STAR FUNDS, 485BPOS, 1997-03-25

STAR FUNDS
485BPOS, 1997-03-25

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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. 32 .......... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 33 ......................... 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 March 31, 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
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, (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, and(8) Star Growth
Equity Fund. The portfolios are comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............(1-8) Cover Page.

Item 2. Synopsis.................(1-8) Synopsis; (1-8) Summary of Fund
Expenses.

Item 3. Condensed Financial
Information..............(1-8) Financial Highlights; (1-8)
Performance Information.

Item 4. General Description of
Registrant...............(1-8) Objective and Investment Policies
of Each Fund; (1-2) Common Investment
Techniques of the Funds; (3-8) Portfolio
Investments and Strategies; (3-8)
Additional Risk Considerations; (1-8)
Investment Limitations.
Item 5. Management of the Trust..(1-8) Star Funds Information; (1-8)
Management of the Trust; (1-8)
Distribution of Fund Shares; (1, 2(a),
3, 4(a), 5-8) Distribution Plan; (1-8)
Administration of the Funds; (2(b))
Expenses of the Treasury Fund and Trust
Shares; (3-8) Brokerage Transactions.

Item 6. Capital Stock and Other
Securities...............(1-2) Dividends; (1-2) Capital Gains;
(3-8) Dividends and Capital Gains; (1-8)
Shareholder Information; (1-8) Voting
Rights; (1-8) Effect of Banking Laws;
(1-8) Tax Information; (1-8) Federal
Income Tax;(1) Tax-Free Money Market
Fund - Additional Tax Information;.(8)
The Stellar Bond Fund-Additional Federal
Income Tax Information; (1-8) State and
Local Taxes.

Item 7. Purchase of Securities
Being Offered............(1-8) Net Asset Value; (1-8) Investing
in the Funds; (1-8) Share Purchases;
(1-8) Minimum Investment Required; (1-8)
What Shares Cost; (3-8) Systematic
Investment Plan; (3,4a,5,6,8) Reducing
the Sales Charge; (1-8) Exchanging
Securities for Fund Shares; (1-8)
Certificates and Confirmations; (1-2)
Shareholder Service Organizations; (3-8)
Frequent Investor Program; (1-8)
Exchange Privilege.

Item 8. Redemption or Repurchase.(1-8) Redeeming Shares; (1-2)
Checkwriting Privilege; (3-8) Systematic
Withdrawal Plan; (7,8) Contingent
Deferred Sales Charge; (7,8) Elimination
of Contingent Deferred Sales Charge;
(1-8) Accounts with Low Balances.

Item 9. Pending Legal Proceedings None.

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

Item 10. Cover Page...............(1-8) Cover Page.

Item 11. Table of Contents........(1-8) Table of Contents.

Item 12. General Information and
History..................(1-8) General Information About the
Fund; (1-8) Investment Limitations.

Item 13. Investment Objectives and
Policies.................(1-8) Investment Objective(s) and
Policies.

Item 14. Management of the Fund...(1-8) Star Funds Management.

Item 15. Control Persons and Principal
Holders of Securities....(1-8) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-8) Investment Advisory Services; (1-
8) Administrative Services; (8) Other
Services; (1-8) Custodian.

Item 17. Brokerage Allocation.....(1-8) Brokerage Transactions.

Item 18. Capital Stock and Other
Securities...............Not applicable.

Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............(1-8) Purchasing Shares; (1-8) Exchange
Privilege; (1-8) Determining Net Asset
Value; (1-8) Redeeming Shares; (1-8)
Redemption in Kind.

Item 20. Tax Status...............(1-8) Tax Status; (1-8) Yield; (1-2)
Effective Yield; (1,8) Tax-Equivalent
Yield; (1-8) Total Return.

Item 21. Underwriters.............(1-8) Administrative Arrangements; (1-
3,4a,5-8) Distribution Plan.

Item 22. Calculation of Performance
Data.....................(1-8) Performance Comparisons.

Item 23. Financial Statements.....(1,2(a),3-8) The Financial Statements
are incorporated herein by reference
from the Funds' Annual Reports dated
November 30, 1996; (8) to be filed by
Amendment.

Incorprate by reference ursuant to Rule 411 under the Securities Act of
1933, Parts A and B of Post-Effective Amendment No. 31, filed January 24,
1997, in their entirety.

STOCK AND
[LOGO OF STAR FUNDS] BOND FUNDS

COMBINED
PROSPECTUS

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

Dated March 31, 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, 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

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

SYNOPSIS 1
- -------------------------------------
Risk Factors 1
SUMMARY OF FUND EXPENSES 3
- -------------------------------------

FINANCIAL HIGHLIGHTS 5
- -------------------------------------

INVESTMENT OBJECTIVE AND POLICIES OF
EACH FUND 12
- -------------------------------------

U.S. Government Income Fund 12

Strategic Income Fund 13

The Stellar Fund 17

Special Risk Considerations 18

The Stellar Insured Tax-Free Bond
Fund 19

Municipal Bond Insurance 21

Relative Value Fund 24

Growth Equity Fund 25

Capital Appreciation Fund 26

PORTFOLIO INVESTMENTS AND
STRATEGIES 26
- -------------------------------------

Additional Risk Considerations 32

INVESTMENT LIMITATIONS 32
- -------------------------------------

Borrowing Money 32

Diversification 33

Investing in New Issuers 33

Acquiring Securities 33

STAR FUNDS INFORMATION 33
- -------------------------------------

Management of the Trust 33

Distribution of Fund Shares 35

Administration of the Funds 36

Brokerage Transactions 36

NET ASSET VALUE 36
- -------------------------------------

INVESTING IN THE FUNDS 37
- -------------------------------------

Minimum Investment Required 37

What Shares Cost 37

Reducing the Sales Charge 38

Systematic Investment Plan 39

Share Purchases 39

Frequent Investor Program 39

Exchanging Securities for Fund
Shares 40

Certificates and Confirmations 40

Dividends and Capital Gains 40

EXCHANGE PRIVILEGE 41
- -------------------------------------

Exchanging Shares of U.S.
Government Income Fund, The
Stellar Fund, The Stellar Tax-
Free Bond Fund, Relative Value
Fund and Capital Appreciation
Fund 41

Exchanging Shares of Strategic
Income Fund and Growth Equity
Fund 41

Exchange-by-Telephone 41

Other Matters Affecting the
Exchange Privilege 41

REDEEMING SHARES 42
- -------------------------------------

Contingent Deferred Sales Charge 43

Elimination of Contingent Deferred
Sales Charge 43

Systematic Withdrawal Plan 44

Accounts with Low Balances 44

SHAREHOLDER INFORMATION 44
- -------------------------------------

Voting Rights 44

EFFECT OF BANKING LAWS 44
- -------------------------------------

TAX INFORMATION 45
- -------------------------------------

Federal Income Tax 45

The Stellar Tax-Free Bond Fund--
Additional Federal Income Tax
Information 45

State and Local Taxes 45

PERFORMANCE INFORMATION 45
- -------------------------------------

ADDRESSES 47
- -------------------------------------

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

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

As of the date of this prospectus, shares of the Stock and Bond Funds are
offered in the following 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.
. Star Growth Equity Fund ("Growth Equity Fund")--seeks to maximize
capital appreciation. Growth Equity Fund pursues this objective by
investing primarily in growth-oriented equity securities of U.S.
companies.
. Star Capital Appreciation Fund ("Capital Appreciation Fund")--seeks to
maximize capital appreciation. Capital Appreciation Fund pursues this
objective by investing primarily in equity securities of 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 are sold and redeemed at net asset value.
Shares of U.S. Government Income Fund, Relative Value Fund, Capital
Appreciation Fund, The Stellar Tax-Free Bond Fund, and Investment Shares of
The Stellar Fund are sold at net asset value plus an applicable sales charge
and redeemed at net asset value. Shares of Strategic Income Fund and Growth
Equity Fund are sold at net asset value and are redeemed at net asset value
less an applicable contingent deferred sales charge. Information on redeeming
shares may be found under "Redeeming Shares." Star Bank, N.A. is the
investment adviser to the Funds.

