRSRO have speculative
characteristics. Changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and
interest payments than higher rated bonds. If any security invested in
by the Fund loses its rating or has its rating reduced after the Fund
has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.

There are no restrictions on the maturity of municipal securities in
which the Fund may invest. The Fund will seek to invest in municipal
securities of such maturities as the Fund's investment adviser
believes will produce current income consistent with prudent
investment. The Fund's investment adviser will also consider current
market conditions and the cost of the insurance obtainable on such
securities.

PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings
associations and insurance companies. These participation interests
would give the Fund an undivided interest in one or more underlying
municipal securities. The financial institutions from which the Fund
purchases participation interests frequently provide or obtain
irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will
determine that participation interests meet the prescribed quality
standards for the Fund.

VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities
which the Fund purchases may have variable interest rates. Variable
interest rates are ordinarily stated as a percentage of the prime rate
of a bank or some similar standard, such as the 91-day U.S. Treasury
bill rate. Variable interest rates are adjusted on a periodic basis,
e.g., every 30 days. Many variable rate municipal securities are
subject to payment of principal on demand by the Fund, usually in not
more than seven days. If a variable rate municipal security does not
have this demand feature, or the demand feature extends beyond seven
days and the Fund's investment adviser believes the security cannot be
sold within seven days, the Fund's investment adviser may consider the
security to be illiquid. However, the Fund's investment limitations
provide that it will not invest more than 15% of its net assets in
illiquid securities. All variable rate municipal securities will meet
the quality standards for the Fund. The Fund's investment adviser has
been instructed by the Trustees to monitor the pricing, quality and
liquidity of the variable rate municipal securities, including
participation interests held by the Fund, on the basis of published
financial information and reports of NRSROs and other analytical
services.

INDUSTRIAL DEVELOPMENT BONDS. Industrial development bonds are
generally issued to provide financing aid to acquire sites or
construct and equip facilities for use by privately or publicly owned
entities. Most state and local governments have the power to permit
the issuance of industrial development bonds to provide financing for
such entities in order to encourage the corporations to locate within
their communities. Industrial development bonds, which are in most
cases revenue bonds, do not represent a pledge of credit or create any
debt of a municipality or a public authority, and no taxes may be
levied for the payment of principal or interest on these bonds. The
principal and interest is payable solely out of monies generated by
the entities using or purchasing the sites or facilities. These bonds
will be considered municipal securities eligible for purchase by the
Fund if the interest paid on them, in the opinion of bond counsel or
in the opinion of the officers of the Fund and/or the Fund's
investment adviser, is exempt from federal income tax. The Fund may
invest more than 25% of its total assets in industrial development
bonds (including pollution control revenue bonds) as long as they are
not from the same facility or similar types of facilities or projects.

MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and

facilities and may be considered to be illiquid.

They may take the form of a lease, an installment purchase contract, a
conditional sales contract, or a participation interest in any of the
above. In determining the liquidity of municipal lease securities, the
Fund's investment adviser, under the authority delegated by the
Trustees, will base its determination on the following factors: (a)
whether the lease can be terminated by the lessee; (b) the potential
recovery, if any, from a sale of the leased property upon termination
of the lease; (c) the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics, and
prospects); (d) the likelihood that the lessee will discontinue
appropriating funding for the leased property because the property is
no longer deemed essential to its operations (e.g., the potential for
an "event of nonappropriation"); and (e) any credit enhancement or
legal recourse provided upon an event of nonappropriation or other
termination of the lease.

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

SPECIAL RISKS ASSOCIATED WITH LEVERAGING. Borrowing by the Fund
creates an opportunity for increased net income but, at the same
time, creates special risk considerations. For example, leveraging
may exaggerate the effect on net asset value of any increase or
decrease in the market value of the Fund's portfolio. To the extent
the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net
income will be greater than if borrowing were not used. Conversely,
if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of borrowing, the net income of the
Fund will be less than if borrowing were not used, and, therefore,
the amount available for distribution to shareholders as dividends
will be reduced. The Fund also may be required to maintain minimum
average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the
stated interest rate.

PORTFOLIO TURNOVER. The Fund trades portfolio securities in order to
achieve its investment objective while anticipating movements of
interest rates. It is free to trade or dispose of portfolio securities
as considered necessary to meet its investment objective. It is not
anticipated that the portfolio trading engaged in by the Fund will
result in its annual rate of turnover exceeding 50%.

MUNICIPAL BOND INSURANCE

The Fund may purchase municipal securities covered by insurance which
guarantees the timely payment of principal at maturity and interest on
such securities. These insured municipal securities are either (1)
covered by an insurance policy applicable to a particular security,
whether obtained by the issuer of the security or by a third party
("Issuer-Obtained Insurance"), or (2) insured under master insurance
policies issued by municipal bond insurers, which may be purchased by
the Fund (the "Policies").

The Fund will require or obtain municipal bond insurance when
purchasing municipal securities which would not otherwise meet the
Fund's quality standards. The Fund may also require or obtain
municipal bond insurance when purchasing or holding specific municipal
securities when, in the opinion of the Fund's investment adviser, such
insurance would benefit the Fund, for example, through improvement of
portfolio quality or increased liquidity of certain securities. The
Fund's investment adviser anticipates that at least 65% of the Fund's
total assets will be invested in municipal securities which are
insured.

Issuer-Obtained Insurance Policies are noncancellable and continue in
force as long as the municipal securities are outstanding and their
respective insurers remain in business. If a municipal security is
covered by Issuer-Obtained Insurance, then such security need not be
insured by the Policies purchased by the Fund.

The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period
in which they are in the Fund's portfolio. In

the event that a municipal security covered by such a Policy is sold
from the Fund, the insurer of the relevant Policy will be liable only
for those payments of interest and principal which are then due and
owing at the time of sale.

The other type of Policy covers municipal securities not only while
they remain in the Fund's portfolio but also until their final
maturity even if they are sold out of the Fund's portfolio, so that
the coverage may benefit all subsequent holders of those municipal
securities. The Fund will obtain insurance which covers municipal
securities until final maturity even after they are sold out of the
Fund's portfolio only if, in the judgment of the Fund's investment
adviser, the Fund would receive net proceeds from the sale of those
securities, after deducting the cost of such permanent insurance and
related fees, significantly in excess of the proceeds it would receive
if such municipal securities were sold without insurance. Payments
received from municipal bond insurers may not be tax-exempt income to
shareholders of the Fund.

The premiums for the Policies are paid by the Fund and the yield on
the Fund's portfolio is reduced thereby. Premiums for the Policies are
paid by the Fund monthly, and are adjusted for purchases and sales of
municipal securities during the month. Depending upon the
characteristics of the municipal security held by the Fund, the annual
premiums for the Policies are estimated to range from 0.10% to 0.25%
of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.

The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC
Indemnity Corporation ("AMBAC"), Financial Guaranty Insurance Company
("FGIC"), Financial Security Assurance ("FSA") or any other municipal
bond insurer which is rated in the highest rating category by an
NRSRO. Each Policy will obligate the insurer to provide insurance
payments pursuant to valid claims under the Policy equal to the
payment of principal and interest on those municipal securities it
insures. The Policies will have the same general characteristics and
features. A municipal security will be eligible for coverage if it
meets certain requirements set forth in a Policy. In the event
interest or principal on an insured municipal security is not paid
when due, the insurer covering the security will be obligated under
its Policy to make such payment not later than 30 days after it has
been notified by the Fund that such non-payment has occurred. The
insurance feature is intended to reduce financial risk, but the cost
thereof and compliance with the investment restrictions imposed by the
guidelines in the Policies will reduce the yield to shareholders of
the Fund.

MBIA, AMBAC, FGIC, and FSA will not have the right to withdraw
coverage on securities insured by their Policies so long as such
securities remain in the Fund's portfolio, nor may MBIA, AMBAC, FGIC,
or FSA cancel their Policies for any reason except failure to pay
premiums when due. MBIA, AMBAC, FGIC, and FSA will reserve the right
at any time upon 90 days' written notice to the Fund to refuse to
insure any additional municipal securities purchased by the Fund after
the effective date of such notice. The Trustees will reserve the right
to terminate any of the Policies if they determine that the benefits
to the Fund of having its portfolio insured under such Policy are not
justified by the expense involved.

Additionally, the Trustees reserve the right to enter into contracts
with insurance carriers other than MBIA, AMBAC, FGIC, or FSA if such
carriers are rated in the highest rating category by an NRSRO.