RISK FACTORS

Investors should be aware of the following general considerations: market
values of fixed-income securities, which constitute a major part of the
investments of several Funds, may vary inversely in response to change in
prevailing interest rates. The foreign securities in which some Funds may
invest

may be subject to certain risks in addition to those inherent in U.S.
investments. One or more Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities, and entering into futures
contracts and related options, entering into foreign currency transactions and
forward foreign currency exchange contracts, borrowing money for investment
purposes, and engaging in short-selling. These risks and those associated with
investing in mortgage-backed securities, foreign securities, when-issued
securities, variable rate securities, and equity securities are described
under " Investment Objective and Policies of Each Fund" and "Portfolio
Investments and Strategies."

STAR STOCK AND BOND FUNDS
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The
Stellar Fund
U.S. Gov't Strategic Relative Growth Capital The Stellar
Income Income Trust Investment Value Equity Appreciation Tax-Free
Fund Fund Shares Shares Fund Fund Fund Bond Fund
---------- --------- ------ ---------- -------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price)........ 3.50% None None 4.50% 4.50% None 4.50% 4.50%
Maximum Sales Load
Imposed on Reinvested
Dividends (as a
percentage of offering
price)................. None None None None None None None None
Contingent Deferred
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) (1)........ None 5.00% None None None 5.00% None None
Redemption Fee (as a
percentage of amount
redeemed, if
applicable)............ None None None None None None None None
Exchange Fee............ None None None None None None None None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net
assets)
Management Fee (after
waiver) (2)............ 0.60% 0.95% 0.95% 0.95% 0.75% 0.75% 0.95% 0.50%
12b-1 Fees (3).......... 0.00% 0.00% None 0.25% 0.00% 0.00% 0.00% 0.00%
Total Other Expenses.... 0.32% 0.41% 0.45% 0.45% 0.29% 0.44% 0.37% 0.30%
Shareholder Servicing
Fees (4).........0.04%
Total Fund Operating
Expenses (after
waiver (5).......... 0.92% 1.36% 1.40% 1.65% 1.04% 1.19% 1.32% 0.80%
</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 waiver at any time at
its sole discretion. The maximum management fee for the Stellar Insured
Tax-Free Bond Fund is 0.75%.

(3) As of the date of this prospectus, the Funds (except for The Stellar
Fund--Investment Shares) are not paying or accruing 12b-1 fees. The Funds
can pay up to 0.25% 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 trust and investment
agency clients' investments in the Funds are converted to such Trust
class. The Stellar Fund-Trust Shares is 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 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 Fund 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, 1977. 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 a Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Star Funds Information."

* Annual Fund Operating Expenses in this table for the Stellar Insured Tax
Free Bond Fund were calculated as a percentage of projected average net
assets, and are based on average expenses expected to be incurred during
the fiscal year ending November 30, 1997.

STAR STOCK AND BOND FUNDS

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

LONG-TERM SHAREHOLDERS INVESTED IN THE Funds (except THE STELLAR FUND--TRUST
SHARES MAY
PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES
PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC.

EXAMPLE

You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales load.
<TABLE>
<CAPTION>

Stellar Fund
U.S. Gov't Strategic Relative Growth Capital The Stellar
Income Income Trust Investment Value Equity Appreciation Tax-Free
Fund Fund Shares Shares Fund Fund Fund Bond Fund
---------- --------- ------ ---------- -------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.................. $ 44 $ 66 $ 14 $ 61 $ 55 $ 64 $ 58 $ 53
3 Years................. $ 63 $ 76 $ 44 $ 95 $ 77 $ 71 $ 85 $ 69
5 Years................. $ 84 $ 86 $ 77 $131 $100 $ 77 $114 n/a
10 Years................ $144 $164 $168 $232 $166 $144 $197 n/a
</TABLE>

You would pay the following expenses on the same investment, assuming no
redemptions:
<TABLE>
<CAPTION>
Strategic Growth
Income Equity
Fund Fund
--------- ------
<S> <C> <C>
1 Year......................................................... $ 14 $ 12
3 Years........................................................ $ 43 $ 38
5 Years........................................................ $ 74 $ 65
10 Years....................................................... $164 $144
</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.

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.

<TABLE>
<CAPTION>
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)

<TABLE>
<CAPTION>
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
- --------------------------------------------------------
<CAPTION>
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)

<TABLE>
<CAPTION>
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
(c) -- -- 0.12% 0.25% 0.33% 0.29%*
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
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)

<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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
(c) -- -- -- 0.31% 1.00% 0.93%*
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
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.

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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.

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 CAPITAL APPRECIATION FUND

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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 Trust Officer and Investment Manager of the 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.

Fred A. Brink, a Fund Manager and Trust Investment Officer for the Capital
Management Division of Star Bank since 1995, has been employed by Star
Bank in various capacities since 1991. Mr. Brink managed the cash
components of the Star Funds from July 1991 through July 1994. In July of
1994, Mr. Brink assumed the responsibility for managing the REIT component
of The Stellar Fund and the Star Strategic Income Fund. As of August 1995,
Mr. Brink also manages certain components of the Star Capital Appreciation
Fund. Mr. Brink earned a Bachelor of Business Administration degree in
Finance from the University of Cincinnati and he is currently enrolled in
the Chartered Financial Analyst program.

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, Strategic Income Fund, Growth Equity
Fund, and Capital Appreciation Fund may pay to the distributor an amount
computed at an annual rate of up to 0.25% of 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.

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 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:
<TABLE>
<CAPTION>
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, the net asset value for Trust Shares will differ from that of Investment
Shares due to the variance in net income realized by each class. Such variance
will reflect only accrued net income to which the shareholders of a particular
class are entitled.

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

MINIMUM INVESTMENT REQUIRED

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

WHAT SHARES COST

Shares of U.S. Government Income Fund are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS
PERCENTAGE OF PUBLIC A PERCENTAGE OF
AMOUNT OF TRANSACTION OFFERING PRICE NET AMOUNT INVESTED
--------------------------------- -------------------- -------------------
<S> <C> <C>
Less than $100,000 3.50% 3.62%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $500,000 2.00% 2.04%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more 0.00% 0.00%
</TABLE>

Shares of Relative Value Fund, Capital Appreciation Fund, Investment Shares of
The Stellar Fund, and The Stellar Tax-Free Bond Fund are sold at their net
asset value next determined after an order is received, plus a sales charge,
as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A SALES CHARGE AS
PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
--------------------------------- --------------------- -------------------
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.25% 0.25%
</TABLE>

The net asset value is determined 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, Growth Equity
Fund, and Trust Shares of The Stellar Fund, are sold at their net asset value
next determined after an order is received. There is no sales charge imposed
by such Funds at the time of purchase. Under certain circumstances described
under "Redeeming Shares," shareholders may be charged a contingent deferred
sales charge by the distributor at the time shares of the Strategic Income
Fund and Growth Equity Fund are redeemed.

In addition, the following persons may purchase shares of U.S. Government
Income Fund, Relative Value Fund and Capital Appreciation Fund, The Stellar
Tax-Free Bond Fund, and Investment Shares of The Stellar 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 the U.S. Government Income
Fund, Relative Value Fund, Capital Appreciation Fund, The Stellar Tax-Free
Bond Fund, and Investment Shares of The Stellar Fund, Star Bank or any
authorized dealer will normally receive up to 89% of the applicable sales
charge. Any portion of the sales charge which is not paid to Star Bank or a
dealer will be retained by the distributor.

The sales charge for shares sold other than through Star Bank or registered
broker/dealers will be retained by the distributor. The distributor may pay
fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Fund
shares.

REDUCING THE SALES CHARGE

The sales charge can be reduced on the purchase of shares through:

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

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table,
larger purchases reduce the sales charge paid. U.S. Government Income Fund,
Relative Value Fund, Capital Appreciation Fund, The Stellar Tax-Free Bond
Fund, and Investment Shares of The Stellar Fund will combine purchases made on
the same day by the investor, his spouse, and his children under age 21 when
it calculates the sales charge.