Under the Policies, municipal bond insurers unconditionally guarantee
to the Fund the timely payment of principal and interest on the
insured municipal securities when and as such payments shall become
due but shall not be paid by the issuer, except that in the event of
any acceleration of the due date of the principal by reason of
mandatory or optional redemption (other than acceleration by reason of
mandatory sinking fund payments), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as payments
of principal would have been due had there not been such acceleration.
The municipal bond insurers will be responsible for such payments less
any amounts received by the Fund from any trustee for the municipal
bond holders or from any other source. The Policies do not guarantee
payment on an accelerated basis, the payment of any redemption
premium, the value for the shares of the Fund, or payments of any
tender purchase price upon the tender of the municipal securities. The
Policies also do not insure against nonpayment of principal of or
interest on the securities resulting from the insolvency, negligence
or any other act or omission of the trustee or other paying agent for
the securities. However, with respect to small issue industrial
development municipal bonds and pollution control revenue municipal
bonds covered by the Policies, the municipal bond insurers guarantee
the full and complete payments required to be made by or on

behalf of an issuer of such municipal securities if there occurs any
change in the tax-exempt status of interest on such municipal
securities, including principal, interest or premium payments, if any,
as and when required to be made by or on behalf of the issuer pursuant
to the terms of such municipal securities. A "when-issued" municipal
security will be covered under the Policies upon the settlement date
of the original issue of such "when-issued" municipal security. In
determining whether to insure municipal securities held by the Fund,
each municipal bond insurer will apply its own standard, which
corresponds generally to the standards it has established for
determining the insurability of new issues of municipal securities.

If a Policy terminates as to municipal securities sold by the Fund on
the date of sale, in which event municipal bond insurers will be
liable only for those payments of principal and interest that are then
due and owing, the provision for insurance will not enhance the
marketability of securities held by the Fund, whether or not the
securities are in default or subject to significant risk of default,
unless the option to obtain permanent insurance is exercised. On the
other hand, since Issuer-Obtained Insurance will remain in effect as
long as the insured municipal securities are outstanding, such
insurance may enhance the marketability of municipal securities
covered thereby, but the exact effect, if any, on marketability cannot
be estimated. The Fund generally intends to retain any securities that
are in default or subject to significant risk of default and to place
a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market
value of similar securities of minimum high grade (i.e., rated in the
highest rating category by an NRSRO) that are not in default. To the
extent that the Fund holds defaulted securities, it may be limited in
its ability to manage its investment and to purchase other municipal
securities. Except as described above with respect to securities that
are in default or subject to significant risk of default, the Fund
will not place any value on the insurance in valuing the municipal
securities that it holds.

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

INVESTMENT RISKS. The value of the Fund's shares will fluctuate. The
amount of this fluctuation is dependent upon the quality and maturity
of the municipal securities in the Fund's portfolio, as well as on
market conditions. Municipal securities prices are interest rate
sensitive, which means that their value varies inversely with market
interest rates. Thus, if market interest rates have increased from the
time a security was purchased, the security, if sold, might be sold at
a price less than its cost. Similarly, if market interest rates have
declined from the time a security was purchased, the security, if
sold, might be sold at a price greater than its cost. (In either
instance, if the security was held to maturity, no loss or gain
normally would be realized as a result of interim market
fluctuations.)

Yields on municipal securities depend on a variety of factors,
including: the general conditions of the money market and the taxable
and municipal securities markets; the size of the particular offering;
the maturity of the obligations; and the credit quality of the issue.
The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal
securities to meet their obligations for the payment of interest and
principal when due.

Further, any adverse economic conditions or developments affecting the
states or municipalities could impact the Fund's portfolio. Investing
in municipal securities which meet the Fund's quality standards may
not be possible if the states and municipalities do not maintain their
current credit ratings.

NON-DIVERSIFICATION. The Fund is a non-diversified investment
portfolio. As such, there is no limit on the percentage of assets
which can be invested in any single issuer. An investment in the Fund,
therefore, will entail greater risk than would exist in a diversified
portfolio of securities because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total
market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the
Fund's portfolio will have a greater impact on the total value of the
portfolio than would be the case if the portfolio were diversified
among more issuers.

TEMPORARY INVESTMENTS. The Fund invests its assets so that at least
80% of its annual interest income is exempt from federal income tax
including the federal alternative minimum tax. However, from time to
time, on a temporary basis, or when the Fund's investment adviser
determines that market conditions call for a temporary defensive
posture, the Fund may invest up to 100% of its assets in short-term,
tax-exempt or taxable temporary investments. These temporary
investments include, but are not limited to: tax-exempt variable and
floating rate demand notes; temporary municipal securities;

obligations issued by or on behalf of municipal issuers; obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities; certificates of deposit issued by banks; shares of
other investment companies; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment
agrees at the time of sale to repurchase it at a mutually agreed upon
time and price).

There are no rating requirements applicable to temporary investments,
with the exception of temporary municipal securities, which are
subject to the same rating requirements as all other municipal
securities in which the Fund invests. For other temporary investments,
the Fund's investment adviser will limit temporary investments to
those it considers to be of comparable quality to the acceptable
investments of the Fund.

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

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
capitalization's 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, structured fixed income 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 Exchanges 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."

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

Investments and Strategies."

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 $4 billion in equity and which are
listed on the New York or American Stock Exchanges 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,
Capital Appreciation Fund, The Stellar Fund, and Strategic Income 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, Capital Appreciation Fund,
The Stellar Fund, and U.S. Government Income 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, Strategic
Income Fund, The Stellar Fund and Growth Equity 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, Strategic Income Fund, The Stellar Fund and Growth Equity 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,
Strategic Income Fund, The Stellar Fund and Growth Equity 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. U.S. Government Fund, Strategic Income Fund,
The Stellar Fund and Growth Equity 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 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, Strategic Income Fund, The Stellar Fund or
Growth Equity 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.

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, Capital Appreciation Fund,
and The Stellar 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 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.

The Stellar Tax-Free Bond Fund may purchase put options on municipal
securities in an amount up to 5% of its total assets or may purchase
municipal securities accompanied by agreements of sellers to
repurchase them at the Fund's option.

FUTURES 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.

The Stellar Tax-Free Bond Fund reserves the right to enter into
interest rate futures contracts and options to buy or sell such
contracts as a hedge without shareholder action.

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 investment 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.

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.

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 the Fund
may invest pursuant to its investment objective and policies but which
are subject to restrictions on resale under federal securities laws.
As a matter of fundamental investment policy which may not be changed
without shareholder approval, Relative Value Fund, The Stellar Fund
and The Stellar Tax-Free Bond Fund may not invest more than 10%, 10%
and 15%, respectively, in restricted securities. As a matter of
non-fundamental investment policy, which may be changed without
shareholder approval, U.S. Government Income Fund and Strategic Income
Fund may not invest more than 15% and 10%, respectively, in restricted
securities.

Under criteria established by the Trustees, certain restricted
securities are considered to be liquid. To the extent that restricted
securities are not determined to be liquid, each of the Funds, except
The Stellar Tax-Free Bond Fund, will limit their purchase together
with other 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 net assets.
The Stellar Tax-Free Bond Fund will limit its purchase of illiquid
securities to 15% of its net assets, including certain restricted
securities or municipal leases not determined by the Trustees to be
liquid, repurchase agreements providing for settlement in more than
seven days after notice, participation interests and variable rate
municipal securities without a demand feature or with a demand feature
of longer than seven days and which the Fund's investments adviser
believes cannot be sold within seven days.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. U.S. Government
Income Fund, Strategic Income Fund, Growth Equity Fund, Capital
Appreciation Fund, The Stellar Fund, and The Stellar Tax-Free Bond
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. It should be noted that investment
companies incur certain expenses such as management, custodian and
transfer agent fees, and, therefore, any investment by a Fund in
shares of another investment company would be subject to such
duplicate expenses. These limitations are not applicable if the
securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets.

ADDITIONAL RISK CONSIDERATIONS

FOREIGN SECURITIES. Strategic Income Fund, The Stellar Fund, Relative
Value Fund, Growth Equity Fund, Capital Appreciation Fund, and U.S.
Government Income 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, The Stellar Tax-Free
Bond 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,
Capital Appreciation Fund and The Stellar Tax-Free Bond Fund, the
above prohibition against borrowing specifically encompasses reverse

repurchase agreements.

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.

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.

ACQUIRING SECURITIES

Relative Value Fund will not purchase more than 10% of the outstanding
voting securities of any one issuer.

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.

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 the Funds.

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, Growth Equity Fund and The Stellar
Tax-Free Bond Fund; and 0.95% of Strategic Income Fund, The Stellar
Fund, and Capital Appreciation Fund. 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.

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, 1996, Star Bank had an asset base of
$10.09 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 $30.24 billion as of December
31, 1996.

Star Bank has managed commingled funds since 1957. As of December
31, 1996, it manages three common trust funds and collective
investment funds having a market value in excess of $65.9 million.
Additionally, Star Bank has advised the portfolios of the Trust
since 1989.

As part of its regular banking operations, Star Bank may make loans
to public companies. Thus, it may be possible, from time to time,
for the 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 has been Senior Vice President and Chief
Investment Officer of Star Bank's Trust Financial Services Group and
Manager of its Capital Asset Management Division since 1988. 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 earned a
Bachelor of Arts degree in Economics from North Carolina State
University and earned the Chartered Financial Analyst designation.
Joseph P. Belew, a Vice President and Trust Officer and Manager
of the Trust Financial Services division at Star Bank, N.A., Butler
County, since 1979, has been employed by Star Bank in various
capacities since 1979. Mr. Belew has been Relative Value Fund's
portfolio manager since its inception in June 1991. He earned a
Bachelor of Business Administration degree in Business Management
from Belmont College. Carolyn A. Baril has been a Trust
Investment Officer for the Capital Management Division of Star Bank
since January 1997. In July 1997, Ms. Baril assumed responsibility
as Fund Manager for the REIT component of The Stellar Fund and Star
Strategic Income Fund. Prior to joining Star Bank, Ms. Baril was a
Research Analyst with Fifth Third Investment Advisers from June 1993
to January 1997, and was a Financial Analyst with Beth Israel
Hospital in Boston, Massachusetts from May 1992 to June 1993. Ms.
Baril earned a Bachelor of Business Administration degree from
Simmons College and is currently enrolled in the Masters of Business
Administration program at Xavier University. David J.
DeLoach has been a Trust Officer for the Capital Management Division
of Star Bank since December 1993. In July 1997, Mr. DeLoach assumed
responsibility as Fund Manager for Star Capital Appreciation Fund.
Prior to joining Star Bank, Mr. DeLoach was a portfolio manager with
MPACT Securities, the investment research and advisory arm of MCORP
of Dallas, Texas from February 1987 to July 1988, and a money trader
with The Mitsubishi Bank, Ltd., Houston, Texas Agency from November
1988 to December 1993. Mr. DeLoach earned a Bachelor of Arts degree
in Economics from The University of Texas at Austin, and a Masters
Degree in Agricultural Economics from Texas A&M University.

Donald L. Keller, a Senior Vice President Investment Manager for the
Charitable Trust and Retirement Plan Services Division of Star Bank
since 1993, has been employed by Star Bank in various capacities
since 1982. Mr. Keller has managed the Star Growth Equity Fund since
its inception. He managed the domestic equity securities components
of The Stellar Fund and Strategic Income Funds since their
inceptions through December 1995. He also supported the domestic and
international equity and fixed income components of Capital
Appreciation Fund since its inception through December 1995. Mr.
Keller earned 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, Senior Trust Officer and Director of Fixed Income
Research for the Capital Management Division of Star Bank since
1992, has been employed by Star Bank in various capacities since
1989. Mr. Mentzer has managed the Star U.S. Government Income Fund
since its inception. He has also managed the domestic and structured
fixed income components of Star Strategic Income Fund and the
domestic fixed income component of The Stellar Fund since such
Funds' inceptions. Mr. Mentzer earned a Bachelor of Business
Administration degree in Finance from the University of Cincinnati
and a Masters degree in Finance from Xavier University.

Kenneth D. Lamson is a Fund Manager and Investment Analyst for the
Capital Management Division of Star Bank. He is responsible for the
management of the cash equivalent components of the Star Funds. Mr.
Lamson joined Star Bank in 1993 as the portfolio assistant and
mortgage-backed securities specialist for the Bank's Treasury
Division. Prior to joining Star Bank, Mr. Lamson served as an
Assistant Examiner for the Federal Deposit Insurance Corporation
since August, 1990. He earned his Bachelor of Science in Business
Management from Jacksonville State University, and is currently
pursuing his Chartered Financial Analyst designation and Masters of
Business Administration. He has been a mentor and tutor for the
Cincinnati Youth Collaborative and is an advisor for the Explorers
program of the Boy Scouts of America.

Peter Sorrentino is Vice President and Director of Portfolio
Management and Research for the Capital Management Division of Star
Bank. Mr. Sorrentino has managed the domestic equity component of
Star Strategic Income Fund and The Stellar Fund since January 1996.
Prior to joining Star Bank in 1996, Mr. Sorrentino served as
Regional Director of Portfolio Management for Banc One Investment
Advisors since 1987. Mr. Sorrentino earned a Bachelor of Business
Administration degree in Finance and Accounting from the University
of Cincinnati. He also earned the Chartered Financial Analyst
designation.

Mary Jo McGeorge is the Municipal Fund Manager for the Capital
Management Division of Star Bank. She has overseen all municipal
fund management and credit analysis for The Stellar Tax-Free Bond
Fund since its inception. Ms. McGeorge also serves as the portfolio
manager of Star Tax-Free Money Market Fund, another portfolio of the
Trust. In addition to the management of Star Tax-Free Money Market
Fund and The Stellar Tax-Free Bond Fund, Ms. McGeorge is responsible
for all tax-exempt fixed income investing within the Trust
Department of Star Bank. Ms. McGeorge joined Star Bank in 1976 and
has extensive trading, credit and funds management experience.

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"), U.S. Government Income Fund, The Stellar Fund (Investment
Shares), The Stellar Tax- Free Bond Fund, Relative Value Fund
(Investment Shares), Strategic Income Fund, Growth Equity Fund
(Investment Shares), and Capital Appreciation Fund may pay to the
distributor an amount computed at an annual rate of up to 0.25% 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.

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 support services
as agents for their clients or customers who beneficially own shares
of the Funds.

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 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 2.2% of
the net asset value of all shares of Strategic Income Fund and
Investment Shares of the 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.

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 each of the Fund's shares.

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 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.

SHAREHOLDER SERVICES PLAN. Under the terms of the Shareholder Services
Agreement with Star Bank, N.A., each Fund will pay Star Bank, N.A. up
to 0.25% of its average daily net assets for the period. For the
foreseeable future, the Funds plan to limit the Shareholder Servicing
Fee to 0.05% of average daily net assets. This fee is to obtain
certain services for shareholders and to maintain shareholder
accounts.

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:

MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST

------------------ ------------------------------
<S> <C>

.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
on assets in excess of $750

.075% 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 at any time.

CUSTODIAN. Star Bank, N.A., is the Funds' custodian for which it
receives a fee of .025% of the average daily net assets. The fee is
based on the level of each Funds' average net assets for the period,
plus out-of-pocket expenses.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES. Federated Shareholder 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.

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, Relative Value Fund and Growth Equity
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:

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

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 as of the close of trading (normally
4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no
shares are tendered for redemption and no orders to purchase shares
are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. PURCHASES AT NET ASSET
VALUE. Shares of Strategic Income Fund, and Growth Equity Fund, and
Trust Shares of The Stellar Fund and Relative Value 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 Strategic Income Fund
and Investment Shares of Growth Equity Fund are redeemed.

In addition, the following persons may purchase shares of U.S.
Government Income Fund, Capital Appreciation Fund, and The Stellar
Tax-Free Bond Fund, and Investment Shares of The Stellar Fund and
Relative Value Fund, at net asset value, without a sales charge: (a)
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, and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such
employees or retired employees; (b) trust customers of StarBanc
Corporation and its subsidiaries; (c) and non-trust customers of
financial advisers. SALES CHARGE REALLOWANCE. For sales of
shares of U.S. Government Income Fund, Capital Appreciation Fund, and
The Stellar Tax-Free Bond Fund, and Investment Shares of The Stellar
Fund and Relative Value 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, Capital Appreciation Fund, and The Stellar Tax-Free Bond
Fund, and Investment Shares of The Stellar Fund and Relative Value
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 Capital Appreciation Fund and The Stellar Tax-Free Bond Fund, and
Investment Shares of The Stellar Fund and Relative Value 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 (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, and 4.50% of the total price of shares of Capital Appreciation
Fund and The Stellar Tax-Free Bond Fund, and Investment Shares of The
Stellar Fund and Relative Value 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 Intent 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, Capital Appreciation Fund, or
The Stellar Tax-Free Bond Fund, or Investment Shares of The Stellar
Fund or Relative Value 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,
Capital Appreciation Fund, or The Stellar Tax-Free Bond Fund, or
Investment Shares of The Stellar Fund or Relative Value 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 $25. 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 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, Relative Value Fund and Growth Equity Fund) to: Star
Funds Shareholder Services, Star Bank, N.A., 425 Walnut Street, ML
7135, Cincinnati, Ohio 45202.

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

FREQUENT INVESTOR PROGRAM

Under the Frequent Investor Program ("Program"), eligible persons who
purchase shares ("Program Shares") of any Star Fund (other than Star
Tax-Free Money Market Fund and Star Treasury Fund) on or after August
12, 1996 will receive points ("Points") which, upon accumulation of
50,000 Points, may be used to purchase a round trip airline ticket to
any of the 50 states on any U.S.

carrier.

The following terms and conditions apply with respect to the Program:
(a) one Point will be awarded per dollar invested (gross of sales
charges) in Program Shares: (b) Program Shares purchased may be
redeemed at any time without loss of Points; (c) a maximum of 100,000
Points may be earned in any 12-month period; (d) all unused Points
will expire one year from the latest purchase of Program Shares of
$100 or more; and (e) Points are not transferable.

All airline tickets are subject to the following stipulations and
restrictions: (i) the ticket will be non-refundable and for a coach
seat; (ii) the price of the ticket may not exceed $500 inclusive of
taxes and destinations charges, although the shareholder may elect to
pay any overage; (iii) all travel must be within the 50 United States;
(iv) interim stopovers may not exceed four hours; (v) tickets will be
mailed to the shareholder account address (overnight shipping is
available at the shareholder's expense); (vi) there are no "blackout"
dates; (vii) 21-day advance purchase and Saturday night stay-over are
required; and (viii) tickets may be purchased in any individual's name

The Program does not apply with respect to: (i) shares which are
purchased without a front-end sales charge or a contingent deferred
sales charge including shares which are acquired through reinvestment
of dividend or capital gain distributions; (ii) shares acquired in
exchange for shares in another Star Fund; and (iii) shares owned prior
to August 12, 1996.