If an additional purchase of Fund shares is made, the Funds will consider the
previous purchases still invested in the Funds. For example, if a shareholder
already owns shares having a current value at the net asset value of $90,000
and he purchases $10,000 more at the current net asset value, the sales charge
on the additional purchase according to the schedule now in effect would be
3.00%, not 3.50% for U.S. Government Income Fund, and 3.75%, not 4.50% for
Relative Value Fund, Capital Appreciation Fund, The Stellar Tax-Free Bond
Fund, and Investment Shares of The Stellar Fund.

To receive the sales charge reduction, Star Bank or the distributor must be
notified by the shareholder in writing at the time the purchase is made that
Fund shares are already owned or that purchases are being combined. The Funds
will reduce the sales charge after it confirms the purchases.

LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Funds (excluding money market funds) over the next 13 months,
the sales load may be reduced by signing a letter of intent to that effect.
This Letter of Intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 3.50% of the total price of the
shares of U.S. Government Income Fund or 4.50% of the total price of shares of
Relative Value Fund, Capital Appreciation Fund, The Stellar Tax-Free Bond
Fund, or Investment Shares of The Stellar Fund, as the case may be, intended
to be purchased in escrow (in shares) until such purchase is completed. The
shares held in escrow in the shareholder's account will be released at the
fulfillment of the Letter of Intent or the end of the 13-month period,
whichever comes first. If the amount specified in the Letter of 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, Relative
Value Fund, Capital Appreciation Fund, The Stellar Tax-Free Bond Fund, or
Investment Shares of The Stellar Fund have been redeemed, the shareholder has
a one-time right, within 30 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Star Bank or the
distributor must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his shares in any of these Funds, there may be tax
consequences. Shareholders contemplating such transactions should consult
their own tax advisers.

CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or
more funds in the Trust, the purchase price of which includes a sales charge.
For example, if a shareholder concurrently invested $30,000 in one of the
other funds in the Trust with a sales charge and $70,000 in U.S. Government
Income Fund, Relative Value Fund, Capital Appreciation Fund, The Stellar Tax-
Free Bond Fund, or Investment Shares of The Stellar Fund, the sales charge
would be reduced.

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

SYSTEMATIC INVESTMENT PLAN

Once a Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $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) 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.

EXCHANGING SECURITIES FOR FUND SHARES

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

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

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

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

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated 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 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 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 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:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
<S> <C>
Year 1 5.00%
Year 2 4.00%
Year 3 3.00%
Year 4 2.00%
Year 5 1.00%
Year 6 0.00%
</TABLE>

The 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 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 or 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.

- --------
* 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.

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 respect to shares of a Fund, redemptions may reduce, and
eventually deplete, the shareholder's investment in a Fund. For this reason,
payments under this plan should not be considered as yield or income on the
shareholder's investment in a Fund. Due to the fact that shares are sold with
a sales charge, it is not advisable for shareholders to be purchasing shares
of a Fund while participating in this plan.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund or
class in the Trust have equal voting rights, except that only shares of a
particular Fund or class are entitled to vote on matters affecting only that
Fund or class. As a Massachusetts business trust, the Trust is not required to
hold annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of March 3, 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: 8,815,822 shares (60.52%) of U.S. Government Income Fund; 3,389,872
shares (28.46%) of Strategic Income Fund; 2,667,461 shares (53.33%) of The
Stellar Fund-Trust Shares; 10,359,976 shares (90.39%) of the Stellar Insured
Tax-Free Bond Fund; 4,944,632 shares (35.76%) of Relative Value Fund;
4,546,782 shares (59.43%) of Growth Equity Fund; and 4,514,112 shares (73.37%)
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, Relative Value Fund, and Capital
Appreciation Fund, Investment Shares of The Stellar Fund, and The Stellar Tax-
Free Bond Fund, the performance information normally reflects the effect of
the maximum sales load 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 load may be quoted in advertising. With respect to Strategic
Income Fund and Growth Equity Fund, the performance information normally
reflects the effect of non-recurring charges, such as the CDSC, which, if
excluded, would increase the total return and yield.

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

From time to time, 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
- ---------------------------------------------------------------------------------------------
</TABLE>

CUSIP 854911500
CUSIP 854911880
CUSIP 854911708
CUSIP 854911609
CUSIP 854911401 -----------------------------
CUSIP 854911864 Star Bank, N.A.
CUSIP 854911807 Investment Adviser
-----------------------------
G00522-05 (3/97) Federated Securities Corp.
4806TR Distributor
-----------------------------

STAR U.S. GOVERNMENT INCOME FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of the Stock and Bond Funds dated March 31, 1997. This Statement is not a
prospectus itself. To request a copy of the prospectus, free of charge,
write to the Star U.S. Government Income Fund (the "Fund") or call 1-800-
677-FUND.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 2

INVESTMENT OBJECTIVES AND POLICIES 2

Types of Investments 2
Mortgage Backed Securities 2
Adjustable Rate Mortgage Securities (``ARMS') 2
Collateralized Mortgage Obligations (``CMOs') 2
Repurchase Agreements 3
Investments in Foreign Securities 3
Restricted and Illiquid Securities 3
When-Issued and Delayed Delivery Transactions 4
Futures and Options Transactions 4
Futures Contracts 4
Put Options on Futures Contracts 4
Call Options on Futures Contracts 4
``Margin''in Futures Transactions 5
Purchasing Put Options on Portfolio Securities 5
Writing Covered Call Options on 5
Portfolio Securities
Lending of Portfolio Securities 5
Zero-Coupon Securities 5
Portfolio Turnover 6
INVESTMENT LIMITATIONS 6

Fund Ownership 14
Trustee Liability 15
INVESTMENT ADVISORY SERVICES 15

Adviser to the Fund 15

Advisory fees 15
BROKERAGE TRANSACTIONS 15

ADMINISTRATIVE SERVICES 15

CUSTODIAN 16

PURCHASING SHARES 16

Distribution Plan 16
Administrative Arrangements 16
Shareholder Services Plan 16
Conversion to Federal Funds 16
DETERMINING NET ASSET VALUE 17

Determining Market Value of Securities 17
EXCHANGE PRIVILEGE 17

Requirements for Exchange 17
Making an Exchange 17
REDEEMING SHARES 17

Redemption in Kind 17
Massachusetts Partnership Law 18
TAX STATUS 18

The Fund's Tax Status 18
Shareholders' Tax Status 18
TOTAL RETURN 18

YIELD 19

PERFORMANCE COMPARISONS 20

Economic and Market Information 21
Financial Statements 21
APPENDIX 22

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of the Star Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated January 23, 1989. On May 1, 1993, the Board of Trustees (the
"Trustees") approved changing the name of the Trust, effective May 1, 1993,
from Losantiville Funds to Star Funds and changing the Fund's name from
Losantiville U.S. Government Income Fund to Star U.S. Government Income
Fund.
INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is current income. Capital
appreciation is a secondary objective. The investment objectives cannot be
changed without the approval of shareholders. The policies described below
may be changed by the Trustees without shareholder approval. Shareholders
will be notified before any material change in these policies becomes
effective.
TYPES OF INVESTMENTS
Under normal circumstances, the Fund pursues its investment objectives by
investing at least 65% of the value of its total assets in securities
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities. For purposes of this 65%
statement, the Fund will consider collateralized mortgage obligations
issued by U.S. government agencies or instrumentalities to be U.S.
government securities. Additionally, up to 35% of the value of the Fund's
total assets may be invested in investment-grade corporate debt
obligations, commercial paper, time and savings deposits, and debt
securities of foreign issuers.

MORTGAGE BACKED SECURITIES
Mortgage-backed securities generally pay back principal and interest over
the life of the security. At the time the Fund reinvests the payments and
any unscheduled prepayments of principal received, the Fund may receive a
rate of interest which is actually lower than the rate of interest paid on
these securities ("prepayments risks"). Mortgage-backed securities are
subject to higher prepayments risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans may
be prepaid without penalty or premium. Prepayment risk on mortgage- backed
securities tends to increase during periods of declining mortgage interest
rates because many borrowers refinance their mortgages to take advantage of
the more favorable rates. Prepayments on mortgage-backed securities are
also affected by other factors, such as the frequency with which people
sell their homes or elect to make unscheduled payments on their mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES (`ARMS'')
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, a holder of the ARMS, such as the Fund,
would receive monthly scheduled payments of principal and interest and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of U.S. government securities. Like other U.S. government securities, the
market value of ARMS will generally vary inversely with changes in market
interest rates. Thus, the market value of ARMS generally declines when
interest rates rise and generally rises when interest rates decline.