The Program is subject to modification or termination on 90-days notice at the
option of Star Bank, N.A. Star Bank may from time-to-time create special
offering periods featuring bonus points or other temporary enhancements to the
Program. Existing and prospective shareholders will be given notice of such
special offering periods.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated Shareholder Services
Company maintains a share account for each shareholder of record.

Share certificates are not issued.

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

DIVIDENDS AND CAPITAL GAINS

With respect to U.S. Government Income Fund, dividends are declared
daily and paid monthly. With respect to Strategic Income Fund and The
Stellar Tax-Free Bond 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

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

EXCHANGING SHARES OF U.S. GOVERNMENT INCOME FUND, THE STELLAR FUND, THE
STELLAR TAX-FREE BOND FUND, RELATIVE VALUE FUND AND CAPITAL APPRECIATION FUND

Shareholders of U.S. Government Income Fund, The Stellar Fund, The
Stellar Tax-Free Bond 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, and may also exchange for shares of Star Tax-Free Market
Fund and Star Treasury Fund. In addition, shares of U.S. Government
Income Fund, The Stellar Fund, The Stellar Tax-Free Bond Fund,
Relative Value Fund

and Capital Appreciation 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, 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.

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.

EXCHANGING SHARES OF STRATEGIC INCOME FUND AND GROWTH EQUITY FUND

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, and may also
exchange shares for shares of Star Tax-Free Money Market Fund and Star
Treasury Fund. 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 the other
Star Funds described above. 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.

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.

OTHER MATTERS AFFECTING THE EXCHANGE PRIVILEGE

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.

REDEEMING SHARES

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

U.S. Government Income Fund, The Stellar Fund, The Stellar Tax-Free Bond 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
Investment Shares of the 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.
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 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 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
Investment Shares of the Growth Equity Fund within five full years of
the purchase date will be charged a contingent deferred sales charge
("CDSC") by the Funds' distributor. Any applicable CDSC will be
imposed on the lesser of the net asset value of the redeemed shares at
the time of purchase or the net asset value of the redeemed shares at
the time of redemption in accordance with the following schedule:

YEAR OF 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 CDSC will not be charged for redemption in connection with the
Fund's Systematic Withdrawal Plan not in excess of 10% of the initial
balance of the account calculated annually. The CDSC 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 CDSC.
In computing the amount of CDSC, 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 CDSC 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 CDSC's as described in this prospectus
under the section entitled "Exchanging Shares." Moreover, the CDSC
will be eliminated with respect to certain redemptions.

(See "Elimination of CDSC.")

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The CDSC 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 CDSC 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 CDSC
to the extent that no payment was advanced for purchases made by such
entities: (a) 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 Investment Shares of the Growth
Equity Fund, and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such
employees or retired employees; (b) trust customers of StarBanc
Corporation and its subsidiaries; and (c) non-trust customers of
financial advisers. Strategic Income Fund and Investment
Shares of the Growth Equity Fund reserve the right to discontinue
elimination of the CDSC. Shareholders will be notified of such
elimination. Any shares of a Fund purchased prior to the termination
of such waiver would have the CDSC 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
CDSC, 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 $25 and may be as much as 1.50% per month or 4.50%
per quarter of the total net asset value of the shares in the account
when the Systematic Withdrawal Plan is opened. Depending upon the
amount of the withdrawal payments and the amount of dividends paid
with

- --------
*To receive the CDSC exemption with respect to death or disability,
Star Bank or the distributor must be notified in writing at the time
of the redemption that the shareholder, or the shareholder's
executor/executrix, requests the exemption.

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 July 16, 1997, 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: 11,752,469 shares (84.13%) of U.S. Government
Income Fund; 8,596,697 shares (60.60%) of Strategic Income Fund;
3,810,652 shares (79.06%) of The Stellar Fund-Trust Shares; 10,733,955
shares (89.26%) of the Stellar Insured Tax-Free Bond Fund; 10,209,546
shares (71.63%) of Relative Value Fund; 5,081,222 shares (60.51%) of
Growth Equity Fund; and 4,543,550 shares (80.53%) of Capital
Appreciation Fund.

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

EFFECT OF BANKING LAWS

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

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

Some entities providing services to the Trust are subject to such
banking laws and regulations. They believe that they may perform those
services for the Funds contemplated by any agreement entered into with
the Trust without violating those laws or regulations. Changes in
either federal or state statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates,
as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could
prevent these entities from continuing to perform all or a part of the
above services for their customers and/or the Funds.

If this happens, the Trustees would consider alternative means of
continuing available services. It is not expected that the Funds'
shareholders would suffer any adverse financial consequences 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.

THE STELLAR TAX-FREE BOND FUND--ADDITIONAL FEDERAL INCOME TAX INFORMATION

Interest on some municipal securities may be subject to the federal
alternative minimum tax.

Shareholders are not required to pay regular federal income tax on any
dividends received from the Fund that represent net interest on
tax-exempt municipal bonds. However, under the Tax Reform Act of 1986,
dividends representing net interest earned on certain "private
activity" bonds issued after August 7, 1986, may be included in
calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations. The Fund may
purchase all types of municipal securities including private activity
bonds.

The alternative minimum tax applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to
the regular taxable 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.

Dividends of the Fund representing net 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

With respect to The Stellar Tax-Free Bond Fund, income from the Fund
is not necessarily free from income taxes of any state or local taxing
authority. State laws differ on this issue and shareholders are urged
to consult their own tax advisers regarding the status of their
accounts under state and local tax laws.

PERFORMANCE INFORMATION

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

From time to time, each Fund may advertise its total return and yield.
In addition, The Stellar Tax-Free Bond Fund may advertise

tax-equivalent 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 tax-equivalent yield of The Stellar Tax-Free Bond
Fund is calculated similarly to the yield, but is adjusted to reflect
the taxable yield that The Stellar Tax-Free Bond Fund would have had
to earn to equal its actual yield, assuming a specific tax rate. The
yield and tax equivalent yield do not necessarily reflect income
actually earned by 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, Capital Appreciation
Fund, and The Stellar Tax-Free Bond Fund, and Investment Shares of The
Stellar Fund and Relative Value Fund, the performance information
normally reflects the effect of the maximum sales charge which, if
excluded, would increase the total return and yield, and with respect
to The Stellar Tax-Free Bond Fund, the tax- equivalent yield.
Occasionally, performance information which does not reflect the
effect of the sales charge may be quoted in advertising. With respect
to Strategic Income Fund and Investment Shares of the Growth Equity
Fund, the performance information normally reflects the effect of
non-recurring charges, such as the CDSC, which, if excluded, would
increase the total return and yield. With respect to The
Stellar Fund, Relative Value Fund and Growth Equity 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, advertisements for a Fund may refer to ratings,
rankings, and other information in certain financial publications
and/or compare a Fund's performance to certain indices.

ADDRESSES

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

<TABLE>

<S> <C> <C>
Star U.S. Government Income Fund
Star Strategic Income Fund
The Stellar Fund
The Stellar Insured Tax-Free Bond 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 Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

- ---------------------------------------------------------------------------------------------
Independent Public Accountants

Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222

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</TABLE>

CUSIP 854911500 CUSIP 854911880 CUSIP 854911708 CUSIP 854911609 CUSIP
854911401 CUSIP 854911864 CUSIP 854911807

G00522-05 (8/97)
4806TR

- -------------------------------
STAR BANK, N.A.

Investment Adviser

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

Distributor

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<PAGE>

STAR RELATIVE VALUE FUND

INVESTMENT SHARES

TRUST SHARES

(A PORTFOLIO OF THE STAR FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

This Combined Statement of Additional Information should be read
with the prospectus of the Stock and Bond Funds dated March 31,
1997 (Revised August 18, 1997). This Statement is not a
prospectus itself. To request a copy of the prospectus, free of
charge, write to Star Relative Value Fund (the "Fund or call

1-800-677-FUND.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

(Revised August 18, 1997)

- -------------------------------
Star Bank, N.A.

Investment Adviser

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

Federated Securities
Corp.

Distributor

<PAGE>

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TABLE OF CONTENTS

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GENERAL INFORMATION ABOUT THE FUND 1

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INVESTMENT OBJECTIVE AND POLICIES 1

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INVESTMENT LIMITATIONS 3

STAR FUNDSMANAGEMENT 6

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Fund Ownership 9

OFFICERS AND TRUSTEES' COMPENSATION 9

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Trustee Liability 9

INVESTMENT ADVISORY SERVICES 9

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Adviser to the Fund 9
Advisory Fees 9

BROKERAGE TRANSACTIONS 10

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ADMINISTRATIVE SERVICES 10

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CUSTODIAN 10

PURCHASING SHARES 10

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Distribution Plan (Investment Shares) 10
Administrative Arrangements 11
Shareholder Services Plan 11
Conversion to Federal Funds 11

DETERMINING NET ASSET VALUE 11

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Determining Market Value of Securities 11
Trading in Foreign Securities 11
Exchanging Securities for Fund Shares 11

EXCHANGE PRIVILEGE 12

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Requirements for Exchange 12
Making an Exchange 12

REDEEMING SHARES 12

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Redemption in Kind 12
Massachusetts Partnership Law 12

TAX STATUS 13

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The Fund's Tax Status 13
Foreign Taxes 13
Shareholders' Tax Status 13

TOTAL RETURN 13

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YIELD 13

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PERFORMANCE COMPARISONS 14

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Economic and Market Information 15
Financial Statements 15

APPENDIX 16

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<PAGE>

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1

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.

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 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 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.

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
associations 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 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 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 year ended
November 30, 1996 and 1995, the Fund's portfolio turnover rates were
16% and 24%, 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

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

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.

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 to be liquid under criteria established by
the Trustees.

FOREIGN SECURITIES

The Fund will not invest more than 10% of its total assets in
securities of foreign issuers.

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 deposit 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 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.

<PAGE>

STAR FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates,
present positions with the Star Funds, and principal occupations.
Except as listed below, none of the Trustees or officers are
affiliated with Star Bank, N.A., Federated Investors, Federated
Securities Corp., Federated Services Company, Federated Administrative

Services, or the Funds (as defined below).

Thomas L. Conlan, Jr.*
2884 Lengel Road
Cincinnati, Ohio 45244
Birthdate: May 20, 1938

Trustee

President and Chief Executive Officer, The Student Loan Funding
Corporation and SLFC, Inc., Cincinnati, Ohio.

Alfred Gottschalk, Ph.D.
2401 Ingleside Avenue
Cincinnati, Ohio 45206
Birthdate: March 7, 1930

Trustee

Chancellor (since January 1996), Professor and President (1971-1995),
Hebrew Union College--Jewish Institute of Religion, Cincinnati, Ohio.

Edward C. Gonzales **
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: October 22, 1930

President, Treasurer and Trustee

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Services Company;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds. Robert J. Hill, D.O.
8373 Deer Path Lane West Chester, Ohio 45069 Birthdate: January 13,
1959

Trustee

Physician, Orthopaedic and Sports Medicine Institute, West Chester,
Ohio, and The Hamilton Orthopaedic Clinic, Hamilton, Ohio, since April
1994, and, prior thereto Resident Physician, Michigan State
University/Michigan Capital Medical Center.

William H. Zimmer III
2684 Devils Backbone Road
Cincinnati, Ohio 45233
Birthdate: December 19, 1953

Trustee

Secretary and Treasurer (1991 to present) and Secretary and Assistant
Treasurer (1988-1991), Cincinnati Bell Inc.

Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: May 22, 1962

Vice President and Assistant Treasurer

Vice President, Federated Administrative Services; Director, Private
Label Management, Federated Investors; Vice President and Assistant
Treasurer of certain funds for which Federated Securities Corp. is the
principal distributor.

Dawn M. Hornback,

525 Vine St., Suite 2050, Cincinnati 45202
Birthdate: 9/12/63

Founder, president and chief executive officer of The Observatory
Group, Inc. The Observatory Group, Inc., is a marketing and
communications firm specializing in the commercial, medical and
educational fields.

<PAGE>

Lawrence M. Turner
1014 Vine St., Cincinnati 45202

Birthdate: 3/23/47

Vice president and treasurer of the Kroger Company. At the Kroger
Company he is responsible for corporate finance, treasury, capital
management, pension investment and investor relations.

C. Grant Anderson
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: November 6, 1940

Secretary

Corporate Counsel, Federated Investors.

* This Trustee is deemed to be an "interested person," as defined in
the Investment Company Act of 1940, of the Trust by virtue of his
business relationship with the Fund's investment adviser, and certain
of its affiliates. The Student Loan Funding Corporation and SLFC,
Inc., of which Mr. Conlan is President and Chief Executive Officer,
purchase student loans from various financial institutions, including
the Fund's investment adviser and its affiliates. In addition, the
Fund's investment adviser extends credit from time to time to Student
Loan Funding Corporation and SLFC, Inc. to finance their operations.
** This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940. This Trustee is deemed to be an
"interested person" as defined in the Investment Company Act of 1940.

As used in the table above, "The Funds" and "Funds" mean the
following investment companies: 111 Corcoran Funds; Arrow Funds;
Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund:
2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations; and
World Investment Series, Inc. FUND OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding
shares. As of July 16, 1997, the following shareholder of record owned
5% or more of the outstanding shares of the Fund: Firstcinco,
Cincinnati, Ohio, owned approximately 10,209,546 shares (71.63%).

OFFICERS AND TRUSTEES' COMPENSATION

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM TRUST

TRUST*#

Thomas L. Conlan, Jr., ** $ -0-
Trustee

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

Dr. Alfred Gottschalk, $6,000
Trustee

Dawn M. Hornback + $0
Trustee

Lawrence M. Turner + $0
Trustee

Dr. Robert J. Hill, $7,000
Trustee

William H. Zimmer, III $7,000
Trustee

* Information is furnished for the fiscal year ended November 30, 1996.

# The aggregate compensation is provided for the Trust which is
comprised of nine portfolios. ** This Trustee is deemed to be an
"interested person" as defined in the Investment Company Act of 1940.
+ Dawn M. Hornback and Lawrence M. Turner were elected February 13,
1997; no fees were paid as of fiscal year ending November 30, 1996.
Ralph R. Burchenal and Barry L. Larkin resigned September 3, 1996 and
November 19, 1996, respectively; they earned $6,000 and $2,000,
respectively.

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 year ended November 30, 1996, 1995, and 1994, the Fund
paid the Adviser $1,249,213, $757,591, and $471,665, respectively,
none of which was voluntarily waived.

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 or its affiliates in
advising the Fund and other accounts. To the extent that receipt of
these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their
expenses. The adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research services
provided. During the fiscal year ended November 30, 1996, 1995, and
1994, the Fund paid total brokerage commissions of $146,237, $151,942,
and $109,775, respectively.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the
type the Fund may make may also be made by those other accounts. When
the Fund and one or more other accounts managed by the adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in
a manner believed by the adviser to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received
by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and
the ability to participate in volume transactions will be to the
benefit of the Fund.

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 year ended
November 30, 1996, 1995, and 1994, the Fund incurred administrative
service fees of $166,585, $110,983, and $76,966, respectively.

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.

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 (INVESTMENT SHARES)

With respect to the Investment Shares ("Shares") of 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.

For the fiscal year ended November 30, 1996, no payments were made
pursuant to the Plan.

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.

For the fiscal year ended November 30, 1996 payments in the amount of
$68,753 were pursuant to the Shareholder Services Plan.

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.

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.

EXCHANGING SECURITIES FOR FUND SHARES

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

Any securities exchanged must meet the investment objective and
policies of the Fund, must have a readily ascertainable market value,
and must not be subject to restrictions on resale. The Fund acquires
the exchanged securities for investment and not for resale. The market
value of any securities exchanged in an initial investment, plus any
cash, must be at least $25,000.

Securities accepted by the Fund will be valued in the same manner as
the Fund values its assets. The basis of the exchange will depend upon
the net asset value of shares of the Fund 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,
subscriptions, or other rights attached to the securities become the
property of the Fund, along with the securities.

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.

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

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.

MASSACHUSETTS PARTNERSHIP LAW

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

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

TAX STATUS

THE FUND'S TAX STATUS

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:

o derive at least 90% of its gross income from dividends,
interest, and

o 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 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 Investment Shares for the
one year and five year periods ended November 30, 1996, and for the
period from June 5, 1991 (date of initial public investment), to
November 30, 1996, were 23.04% 16.68% and 14.17%, respectively.

The Trust Shares class of the Fund was not effective until August 18,
1997.

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
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 charge, adjusted over the period by any additional
Shares, assuming the quarterly reinvestment of all dividends and
distributions.

YIELD

The Fund's yield for Investment Shares for the thirty-day period ended
November 30, 1996, was 1.39%.

The Trust Shares class of the Fund was not effective until August 18,
1997.

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 12-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 Fund 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 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 either class of Shares' 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 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 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 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 charge.

Advertising and other promotional literature may include charts,
graphs and other illustrations using the Fund's returns, or returns in
general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills. ECONOMIC AND MARKET
INFORMATION

Advertising and sales literature for the Fund may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their
views and analysis on how such developments could affect the Funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended November 30, 1996,
are incorporated herein by reference from the Fund's Annual Report
dated November 30, 1996. The unaudited Semi-Annual Report of the Fund,
dated May 31, 1997, is incorporated herein by reference. A copy of the
Annual Report and/or Semi-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.

<PAGE>

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.

854911401
110906B (8/97)

<PAGE>

STAR GROWTH EQUITY FUND

INVESTMENT SHARES

TRUST SHARES

(A PORTFOLIO OF THE STAR FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

1-800-677-FUND.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

(Revised August 18, 1997)

- -----------------------------------------------------
Star Bank, N.A.

Investment Adviser

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

Federated Securities Corp.