While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS (`CMOS'')
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (Z bond)
typically receives any excess income from the underlying investments
after payments are made to the other classes and receives no principal
or interest payments until the shorter maturity classes have been
retired, but then receives all remaining principal and interest
payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A
bond). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity security (or
B bond). This process continues until all of the classes have been
paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that, under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
INVESTMENTS IN FOREIGN SECURITIES
The Fund may invest in foreign securities. Investments in foreign
securities involve special risks that differ from those associated with

investments in domestic securities. The risks associated with investments
in foreign securities relate to political and economic developments abroad,
as well as those that result from the differences between the regulation of
domestic securities and issuers and foreign securities and issuers. These
risks may include, but are not limited to, expropriation, confiscatory
taxation, currency fluctuations, withholding taxes on interest, limitations
on the use or transfer of Fund assets, political or social instability and
adverse diplomatic developments. In addition, there are restrictions on
foreign investments in other jurisdictions and there tends to be difficulty
in obtaining judgments from abroad and effecting repatriation of capital
invested abroad. Delays could occur in settlement of foreign transactions,
which could adversely affect shareholder equity. Moreover, individual
foreign economies may differ favorably or unfavorably from the domestic
economy in such respects as growth of gross national product, the rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.

The Trustees consider the following criteria in determining the liquidity
of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.

FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.
In the fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
PUT OPTIONS ON FUTURES CONTRACTS
The Fund may purchase listed put options on futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the

Fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
call options on financial futures contracts to hedge its portfolio. When
the Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise, causing
the prices of futures to go down, the Fund's obligation under a call option
on a future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's fixed income or
indexed portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than

the premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio, plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation
is exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
`MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or
good-faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to

market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As writer
of a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of
the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which it has the right to
obtain without payment of further consideration (or has segregated cash in
the amount of any additional consideration).
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay

reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
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

Securities in the Fund's portfolio will be sold whenever the investment
adviser believes it is appropriate to do so in light of the Fund's
investment objectives without regard to the length of time a particular

security may have been held. For the fiscal year ended November 30, 1996
and 1995, the Fund's portfolio turnover rate was 158% and 236%,
respectively.
For the fiscal year ended November 30, 1996 and 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
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amount borrowed. The Fund will not borrow money for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of the portfolio by enabling the Fund to,
for example, meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding.

PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may mortgage, pledge,
or hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the borrowing. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits for
the purchase and sale of futures contracts and related options and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer if, as a result, more than 5%
of the value of its total assets would be invested in the securities of
that issuer. Also, the Fund will not purchase more than 10% of the
outstanding voting securities of any one issuer.

UNDERWRITING
The Fund will not underwrite any issue of securities, except as the Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase pursuant
to its investment objectives, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund
from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Fund's investment objectives, policies, and limitations or the Trust's
Declaration of Trust.
The above investment limitations cannot be changed without shareholder
approval. The following limitations may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN 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 to be liquid under criteria
established by the Trustees.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company,

will not invest more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain expenses
such as management fees, and, therefore, any investment by a fund in shares
of another investment company would be subject to such duplicate expenses.
The Fund will invest in other investment companies primarily for the
purpose of investing its short-term cash on a temporary basis. The adviser
will waive its investment advisory fee on assets invested in securities of
open-end investment companies.
INVESTING IN FOREIGN SECURITIES
The Fund will not invest more than 5% of its total assets in securities of
foreign issuers.

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 contracts and
options entered into by the Fund to 5% of its net assets.
The Fund has no present intent to borrow money in excess of 5% of the value
of its net assets during the coming fiscal year.

STAR FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, 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.

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.
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.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.

As of March 3, 1997, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Firstcinco, Cincinnati, Ohio, owned
approximately 12,012,233 shares (82.47%).
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 its advisory services, Star Bank receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30,
1996, 1995 and 1994, the Fund's Adviser earned $702,550, $594,238 and
$368,975, respectively, of which $0, $0 and $16,353 were voluntarily
waived.

If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee. This
arrangement is not part of the advisory contract and may be amended or
rescinded in the future.

BROKERAGE TRANSACTIONS

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 and
1994, the Fund paid no brokerage commissions.
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 costs for administrative services of
$117,252, $109,087 and $75,082 , 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 Bank Connections Group Banking customers and Star Bank employees
and members of their immediate family). The minimum initial investment may
be waived from time to time for employees and retired employees of Star
Bank, N.A., and for members of the families (including parents,
grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of
such employees or retired employees. The procedure for purchasing shares of
the Fund is explained in the prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's
shares subject to the Plan. Such activities may include the advertising and
marketing of shares of the Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the
Plan, Federated Securities Corp. may pay fees to brokers and others for
such services.
The Trustees expect that the adoption of the Plan will result in the sale
of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of
the Fund will facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objectives.

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
$47,895 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 securities are determined as follows:
oas provided by an independent pricing service; or
oat fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
oyield;
oquality;
ocoupon rate;
omaturity;
otype of issue;
otrading characteristics; and
oother market data.
The Fund will value futures contracts, options, put options on futures, and
financial futures at their market values established by the exchanges at
the close of option 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.
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. Redemption will be made on days on
which the Fund computes its net asset value. Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed or on
federal holidays when wire transfers are restricted. Redemption procedures
are explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be

made in readily marketable securities to the extent that such securities
are available. If this state's policy changes, the Fund reserves the right
to redeem in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and;
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional shares. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction or exclusion
available to corporations and individuals. These dividends and any short-
term capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.

TOTAL RETURN

The Fund's average annual total return for the one year ended November 30,
1996, and for the period from January 5, 1993 (date of initial public
investment), to November 30, 1996, were 0.83% and 4.88%, respectively.

The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of Shares owned at the end of
the period by the 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 any dividends and distributions.
YIELD

The Fund's SEC yield for the thirty-day period ended November 30, 1996, was
5.32%.

yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and;
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and maximum offering price per share fluctuate daily. Both net
earnings and maximum offering price per share are factors in the
computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute

offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the "U.S. government fund" category
in advertising and sales literature.
oMERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index
comprised of U.S. government securities with maturities between 1
and 10 years. Index returns are calculated as total returns for
periods of one, three, six, and twelve months as well as year-to-
date. The index is produced by Merrill Lynch, Pierce, Fenner &
Smith, Inc.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX is an unmanaged index
composed of all bonds that are investment grade rated Baa or higher
by Moody's or BBB or higher by S&P, if unrated by Moody's.
Investments can not be made in an index.
oLEHMAN BROTHERS GOVERNMENT (LT) INDEX, for example, is an index
composed of bonds issued by the U.S. government or its agencies
which have at least $1 million outstanding in principal and which
have maturities of ten years or longer. Index figures are total
return figures calculated monthly.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on monthly reinvestment of dividends over a specified period

of time. Advertisements may quote performance information which does not
reflect the effect of the sales 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, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.

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. A copy of the Annual Report for the Fund may be obtained
without charge by contacting Star Bank, N.A. at the address located on the
back cover of the Stock and Bond Funds Combined Prospectus or by calling 1-
800-677-FUND.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.

AA--Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high- grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics
as well.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to

foreseeable future developments, short-term debt of these issuers is
generally rated "F- 1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal

cash generation; well-established access to a range of financial markets
and assured sources of alternative liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
FITCH-1--VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F- 1+.
FITCH-2--GOOD CREDIT QUALITY. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ and F-1 ratings.

854911708
2102102B(3/97)

STAR STRATEGIC INCOME FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds dated March 31, 1997. This
Statement is not a prospectus itself. To request a copy of the
prospectus, free of charge, write to Star Strategic Income Fund (the
"Fund") or call 1-800-677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Warrants 1
Convertible Securities 1
Collateralized Mortgage Obligations ("CMOs") 1
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Lending of Portfolio Securities 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 3
Futures Contracts 3
"Margin" in Futures Transactions 3
Put Options on Financial Futures Contracts 3
Call Options on Financial and Stock Index
Futures Contracts 4
Stock Index Options 4
Over-the-Counter Options 5
Reverse Repurchase Agreements 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5

Fund Ownership 13
Trustee Liability 14
INVESTMENT ADVISORY SERVICES 14

Adviser to the Fund 14
Advisory Fees 14
ADMINISTRATIVE SERVICES 15

CUSTODIAN 15

PURCHASING SHARES 15

Distribution Plan 15
Administrative Arrangements 16
Shareholder Services Plan 16
Conversion to Federal Funds 16
DETERMINING NET ASSET VALUE 16

Determining Market Value of Securities 16
Trading in Foreign Securities 17
EXCHANGE PRIVILEGE 17

Requirements for Exchange 17
Making an Exchange 17
Redemption in Kind 17
Massachusetts Partnership Law 17
TAX STATUS 18

The Fund's Tax Status 18
Foreign Taxes 18
Shareholders' Tax Status 18
Capital Gains 18
TOTAL RETURN 18

YIELD 18

PERFORMANCE COMPARISONS 20

Economic and Market Information 20

Financial Statements 20
APPENDIX 22

GENERAL INFORMATION ABOUT THE FUND

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

The Fund's investment objective is to generate high current income. The
investment objective cannot be changed without the approval of
shareholders. Unless indicated otherwise, the policies described below may
be changed by the Trustees without shareholder approval. Shareholders will
be notified before any material change in these policies becomes effective.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period
of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life
of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common

stock. Warrants required in units or attached to securities may be deemed
to be without value for purposes of this policy.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds of appropriate rating or
comparable quality (as described in the prospectus) that can be used, in
whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before
the bond's maturity. Convertible securities are senior to equity securities
and, therefore, have a claim to assets of the corporation prior to the
holders of common stock in the case of liquidation. However, convertible
securities are generally subordinated to similar nonconvertible securities
of the same company. The interest income and dividends from convertible
bonds and preferred stocks provide a stable stream of income with generally
higher yields than common stocks, but lower than non-convertible securities
of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common shares will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In

selecting convertible securities for the Fund, the adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of
the issuer's profits, and the issuer's management capability and practices.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four tranches of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date and the final tranche (Z
bonds) typically receives any excess income from the underlying
investments after payments are made to the other tranches and receives
no principal or interest payments until the shorter maturity tranches
have been retired, but then receives all remaining principal and
interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The tranches of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity tranche (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity tranche (or B

bonds). This process continues until all of the tranches have been
paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. One or more
of the tranches often bear interest at an adjustable rate. The interest
portion of these payments is distributed by the Fund as income, and the
principal portion is reinvested.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's

portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
LENDING OF PORTFOLIO SECURITIES
As a fundamental policy of the Fund, the Fund may lend portfolio
securities. The collateral received when the Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund would not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper

is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and put options on financial futures contracts, and
writing call options on futures contracts. The Fund may also write covered
call options on portfolio securities to attempt to increase its current
income. The Fund will maintain its positions in securities, options rights,
and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out over-the-counter or on a nationally recognized
exchange which provides a secondary market for options of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge against
the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Fund also may purchase

and sell stock index futures to hedge against change in prices. The Fund
will not engage in futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future. For example, in
the fixed income securities market, prices move inversely to interest
rates. A rise in the rate means a drop in the price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period.
The Fund would "go long" (agree to purchase securities in the future at a
predetermined price) to hedge against a decline in market interest rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of margin
in securities transactions in that initial margin in futures transactions

does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily change
in value of the futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from
market factors, such as an anticipated increase in interest rates. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund

will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sales of
the second option will be large enough to offset both the premium paid by
the Fund for the original option plus the decrease in value of the hedged
securities. Alternatively, the Fund may exercise its put option to close
out the position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would then
deliver the futures contract in return for payment of the strike price. If
the Fund neither closes out nor exercises an option, the option will expire
on the date provided in the option contract, and only the premium paid for
the contract will be lost.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
and over-the-counter call options on financial and stock index futures
contracts (including cash-settled stock index options) to hedge its
portfolio against an increase in market interest rates or a decrease in
stock prices. When the Fund writes a call option on a futures contract, it
is undertaking the obligation of assuming a short futures position (selling
a futures contract) at the fixed strike price at any time during the life
of the option if the option is exercised. As stock prices fall or market
interest rates rise, causing the prices of futures to go down, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that

the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value off the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation
is exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.

STOCK INDEX OPTIONS
The Fund may write (sell), and may purchase, put options on stock indices
listed on national securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market value of the
stocks listed in the index.
When the Fund writes an option, an amount equal to the net premium received
by the Fund is included in the liability section of the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred
credit will be subsequently marked to market to reflect the current market
value of the option written. The current market value of a traded option is

the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated
expiration date or if the Fund enters into a closing purchase transaction,
the Fund will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated.
The purchase of a put option would entitle the Fund, in exchange for the
premium paid, to sell the underlying securities at a specified price during
the option period. The purchase of such puts is designed merely to offset
or hedge against a decline in the market value of an index. The Fund would
ordinarily recognize a gain if the value of the index decreased below the
exercise price sufficiently to cover the premium and would recognize a loss
if the value of the index remained at or above the exercise price.
The effectiveness of writing or purchasing stock index options will depend
upon the extent to which price movements in the Fund's portfolio correlate
with price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Fund will realize a gain or
loss from the purchase of the option on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the 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 prices of individual
stocks.

OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements pursuant to a
fundamental policy. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in
cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will
be able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
PORTFOLIO TURNOVER

security may have been held. For the fiscal year ended November 30, 1996,
and 1995, the Fund's portfolio turnover rates were 201% and 258%,
respectively.
For the fiscal year ended November 30, 1996 and 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

BUYING ON MARGIN
The Fund will not purchase securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions,
except that the Fund may make margin payments in connection with its
use of financial futures contracts or related options and
transactions.
BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amount borrowed, either (i) as a temporary, extraordinary, or
emergency measure or to facilitate management of the Fund by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenience or disadvantageous, or (ii)
for investment purposes. The Fund will not purchase any securities for
the purpose stated under clause "(i)" above while any borrowings in
excess of 5% of its total assets are outstanding.

PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: (a)
the deposit of assets in escrow in connection with the writing of
covered put or call options and the purchase of securities on a when-
issued or delayed delivery basis; and (b) collateral arrangement with
respect to (i) the purchase and sale of stock options (and options on
stock indices) and (ii) initial or variation margin for futures
contracts. Margin deposits for the purchase and sale of futures
contracts and related options are not deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested in the
securities of that issuer, or if it would own more than 10% of the
outstanding voting securities of that issuer.

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

INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.
SELLING SHORT
The Fund will not sell securities short unless (1) it owns, or has a
right to acquire, an equal amount of such securities or (2) if it does
not own the securities, it has segregated an amount of its other
assets equal to the lesser of the market value of the securities sold
short or the amount required to acquire such securities. While in a
short position, the Fund will retain the securities, rights, or
segregated assets.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies, and limitations or the Trust's Declaration of Trust.

CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following investment limitations may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN 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 to be liquid
under criteria established by the Trustees.
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.
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 operating policies of the Fund, which may be changed without shareholder
approval, (a) no securities will be sold short if, after effect is given to
any such short sale, the total market value of all securities sold short
would exceed 25% of the value of the Fund's net assets; (b) the Fund may
not sell short the securities of any single issuer listed on a national
securities exchange to the extent of more than 5% of the value of the
Fund's net assets; (c) the Fund may not sell short the securities of any
class of an issuer to the extent, at the time of the transaction, of more
than 5% of the outstanding securities of that class; and (d) the Fund at no
time will have more than 15% of the value of its net assets in deposits on
short sales against the box.

STAR FUNDS MANAGEMENT

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

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.

"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 March 3, 1997, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Firstcinco, Cincinnati, Ohio, owned
approximately 7,171,791 shares (60.21%).