Distributor

<PAGE>

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1

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

INVESTMENT OBJECTIVE AND POLICIES 1

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

INVESTMENT LIMITATIONS 5

STAR FUNDS MANAGEMENT 8

- ---------------------------------------------------------------
Fund Ownership 11

OFFICERS AND TRUSTEES'COMPENSATION 11

- ---------------------------------------------------------------
Trustee Liability 11

INVESTMENT ADVISORY SERVICES 11

- ---------------------------------------------------------------
Adviser to the Fund 11
Advisory Fees 12

BROKERAGE TRANSACTIONS 12

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

ADMINISTRATIVE SERVICES 12

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

CUSTODIAN 12

PURCHASING SHARES 12

- ---------------------------------------------------------------
Distribution Plan (Investment Shares) 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
Exchanging Securities for Fund Shares 14

REDEEMING SHARES 14

- ---------------------------------------------------------------
Redemption in Kind 15
Massachusetts Partnership Law 15

TAX STATUS 15

- ---------------------------------------------------------------
The Fund's Tax Status 15
Foreign Taxes 15
Shareholders' Tax Status 15

TOTAL RETURN 16

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

YIELD 16

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

PERFORMANCE COMPARISONS 16

- ---------------------------------------------------------------
Economic and Market Information 17

FINANCIAL STATEMENTS 17

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

APPENDIX 18

<PAGE>

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

- ---------------------------------------------------------------
7

GENERAL INFORMATION ABOUT THE FUND

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

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

INVESTMENT OBJECTIVE AND POLICIES

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

CONVERTIBLE SECURITIES

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

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

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.

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.
Warrants required in units or attached to securities may be deemed to
be without value for purposes of this policy.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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

ZERO-COUPON SECURITIES

The Fund may invest in Zero-Coupon Securities. Zero-coupon securities
are debt obligations which are generally issued at a discount and
payable in full at maturity, and which do not provide for current
payments of interest prior to maturity. Zero-coupon securities usually
trade at a deep discount from their face or par value and are subject
to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of shares
of the Fund may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of
interest and having similar maturities.

Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and
longer-term bonds or notes and their unmatured interest coupons which
have been separated by their holder, typically a custodian bank or
investment brokerage firm. A number of securities firms and banks have
stripped the interest coupons from the underlying principal (the
"corpus") of U.S. Treasury securities and resold them in custodial
receipt programs with a number of different names, including Treasury
Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or,
in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer of holder thereof), in trust on
behalf of the owners thereof.

In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial
ownership of particular interest coupons and corpus payments on
Treasury securities through the Federal Reserve book-entry
record-keeping system. The Federal Reserve program as established by
the Treasury Department is known as "STRIPS" or "Separate Trading of
Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the
book-entry record-keeping system in lieu of having to hold
certificated or other evidence of ownership of the underlying U.S.

Treasury securities.

When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic cash interest
payments. Once stripped or separated, the corpus and coupons may be
sold separately. Typically, the coupons are sold separately or grouped
with other coupons with like maturity dates and sold in such bundled
form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero-coupon
securities issued directly by the obligor. 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 year ended
November 30, 1996, and for the period from December 12, 1994 (date of
initial public investment) to November 30, 1995, the Fund's portfolio
turnover rates were 96% and 171%, respectively.

For the for the period from December 12, 1994 (date of initial public
investment) to November 30, 1995, the variation in the Fund's
portfolio turnover rate was due to market sector rotations, aggressive
investment transactions, and an increase in the number of redemptions
incurred by 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 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

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

UNDERWRITING

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 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 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.

PURCHASING SECURITIES TO EXERCISE CONTROL

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

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 association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment
to be "cash items."

As a matter of operating policy, which may be changed without
shareholder approval, the Fund will limit the margin deposits on
futures contract and options entered into by the Fund to 5% of its net
assets.

<PAGE>

STAR FUNDS MANAGEMENT

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

Services, or the Funds (as defined below).

Thomas L. Conlan, Jr.*
2884 Lengel Road
Cincinnati, Ohio 45244
Birthdate: May 20, 1938

Trustee

President and Chief Executive Officer, The Student Loan Funding
Corporation and SLFC, Inc., Cincinnati, Ohio.

Alfred Gottschalk, Ph.D.
2401 Ingleside Avenue
Cincinnati, Ohio 45206
Birthdate: March 7, 1930

Trustee

Chancellor (since January 1996), Professor and President (1971-1995),
Hebrew Union College--Jewish Institute of Religion, Cincinnati, Ohio.

Edward C. Gonzales **
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: October 22, 1930

President, Treasurer and Trustee

Robert J. Hill, D.O.
8373 Deer Path Lane
West Chester, Ohio 45069

Birthdate: January 13, 1959

Trustee

William H. Zimmer III
2684 Devils Backbone Road
Cincinnati, Ohio 45233
Birthdate: December 19, 1953

Trustee

Secretary and Treasurer (1991 to present) and Secretary and Assistant
Treasurer (1988-1991), Cincinnati Bell Inc.

Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: May 22, 1962

Vice President and Assistant Treasurer

Dawn M. Hornback,

525 Vine St., Suite 2050, Cincinnati 45202
Birthdate: 9/12/63

1014 Vine St., Cincinnati 45202
Birthdate: 3/23/47

Vice president and treasurer of the Kroger Company. At the Kroger
Company he is responsible for corporate finance, treasury, capital
management, pension investment and investor relations.

C. Grant Anderson
Federated Investors Tower
Pittsburgh, PA 15222
Birthdate: November 6, 1940

Secretary

Corporate Counsel, Federated Investors.

Officers and Trustees own less than 1% of the Fund's outstanding
shares. As of July 16, 1997, the following shareholders of record
owned 5% or more of the outstanding shares of the Fund: Firstcinco,
Cincinnati, Ohio, owned approximately 5,081,222 shares (60.51%).

OFFICERS AND TRUSTEES' COMPENSATION

NAME , AGGREGATE
POSITION WITH COMPENSATION FROM TRUST

TRUST*#

Thomas L. Conlan, Jr., ** $ -0-
Trustee

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

Dr. Alfred Gottschalk, $6,000
Trustee

Dawn M. Hornback + $0
Trustee

Lawrence M. Turner + $0
Trustee

Dr. Robert J. Hill, $7,000
Trustee

William H. Zimmer, III $7,000
Trustee

* Information is furnished for the fiscal year ended November 30, 1996.

TRUSTEE LIABILITY

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 fiscal year ended
November 30, 1996, and for the period from December 12, 1994 (date of
initial public investment) to November 30, 1995 the Fund's Adviser
earned $455,889 and $260,092, respectively.

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 use 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 guidelines
established 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:
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 or
its affiliates in advising the Fund and other accounts. To the extent
that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year ended November 30, 1996,
1995 the Fund paid total brokerage commissions of $267,175, and
$269,626, respectively.

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 year ended November
30, 1996, and for the period from November 10, 1994 (start of
business) to November 30, 1995 the Fund incurred administrative
service fees of $60,748, and $48,359 respectively, of which $0 and
$10,470, were voluntarily waived.

CUSTODIAN

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 (INVESTMENT SHARES)

With respect to the Investment Shares ("Shares") of 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.

For the fiscal year ended November 30, 1996, no payments were made
pursuant to the Plan.

ADMINISTRATIVE ARRANGEMENTS

SHAREHOLDER SERVICES PLAN

For the fiscal year ended November 30, 1996 payments in the amount of
$25,248 were pursuant to the Shareholder Services Plan.

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:

o a 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

EXCHANGING SECURITIES FOR FUND SHARES

EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE

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.

MASSACHUSETTS PARTNERSHIP LAW

TAX STATUS

THE FUND'S TAX STATUS

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

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.

<PAGE>

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 one year ended November 30, 1996 and for the period from
December 12, 1994 (date of initial public investment) to November 30,
1996, the average annual total returns for the Investment Shares of
the Fund were 22.05% and 27.14%, respectively.

The Trust Shares class of the Fund was not effective until August 18,
1997.

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 non-recurring fees, adjusted over the period by any
additional Shares, assuming the reinvestment of all dividends and
distributions.

YIELD

The Fund's yield for Investment Shares for the thirty-day period ended
November 30, 1996, was 0.85%.

The Trust Shares class of the Fund was not effective until August 18,
1997.

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.

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 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.

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various
fund categories by making comparative calculations using
total return. Total return assumes the reinvestment of all
income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking
in the "growth" category in advertising and sale
literature.

o STANDARD & POOR'S DAILY STOCK PRICE 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 for Investment Shares may quote performance information
which does not reflect the effect of the contingent deferred sales
charge.

FINANCIAL STATEMENTS

<PAGE>

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 safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.

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.

<PAGE>

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 those 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 satisfying its debt
service requirements.

B--Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.

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.

<PAGE>

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.

854911864
G00522-04 (8/97)

<PAGE>

PART C. OTHER INFORMATION.

Item 24. FINANCIAL STATEMENTS AND EXHIBITS:

(a) Financial Statements: (1,2(a),3-9)
Incorporated herein by reference from the
Funds' Annual Reports dated November 30,
1996 ;2(b)to be filed by amendment; (1-8)
incorporated herein by reference from the
Funds' Semi-Annual Reports dated May 31,
1997; and (9) Incorporated herein by
reference the July 11, 1997, Semi-Annual
Report and Supplement to Prospectus dated
March 31, 1997 (File Nos.33-26915 and
811-5762).

(b) Exhibits:

(1) Conformed copy of Declaration of Trust of the Registrant; (15)
(i) Conformed copy of Amendment No. 1 to Declaration of Trust; (2)
(ii) Conformed copy of Amendment No. 2 to Declaration of Trust (2)
(iii) Conformed copy of Amendment No. 3 to Declaration of Trust; (2)
(iv) Conformed copy of Amendment No. 4 to Declaration of Trust; (4)
(v) Conformed copy of Amendment No. 5 to Declaration of Trust; (12)
(vi) Conformed copy of Amendment No. 6 to Declaration of Trust; (12)
(vii) Conformed copy of Amendment No. 7 to Declaration of Trust; (12)
(viii) Conformed copy of Amendment No. 8 to Declaration of Trust (15)
(ix) Conformed copy of Amendment No. 9 to Declaration of Trust; (15)
(x) Conformed copy of Amendment No. 10 to Declaration of Trust; (15)
(xi) Conformed copy of Amendment No. 11 to Declaration of Trust; (15)
(xii) Conformed copy of Amendment No. 12 to Declaration of Trust; (18)
(xiii) Conformed copy of Amendment No. 13 to Declaration of Trust; (19)
(xiv) Conformed copy of Amendment No. 14 to Declaration of Trust; (19)

+ All exhibits have been filed electronically.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A filed April 10, 1989. (File Nos. 33-26915 and 811-5762)

4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 to the Registration Statement on
Form N-1A filed December 6, 1989. (File Nos. 33-26915 and 811-5762)

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 to the Registration Statement on
Form N-1A filed January 29, 1992. (File Nos. 33-26915 and 811-5762)

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement on
Form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-5762)

18. Response is incorporated by reference to Registrant's Post-Amendment
No. 22 to the Registration Statement on Form N-1A
filed March 17, 1994. (File Nos. 33-26915 and 811-5762)

19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-5762)

<PAGE>

(xv) Conformed Copy of Amendment No. 15 to Declaration of Trust; (25)
(xiv) Conformed Copy of Amendment No. 16 to Declaration of Trust; (25)

(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;

(4) Not applicable;

(5) Conformed copy of Investment
Advisory Contract between
Losantiville Funds and Star Bank,
N.A. through and including Exhibit
G; (13) (i) Conformed copy of
Exhibit H to Investment Advisory
Contract of the Registrant; (19)
(ii) Conformed copy of Exhibit I
to Investment Advisory Contract of
the Registrant; (20) (iii)
Conformed copy of Exhibit J to
Investment Advisory Contract of
the Registrant; (21) (iv)
Conformed copy of Exhibit K to
Investment Advisory Contract of
the Registrant

(27);

(6) (i) Conformed copy of Distributor's Contract of the Registrant
through and including Exhibit E; (13)

(ii) Conformed copy of Exhibit F to Distributor's Contract of the
Registrant; (17)

(iii) Conformed copy of Exhibit G to Distributor's Contract of the
Registrant; (19)

(iv) Conformed copy of Exhibit H to Distributor's Contract of the
Registrant; (19)

(v) Conformed copy of Exhibit I to Distributor's Contract of the
Registrant; (20)

.........
+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed February 3, 1989.

(File Nos. 33-26915 and 811-5762)

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 to the Registration Statement on
Form N-1A filed November 20, 1992. (File Nos. 33-26915 and 811-5762)

17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and 811-5762)

19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-5762)

20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on
Form N-1A filed September 15, 1994. (File Nos. 33-26915 and 811-5762)

21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on
Form N-1A filed January 26, 1995. (File Nos. 33-26915 and 811-5762)

25. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 32 to the Registration Statement on Form N-1A filed
January 24, 1996. (File Nos. 33-26915 and 811-5762)

27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed March 25, 1997.

(File Nos. 33-26915 and 811-5762)

28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed June 30, 1997.

(File Nos. 33-26915 and 811-5762)

<PAGE>

(vi) Conformed copy of Exhibit J to Distributor's Contract of the
Registrant to add Star Growth Equity Fund; (21)

(vii) Conformed copy of Exhibit
K to Distributor's
Contract of the
Registrant to add The
Stellar Insured Tax-Free
Bond Fund (27);

(viii) Conformed copy of Exhibit L to Distributor's
Contract of the Registrant to add Star Treasury
Fund, Trust Shares; (28)

(7) Not applicable;

(8) Conformed copy of Custodian Contract of the Registrant; (15)
(9) (i) Conformed copy of Fund Accounting, Shareholder Recordkeeping,

and Custody Services Procurement Agreement; (21)

(ii) Conformed copy of
Amendment #1 to fees and
Expenses for Shareholder
Recordkeeping pursuant to
the Fund Accounting,
Shareholder
Recordkeeping, and
Custody Services
Procurement Agreement;
(28)

(iii) Conformed copy of Administrative Services Agreement; (17)
(iv) Conformed copy of Shareholder Services Plan of the Registrant

through and including Exhibit A; (19)

(v) Conformed copy of Exhibit B to Shareholder Services Plan of
the Registrant to add Star Strategic Income Fund; (20)

(vi) Conformed copy of Exhibit C to Shareholder Services Plan of
the Registrant to add Star Growth Equity Fund (21);

+ All exhibits have been filed electronically.

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement on
Form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-5762)

17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and 811-5762)

19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-5762)

20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on
Form N-1A filed September 15, 1994. (File Nos. 33-26915 and 811-5762)

21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on
Form N-1A filed January 26, 1995. (File Nos. 33-26915 and 811-5762)

27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed March 25, 1997.

(File Nos. 33-26915 and 811-5762)

28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed June 30, 1997.

(File Nos. 33-26915 and 811-5762)

<PAGE>

(vii) Conformed copy of Exhibit D to

Shareholder Services Plan of the
Registrant to add
The Stellar Fund (Trust Shares);

(22)

(viii) Conformed copy of Exhibit E to Shareholder Services Plan of the
Registrant to add The Stellar Fund (Investment Shares); (22)

(ix) Conformed copy of Exhibit F to Shareholder Services Plan of the
Registrant to add Star Tax-Free Money Market Fund; (22)

(x) Conformed copy of Exhibit G to Shareholder Services Plan of the
Registrant to add Star Treasury Fund; (22)

(xi) Conformed copy of Exhibit H to Shareholder Services Plan of the
Registrant to add Star U.S. Government Income Fund; (22)

(xii) Conformed copy of Exhibit
I to Shareholder Services
Plan of the Registrant to
add Star Relative Value
Fund; (22)

(xiii) Conformed copy of Exhibit
J to Shareholder Services
Plan of the Registrant to
add Star Prime
Obligations Fund; (22)

(xiv) Conformed copy of Exhibit K to Shareholder Services Plan of the

Registrant to add

The Stellar Insured Tax-Free Bond Fund (27);

(xv) Conformed copy of Exhibit L to Shareholder Services Plan of the
Registrant to add Star Treasury Fund, Trust Shares; (28)

(xvi) Conformed copy of Shareholder Services

Agreement including Exhibits 1 and 2 (27);

(10) Conformed copy of Opinion and Consent of Counsel as to Legality of
Shares being Issued; (24)

(11) (i) Auditors' Consent;+

(ii) Conformed Copy of Opinion and Consent of

Special Counsel; (9)

+ All exhibits have been filed electronically.

9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 to the Registration Statement on
Form N-1A filed March 12, 1991. (File Nos. 33-26915 and 811-5762)

N-1A filed September 15, 1994. (File Nos. 33-26915 and 811-5762)

22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995.

(File Nos. 33-26915 and 811-5762)

24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed October 10, 1996.

(File Nos. 33-26915 and 811-5762)

27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed March 25, 1997.

(File Nos. 33-26915 and 811-5762)

28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed June 30, 1997.

(File Nos. 33-26915 and 811-5762)

<PAGE>

(12) Not applicable;

(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan; (13)

(ii) Copy of Rule 12b-1 Agreement through and including
Amendment No. 1 to Exhibit A; (7)

(iii) Copy of Amendment No. 2 to Exhibit A to 12b-1 Agreement; (11)
(iv) Copy of Amendment No. 3 to Exhibit A to 12b-1 Agreement; (11)
(v) Copy of Amendment No. 4 to Exhibit A to 12b-1 Agreement; (13)
(vi) Conformed copy of Exhibit E to the Distribution Plan; (17)
(vii) Copy of Amendment No. 5 to Exhibit A to 12b-1 Agreement; (18)
(viii) Conformed copy of Exhibit F to Distribution Plan of the

Registrant to add Star

Growth Equity Fund (now known as Star Capital
Appreciation Fund); (19) (ix) Conformed copy of Exhibit G to
Distribution Plan of the Registrant; (20)

+ All exhibits have been filed electronically.