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

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 November 10, 1994 (start of business) to
November 30, 1995, the Fund's Adviser earned $689,394, and $248,983,
respectively of which $0, and $24,912, respectively were voluntarily
waived.
BROKERAGE TRANSACTIONS

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, and for the period from November 10,
1994 (start of business) to November 30, 1995, the Fund paid total
brokerage commissions of $197,130, and $99,885, 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

30, 1995, the Fund incurred administrative service fees of $72,413, and
$48,356, respectively of which $0, and $24,912 were voluntarily waived.

CUSTODIAN

Except under certain circumstances described in the prospectus, shares of
the Fund are sold at their net asset value on days the New York Stock
Exchange and the Federal Reserve Wire System are open for business.
Except under the circumstances described in the prospectus, the minimum
initial investment in the Fund by an investor is $1,000. The minimum
initial investment may be waived from time to time for employees and
retired employees of Star Bank, N.A., and for members of the families
(including parents, grandparents, siblings, spouses, children, aunts,
uncles, and in-laws) of such employees or retired employees. The procedure
for purchasing shares of the Fund is explained in the prospectus under
"Investing in the Funds."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's

shares subject to the Plan. Such activities may include the advertising and
marketing of shares of the Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the
Plan, Federated Securities Corp. may pay fees to brokers and others for
such services. The Trustees expect that the adoption of the Plan will
result in the sale of a sufficient number of shares so as to allow the Fund
to achieve economic viability. It is also anticipated that an increase in
the size of the Fund will facilitate more efficient portfolio management
and assist the Fund in seeking to achieve its investment objective.

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

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
$30,489 were pursuant to the Shareholder Services Plan.

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

oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, latest bid prices;
ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor all other securities, at fair value as determined in good faith
by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The Fund will value options at their market values established by the
exchanges at the close of options trading on such exchanges unless the
Trustees determine in good faith that another method of valuing option
positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
the Fund values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the

New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they are
determined and the closing of the New York Stock Exchange. If such events
materially affect the value of portfolio securities, these securities may
be valued at their fair value as determined in good faith by the Trustees,
although the actual calculation may be done by others.
EXCHANGE PRIVILEGE

cannot be executed on days on which the New York Stock Exchange is closed
or on federal holidays restricting wire transfers. Redemption procedures
are explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective fund's portfolio. To
satisfy registration requirements in a particular state, redemption in kind
will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
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

FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount
of foreign taxes to which the Fund would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends and any short-term capital gains are taxable as ordinary
income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
TOTAL RETURN

The Fund's average annual 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, were 1.59% and 7.82%, respectively.

The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment

to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of Shares owned at the end of
the period by the 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 the thirty-day period ended November 30, 1996 was
5.54%. The yield for the Fund is determined by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by the Fund over a thirty-day period by the maximum offering price
per share of the Fund on the last day of the period. This value is then
annualized using semi- annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in the Fund, the performance
will be reduced for those shareholders paying those fees.

PERFORMANCE COMPARISONS

The performance of the Fund depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER 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.

oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's Index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total
returns
which are calculated on non-standardized base periods. These total returns
also represent the historic change in the value of an investment in the
Fund based on reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the contingent deferred sales charge.
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, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.
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. A copy of the Annual Report for the Fund may be obtained
without charge by contacting Star Bank, N.A. at the address located on the
back cover of the Stock and Bond Funds Combined Prospectus or by calling 1-
800-677-FUND.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes

in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
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.

FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F- 1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in 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 extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICES, INC., COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal

cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.

PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--VERY STRONG CREDIT QUALITY. Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F- 1+.
F-2--GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as
great as the F-1+ and F-1 ratings.

854911880
G00522-03(3/97)

THE STELLAR FUND
INVESTMENT SHARES
TRUST SHARES
(A PORTFOLIO OF THE STAR FUNDS)
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the prospectus of the Stock and Bond Funds ^dated March 31, 1997. This
Combined Statement is not a prospectus itself. To request a copy of the
prospectus, free of charge, write to The Stellar Fund (the "Fund") or
call 1-800- 677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
Convertible Securities 1
Collateralized Mortgage Obligations ("CMOs") 2
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Restricted Securities 2
Over-the-Counter Options 3
Reverse Repurchase Agreements 3
Zero-Coupon Securities 3
Portfolio Turnover 4
INVESTMENT LIMITATIONS 4

Fund Ownership 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 12

Adviser to the Fund 12
Advisory Fees 12
BROKERAGE TRANSACTIONS 12

ADMINISTRATIVE SERVICES 12

CUSTODIAN 12

PURCHASING SHARES 13

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
REDEEMING SHARES 14

Redemption in Kind 14
Massachusetts Partnership Law 15
TAX STATUS 15

The Fund's Tax Status 15
Shareholders' Tax Status 15
TOTAL RETURN 15

YIELD 15

PERFORMANCE COMPARISONS 16

Economic and Market Information 17
Financial Statements 17
APPENDIX 18

Standard and Poor's Ratings Group Corporate Bond Ratings 18
Moody's Investors Service, Inc., Corporate Bond Ratings 18
Fitch Investors Service, Inc., Long-Term
Debt Ratings 19

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of the Star Funds (the "Trust''). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated January 23, 1989. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. On May 1, 1993, the Board of Trustees
(the "Trustees'') approved changing the name of the Trust, effective May 1,
1993, from Losantiville Funds to Star Funds.
Shares of the Fund are offered in two classes, Investment Shares and Trust
Shares (individually and collectively referred to as "Shares'' as the
context may require). This Combined Statement of Additional Information
relates to both classes of the above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to maximize total return, a combination
of dividend income and capital appreciation. The investment objective
cannot be changed without the approval of shareholders. The policies
described below may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
TYPES OF INVESTMENTS
Below are securities in which the Fund may invest from time to time.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
These securities are backed by:

othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe 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:
oFederal Home Loan Banks;
oFederal National Mortgage Association;
oStudent Loan Marketing Association; and
oFederal Home Loan Mortgage Corporation.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used, in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants,
which are options to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before the bond's
maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible securities
are generally subordinated to similar nonconvertible securities of the same
company. The interest income and dividends from convertible bonds and

preferred stocks provide a stable stream of income with generally higher
yields than common stocks, but lower than non-convertible securities of
similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common shares will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In
selecting convertible securities for the Fund, the adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of
the issuer's profits, and the issuer's management capability and practices.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four tranches of
securities: the first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date and the final tranche (Z
bonds) typically receives any excess income from the underlying
investments after payments are made to the other tranches and receives
no principal or interest payments until the shorter maturity tranches

have been retired, but then receives all remaining principal and
interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The tranches of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity tranche (or A
bonds). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity tranche (or B
bonds). This process continues until all of the tranches have been
paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. One or more
of the tranches often bear interest at an adjustable rate. The interest
portion of these payments is distributed by the Fund as income, and the
principal portion is reinvested.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment for
the securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction is settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of an amount of
more than 20% of the total value of its assets.

REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that it is purchasing paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold
to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Funds believe that Section 4(2)
commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees, including

Section 4(2) commercial paper, as determined by the Funds' investment
adviser, as liquid and not subject to the investment limitations applicable
to illiquid securities. In addition, because Section 4(2) commercial paper
is liquid, the Fund intends to not subject such paper to the limitation
applicable to restricted securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled. 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.
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

and 1995, the Fund's portfolio turnover rates were 65% and 104%,
respectively.
For the fiscal year ended November 30, 1996 and 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

The Fund will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of portfolio securities.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio securities.
This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities would
be inconvenient or disadvantageous. Interest paid on borrowed funds
will not be available for investment. The Fund will liquidate any such

borrowings as soon as possible and may not purchase any portfolio
securities while any borrowings are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer, except in cash or cash investments,
securities guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements collateralized by such
securities nor will it purchase more than 10% of any class of voting
securities of any one issuer.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may acquire as
much as 10% of the voting securities of an issuer and may exercise its
voting power in the Fund's best interest. From time to time, the Fund,
together with other investment companies advised by affiliates or
subsidiaries of Star Bank, may together buy and hold substantial
amounts of a company's voting stock. All such stock may be voted
together. In some cases, the Fund and the other investment companies
might collectively be considered to be in control of the company in
which they have invested. Officers or affiliates of the Fund might
possibly become directors of companies in which the Fund holds stock.

INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers with records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or its investment advisers
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies and limitations.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, although it may invest in
securities secured by real estate or interests in real estate.
INVESTING IN COMMODITIES OR MINERALS
The Fund will not purchase or sell commodities or commodity contracts.
The Fund will not purchase or sell oil, gas, or other mineral
development programs, except for precious metal securities as
described in the prospectus.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase
or hold corporate or government bonds, debentures, notes, certificates
of indebtedness or other debt securities permitted by its investment
objective and policies.

CONCENTRATION OF INVESTMENTS IN ONE INDUSTRY
The Fund will not invest more than 25% or more of the value of its
total assets in one industry.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except as permitted by its
investment objective and policies.
DEALING IN PUTS AND CALLS
The Fund will not sell puts, calls, straddles or spreads or any
combination of them, except as permitted by its investment policies as
described in the prospectus.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under the Securities
Act of 1933 except for commercial paper issued under Section 4(2) of
the Securities Act of 1933 and certain other restricted securities
which meet the criteria for liquidity as established by the Trustees.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in general. The Fund will not purchase or acquire
any security issued by a registered closed-end investment company if
immediately after the purchase or acquisition 10% or more of the
voting securities of the closed-end investment company would be owned
by the Fund and other investment companies having the same adviser and
companies controlled by these investment companies. The Fund will
purchase securities of closed- end investment companies only in open

market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, reorganization, or acquisition of
assets. It should be noted that investment companies incur certain
expenses, such as management fees, and, therefore, any investment by
the Fund in these securities would be subject to duplicate expenses.
The following investment limitations may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter
options, and certain restricted securities not determined to be liquid
under criteria established by the Trustees.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year. Additionally, the Fund does not expect
to borrow money or pledge securities, in excess of 5% of the value of its
total assets in the coming fiscal year.
In connection with investing in shares of other investment companies, it
should be noted that investment companies incur certain expenses such as
management fees, and, therefore, any investment by the Fund in such shares
would be subject to customary expenses.

STAR FUNDS MANAGEMENT

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

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.

As of March 3, 1997 the following shareholder of record owned 5% or more of
the outstanding Trust Shares of the Fund: Firstcinco, Cincinnati, Ohio,
owned approximately 40,668,72 shares (81.30%).
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.

ADVISER TO THE FUND
The Fund's investment adviser is Star Bank, N.A. (``Star Bank'' or
``Adviser''). Star Bank is a wholly-owned subsidiary of StarBanc
Corporation. Because of the internal controls maintained by Star Bank to
restrict the flow of non-public information, Fund investments are typically
made without any knowledge of Star Bank's or its affiliates' lending
relationships with an issuer.

Star Bank shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES

For its advisory services, Star Bank receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30,
1996, 1995, and 1994, the Adviser earned $1,078,738, $1,082,338, and
$923,344, 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 $125,215, $221,666,
and $247,930, 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 $113,861,
$125,852, and $118,964, respectively.

CUSTODIAN

PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value plus a sales charge, if any, on days the New
York Stock Exchange and the Federal Reserve Wire System are open for
business.
Except under the circumstances described in the prospectus, the minimum
initial investment in the Fund by an investor is $1,000. With respect to
the Investment Shares, the minimum initial investment may be waived from
time to time for employees and retired employees of Star Bank, N.A., and
for members of the families (including parents, grandparents, siblings,
spouses, children, aunts, uncles, and in-laws) of such employees or retired
employees. The procedure for purchasing Shares is explained in the
prospectus under "Investing in the Funds."
DISTRIBUTION PLAN (INVESTMENT SHARES)
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 objectives. For the fiscal year
ended November 30, 1996, the Fund paid $121,479 to the distributor on
behalf of Investment Shares.

For the fiscal year ended November 30, 1996 payments in the amount of
$26,289 were pursuant to the Shareholder Services Plan.

oin the absence of recorded sales of equity securities, according to
the mean between the last closing bid and asked prices and for bonds
and other fixed income securities as determined by an independent
pricing service;
ofor unlisted equity securities, the latest bid prices; or
ofor all other securities, at fair value as determined in good faith
by the Trustees.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
the Trust values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they are
determined and the closing of the New York Stock Exchange. If such events
materially affect the value of portfolio securities, these securities may
be valued at their fair value as determined in good faith by the Trustees,
although the actual calculation may be done by others.
EXCHANGE PRIVILEGE

Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and the proceeds invested in
shares of the other fund. Further information on the exchange privilege and
prospectuses may be obtained by calling Star Bank at the number on the
cover of this Statement.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after Star
Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed or on
federal holidays restricting wire transfers. Redemption procedures are
explained in the prospectus under ``Redeeming Shares.''
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective fund's portfolio. To
satisfy registration requirements in a particular state, redemption in kind
will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate. Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such securities at the
same value employed in determining net asset value and selecting the
securities in a manner the Trustees determine to be fair and equitable.

The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
respective class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation, and to the extent designated by the Fund as so qualifying.
These dividends and any short-term capital gains are taxable as ordinary
income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held Shares.

TOTAL RETURN

The Fund's average annual total returns for Investment Shares for the one
and five year ended November 30, 1996, and for the period from October 18,
1991 (date of initial public investment), to November 30, 1996, were
11.43%, 9.55% and 8.88%, respectively.
The average annual total returns for Trust Shares for the one year ended
November 30, 1996, and for the period from April 11, 1994 (date of initial
public investment) to November 30, 1996, were 16.94% and 11.40%,
respectively.

The average annual total return for both classes of Shares of the Fund is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the net asset value per
Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable 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 2.22%. The Fund's yield for Trust Shares for the
thirty-day period ended November 30, 1996, was 2.57%.

The yield for both classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the Securities and
Exchange Commission) earned by either class of Shares over a thirty-day
period by the maximum offering price per Share of either class of Shares on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by either class of Shares because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of Shares, the performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS

The performance of both classes of Shares depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's or either class of Shares' expenses; and
ovarious other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and the maximum offering price per Share fluctuate

daily. Both net earnings and offering price per Share are factors in the
computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of either class of Shares' performance. When comparing
performance, investors should consider all 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:
oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``balanced'' category in
advertising and sales literature.
oDOW 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.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE TOTAL INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non-convertible

domestic bonds of companies in industry, public utilities, and
finance. Tracked by Shearson Lehman Brothers, Inc., the index has an
average maturity of nine years. It calculates total return for one-
month, three-month, twelve-month, and ten- year periods, and year-
to-date.
oSTANDARD & 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.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA-Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR-Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to

as ``gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high- grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
NR-Not rated by Moody's.

FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in
the "AAA" and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1+." A-Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment.
NR-NR indicates that Fitch does not rate the specific issue.

854911609
854911708
1072404B (3/97)

THE STELLAR INSURED TAX-FREE BOND FUND
(A PORTFOLIO OF THE STAR FUNDS)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of the Stock and Bond Funds dated March 31, 1997. This Statement is not a
prospectus itself. To request a copy of the prospectus, free of charge, or
a paper copy of this Statement of Additional Information, if you received
it electronically, write to The Stellar Insured Tax-Free Bond Fund (the
`Fund'') or call 1-800-677-FUND.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

STAR BANK, N.A.

INVESTMENT ADVISER

FEDERATED SECURITIES CORP.

Distributor

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Acceptable Investments 1
Temporary Investments 6
Municipal Bond Insurers 7
Investment Limitations 8

STAR FUNDS MANAGEMENT 11

Fund Ownership 14
Officers and Trustees Compensation 14
Trustee Liability 14

INVESTMENT ADVISORY SERVICES 15

Adviser to the Fund 15
Advisory Fees 15

BROKERAGE TRANSACTIONS 15

OTHER SERVICES 16

Fund Administration 16

Custodian 16
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accounting
Services 16
Independent Public Accountants 16

PURCHASING SHARES 16

Distribution Plan 16
Administrative Arrangements 17
Shareholder Services Plan 17
Conversion to Federal Funds 17

DETERMINING NET ASSET VALUE 17

Determining Market Value of Securities 17

EXCHANGE PRIVILEGE 18

Requirements for Exchange 18
Making an Exchange 18

REDEEMING SHARES 17

Redemption in Kind 17

MASSACHUSETTS PARTNERSHIP LAW 19

TAX STATUS 19

The Fund's Tax Status 19
Shareholders' Tax Status 19

TOTAL RETURN 20

YIELD 20

TAX-EQUIVALENT YIELD 20

Tax-Equivalency Table 21

PERFORMANCE COMPARISONS 22
Economic and Market Information 23

APPENDIX 24

GENERAL INFORMATION ABOUT THE FUND

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

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income which is
exempt from federal income tax. The objective cannot be changed without
approval of shareholders. The investment policies described below may be
changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS

The Fund invests primarily in municipal securities that are covered by
insurance guaranteeing the timely payment of principal and interest.