2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A filed April 10, 1989. (File Nos. 33-26915 and 811-5762)

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 to the Registration Statement on
Form N-1A filed December 4, 1990. (File Nos. 33-26915 and 811-5762)

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 to the Registration Statement on
Form N-1A filed August 29, 1991. (File Nos. 33-26915 and 811-5762)

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 to the Registration Statement on
Form N-1A filed November 20, 1992. (File Nos. 33-26915 and 811-5762)

17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on
Form N-1A filed February 4, 1994. (File Nos. 33-26915 and 811-5762)

18. Response is incorporated by reference to Registrant's Post-Amendment
No. 22 to the Registration Statement on Form N-1A
filed March 17, 1994. (File Nos. 33-26915 and 811-5762)

19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on
Form N-1A filed May 13, 1994. (File Nos. 33-26915 and 811-5762)

<PAGE>

(x) Conformed copy of Exhibit H to Distribution Plan of the
Registrant; (21) (xi) Copy of Amendment No. 6 to Exhibit A to 12b-1
Agreement; (20) (xii) Conformed copy of Exhibit I to Distribution
Plan of the Registrant (27);

(16) (i) Copy of Schedule for Computation of Fund Performance Data,
Star Relative Value Fund; (24)

(ii) Copy of Schedule for Computation of Fund Performance Data, The
Stellar Fund (12);

(iii) Copy of Schedule for Computation of Fund Performance Data, Star U.S.
Government Income Fund; (15)

(iv) Copy of Schedule for Computation of Fund Performance Data, Star
Capital Appreciation Fund (21);

(v) Copy of Schedule for Computation of Fund Performance Data, Star
Strategic Income Fund; (22)

(vi) Copy of Schedule for Computation of Fund Performance Data, Star
Growth Equity Fund; (22)

(vii) Copy of Schedule for Computation of Fund Performance Data, The
Stellar Insured Tax-Free Bond Fund; (28)

(17) Copy of Financial Data Schedules; (28)

(18) Conformed copy of Amended and Restated Multiple Class Plan including
Exhibit A; (28)

(19) Conformed copy of Power of Attorney; (28)

+ All exhibits have been filed electronically.

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 to the Registration Statement on
Form N-1A filed January 29, 1992. (File Nos. 33-26915 and 811-5762)

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement on
Form N-1A filed July 2, 1993. (File Nos. 33-26915 and 811-5762)

20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on
Form N-1A filed September 15, 1994. (File Nos. 33-26915 and 811-5762)

21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on
Form N-1A filed January 26, 1995. (File Nos. 33-26915 and 811-5762)

22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File

Nos. 33-26915 and 811-5762)

24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed October 10, 1996.

(File Nos. 33-26915 and 811-5762)

26. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 on Form N-1A filed March 24, 1997.

(File Nos. 33-26915 and 811-5762)

27. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed March 25, 1997.

(File Nos. 33-26915 and 811-5762)

28. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 on Form N-1A filed June 30, 1997.

(File Nos. 33-26915 and 811-5762)

<PAGE>

Item 25...........PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:

None.

Item 26. NUMBER OF HOLDERS OF SECURITIES:

Number of Record Holders

TITLE OF CLASS AS OF JULY 16, 1997
-------------- ---------------------

Shares of beneficial interest
(no par value)

Star Treasury Fund

Investment Shares 222
Trust Shares 13

Star Relative Value Fund 2,979
Star Tax-Free Money Market Fund 14
The Stellar Fund
Investment Shares 5,638
Trust Shares 50

Star U.S. Government Income Fund 313
Star Capital Appreciation Fund 464
Star Strategic Income Fund 1,643
Star Growth Equity Fund 2,745
The Stellar Insured Tax-Free Bond Fund 53

Item 27. INDEMNIFICATION: (3)

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:

(a) Star Bank, N.A. ("Star Bank"), a national
bank, was founded in 1863 and is the largest
bank and trust organization of StarBanc
Corporation. Star Bank had an asset base of
$10.09 billion as of December 31, 1996.

Star Bank's expertise in trust
administration, investments, and estate
planning ranks it among the most predominant
trust institutions in Ohio, with assets of
$30.24 billion as of December 31, 1996.

Star Bank has managed commingled funds since
1957. As of December 31, 1996, it manages
three common trust funds and collective
investment funds having a market value in
excess of $65.9 million.

The officers and directors of the Star Bank
any other business, profession, vocation, or
employment of a substantial nature in which
each such officer and director is or has been
engaged during the past two years, is set
forth below. Unless otherwise noted, the
position listed under "Other Business,
Profession, Vocation or Employment" is with
Star Bank.

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on
Form N-1A filed July 26, 1989. (File Nos. 33-26915 and 811-5762)

<PAGE>

(b)

Other Substantial

Position with Business, Profession,

NAME THE ADVISER VOCATION OR EMPLOYMENT

Jerry A. Grundhofer Chairman, President and Traditional
Chief Executive Officer Interiors

David M. Moffett Executive Vice President N/A

Richard K. Davis Executive Vice President N/A

Joseph A. Campanella Executive Vice President N/A

Thomas J. Lakin Executive Vice President N/A

Timothy J. Fogarty Executive Vice President N/A

Wayne J. Shircliff Executive Vice President N/A

Daniel B. Benhase Executive Vice President N/A

Daniel R. Noe Executive Vice President N/A

Jerome C. Kohlhepp Executive Vice President N/A

Stephen E. Smith Executive Vice President S. E. Smith
and Company

S. Kay Geiger Executive Vice President Global Access
Marketing, Inc.

Andrew E. Randall Executive Vice President N/A

J. R. Bridgeland, Jr. Director Taft, Stetinius & Hollister

L. L. Browning, Jr. Director N/A

V. B. Buyniski Director United Medical Resources, Inc.
Mt. Auburn Partnership, American

Operations Management, NCG and Schmidt
Marble

Samuel M. Cassidy Director Cassidy and Cassidy, Ltd. d/b/a Cave
Spring Farm

Raymond R. Clark Director N/A

V. Anderson Coombe Director Wm. Powell Company

John C. Dannemiller Director Bearings, Inc.

Jerry A. Grundhofer Director Traditional Interiors

Other Substantial

Position with Business, Profession,

NAME THE ADVISER VOCATION OR EMPLOYMENT

J. P. Harrington, S.C. Director N/A

J. P. Hayden, Jr. Director The Midland Company, American Family Home Insurance Co.,
American Modern Home Insurance Co.

Roger L. Howe Director U.S. Precision Lens, Inc.

T. J. Klinedinst, Jr. Director Thomas E. Wood, Inc., Ohio Cap Insurance Co., Ltd., The
Tomba Co., Ltd.

Chares S. Mechem, Jr. Director N/A

Daniel J. Meyer Director Cincinnati Milacron, Inc.

David B. O'Maley Director Ohio National Life Insurance Co.

O. M. Owens, M.D., Director O'dell M. Owens, M.D., Inc., Moreno Food, MKO Investment,
Seven Hills Lab, Graphi Action.

Thomas E. Petry Director Eagle-Picher Industries, Inc.

William C. Portman Director Portman Equipment Company

Oliver W. Waddell Director N/A

<PAGE>

</TABLE>

Item 29. PRINCIPAL UNDERWRITERS:

(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; WesMark Funds; and World
Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief Federated Investors Tower
Executive Officer, Chief

Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, Federated, Treasurer and
Pittsburgh, PA 15222-3779 Securities Corp. Trustee (Principal

Accounting

Officer)

Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated

Pittsburgh, PA 15222-3779 Securities Corp.

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT

Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Matthew S. Propelka Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

Item 30. LOCATION OF ACCOUNTS AND RECORDS:

All accounts and records required to be maintained
by Section 31(a) of the Investment Company Act of
1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following
locations:

Star Funds Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Shareholder Services Federated Investors Tower
Company("Transfer Agent, Pittsburgh, PA 15222-3779
Dividend Disbursing Agent
and Portfolio Recordkeeper")

Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779

("Administrator")

Star Bank, N.A. 425 Walnut Street
("Adviser") Cincinnati, OH 45202

Star Bank, N.A. 425 Walnut Street
("Custodian") Cincinnati, OH 45202

</TABLE>

Item 31. MANAGEMENT SERVICES: Not applicable.

Item 32. UNDERTAKINGS:

Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with
respect to the removal of Trustees and the calling
of special shareholder meetings by shareholders.

Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, STAR FUNDS,
certifies that it meets all the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 31st day of July, 1997.

STAR FUNDS

BY: /s/ C. Grant Anderson
C. Grant Anderson, Secretary
Attorney in Fact for Edward C. Gonzales
July 31, 1997

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By: /s/C. Grant Anderson

C. Grant Anderson Attorney In Fact July 31, 1997
SECRETARY For the Persons

Listed Below

NAME TITLE

Edward C. Gonzales* President, Treasurer and Trustee
(Principal Financial and
Accounting Officer)

Thomas L. Conlan, Jr.* Trustee

Dr. Alfred Gottschalk* Trustee

Dr. Robert J. Hill* Trustee

William H. Zimmer, III* Trustee

Dawn M. Hornback* Trustee

Lawrence M. Turner* Trustee

* By Power of Attorney

<PAGE>

Exhibit 11

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in
Post-Effective Amendment No. 35 to Form N-1A Registration Statement of
Star Funds (Star Relative Value Fund, Star U.S. Government Income
Fund, Star Capital Appreciation Fund, Star Growth Equity Fund, Star
Strategic Income Fund and The Stellar Fund) of our report dated
January 10, 1997, on the financial statements of Star Funds, included
in made or made a part of this registration statement.

By: /s/ Arthur Andersen LLP
Arthur Andersen LLP
Pittsburgh, Pennsylvania

July 29, 1997