CHARACTERISTICS

The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.

A municipal security will be determined by the Fund's investment
adviser to meet the quality standards established by the Trustees if
it is of comparable quality to municipal securities within the Fund's
rating requirements. The Trustees consider the creditworthiness of
the issuer of a municipal security, the issuer of a participation
interest if the Fund has the right to demand payment from such
issuer, or the guarantor of payment by either of those issuers. If a
security loses its rating or has its rating reduced below the
required minimum after the Fund has purchased it, the Fund is not
required to sell the security from its portfolio, but will consider
doing so. If ratings made by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch Investors
Service, Inc. ("Fitch"), Duff & Phelps Credit Rating Co. ("D&P") or
any other nationally recognized statistical rating organization (an
"NRSRO") change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in the
Fund's prospectus.

TYPES OF ACCEPTABLE INVESTMENTS

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

o industrial development bonds;

o municipal notes and bonds;

o serial notes and bonds sold with a series of maturity dates;

o tax anticipation notes and bonds sold to finance working capital
needs of municipalities in anticipation of receiving taxes at a
later date;

o bond anticipation notes sold in anticipation of the issuance of
longer-term bonds in the future;

o prerefunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds are assured through the
first call date by the deposit in escrow of U.S. government
securities); and

o general obligation bonds secured by a municipality's pledge of
taxation.

PARTICIPATION INTERESTS

The financial institutions from which the Fund purchases
participation interests frequently provide or secure from other
financial institutions irrevocable letters of credit or guarantees
and give the Fund the right to demand payment on specified notice
(normally within thirty days) from the issuer of the letter of credit
or guarantee. These financial institutions may charge certain fees
in connection with their repurchase commitments, including a fee
equal to the excess of the interest paid on the municipal securities
over the negotiated yield at which the participation interests were
purchased by the Fund. By purchasing participation interests, the

Fund is buying a security meeting the quality requirements of the
Fund and is also receiving the tax-free benefits of the underlying
securities.

In the acquisition of participation interests, the Fund's investment
adviser will consider the following quality factors:

o a high-quality underlying municipal security (of which the Fund
takes possession);

o a high-quality issuer of the participation interest; or

o a guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.

VARIABLE RATE MUNICIPAL SECURITIES

Variable interest rates generally reduce changes in the market value
of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations.

Many municipal securities with variable interest rates purchased by
the Fund are subject to repayment of principal (usually within seven
days) on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest from

the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.

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

FUTURES CONTRACTS. The Fund may purchase and sell financial futures
contracts to hedge against the effects of changes in the value of
portfolio securities due to anticipated changes in interest rates and
market conditions without necessarily buying or selling the
securities. Although some financial futures contracts call for
making or taking delivery of the underlying securities, in most cases
these obligations are closed out before the settlement date. The
closing of a contractual obligation is accomplished by purchasing or
selling an identical offsetting futures contract. Other financial
futures contracts by their terms call for cash settlements.

A futures contract is a firm commitment by two parties; the seller,
who agrees to make delivery of the specific type of security called

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

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

A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value,
the Fund will mark to market its open futures position. The Fund is
also required to deposit and maintain margin when it writes call
options on futures contracts. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the
Fund's custodian (or the broker, if legally permitted) to
collateralize the position and thereby insure that the use of such
futures contracts is unleveraged.

To the extent required to comply with CFTC Regulation 4.5 and thereby
avoid status as a "commodity pool operator," the Fund will not enter
into a futures contract for other than bona fide hedging purposes, or
purchase an option thereon, if immediately thereafter the initial
margin deposits for futures contracts held by it, plus premiums paid
by it for open options on futures contracts, would exceed 5% of the
market value of the Fund's net assets, after taking into account the
unrealized profits and losses on those contracts it has entered into;
and, provided further, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be

excluded in computing such 5%. Second, the Fund will not enter into
these contracts for speculative purposes; rather, these transactions
are entered into only for bona fide hedging purposes, or other
permissible purposes pursuant to regulations promulgated by the CFTC.
Third, since the Fund does not constitute a commodity pool, it will
not market itself as such, nor serve as a vehicle for trading in the
commodities futures or commodity options markets. Finally, because
the Fund will submit to the CFTC special calls for information, the
Fund will not register as a commodities pool operator.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may purchase
listed put options on financial contracts to protect portfolio
securities against decreases in value resulting from market factors,
such as an anticipated increase in interest rates or decrease in
stock prices. Unlike entering directly into a futures contract,
which requires the purchaser to buy a financial instrument on a set
date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on
or before a future date whether to assume a short position at the
specified price.

Generally, if the hedged portfolio securities decrease in value
during the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received
by the Fund upon the sale of the second option will be large enough

to offset both the premium paid by the Fund for the original option
plus the decrease in value of the hedged securities.

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

The Fund may write listed put options on financial futures contracts
to hedge its portfolio against a decrease in market interest rates.
The Fund will use these transactions to attempt to protect its
ability to purchase portfolio securities in the future at price
levels existing at the time it enters into the transaction. When the
Fund writes (sells) a put on a futures contract, it receives a cash
premium in exchange for granting to the purchaser of the put the
right to receive from the Fund, at the strike price, a short position
in such futures contract (the Fund undertakes the obligation to
assume a long futures position), even though the strike price upon
exercise of the option is greater than the value of the futures
position received by such holder. As market interest rates decrease,
the market price of the underlying futures contract normally
increases. As the market value of the underlying futures contract
increases, the buyer of the put option has less reason to exercise
the put because the buyer can sell the same futures contract at a

higher price in the market. If the value of the underlying futures
position is not such that exercise of the option would be profitable
to the option holder, the option will generally expire without being
exercised. The premium received by the Fund can then be used to
offset the higher prices of portfolio securities to be purchased in
the future.

In will generally be the policy of the Fund, in order to avoid the
exercise of an option sold by it, to cancel its obligations under the
option by entering into a closing purchase transaction, if available,
unless it is determined to be in the Fund's interest to deliver the
underlying futures position. A closing purchase transaction consists
of the purchase by the Fund of an option having the same term as the
option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in
executing a closing purchase transaction may be higher than the
premium received when the option was sold, depending in large part
upon the relative price of the underlying futures position at the
time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by
the Fund for the initial option.

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. In addition to
purchasing put options on futures, the Fund may write (sell) listed
and over-the-counter call options on financial futures contracts to
hedge its portfolio. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike

price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of
futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing
the value of the Fund's call option position to increase. In other
words, as the underlying futures price does down below the strike
price, the buyer of the option has no reason to exercise the call, so
that the Fund keeps the premium received for the option. This
premium can substantially offset the drop in value of the Fund's
portfolio securities.

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

An additional way in which the Fund may hedge against decreases in
market interest rates is to buy a listed call option on a financial
futures contract. The Fund will use these transactions to attempt to
protect its ability to purchase portfolio securities in the future at
price levels existing at the time it enters into the transaction.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but
not the obligation, to enter into the underlying futures contract at
a strike price determined at the time the call was purchased,
regardless of the comparative market value of such futures position

at the time the option is exercised. The holder of a call option has
the right to receive a long (or buyer's) position in the underlying
futures contract. As market interest rates fall or stock prices
increase, the value of the underlying futures contract will normally
increase, resulting in an increase in value of the Fund's option
position. When the market price of the underlying futures contract
increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price.
Prior to the exercise or expiration of the call option, the Fund
could sell an identical call option and close out its position. If
the premium received upon selling the offsetting call is greater than
the premium originally paid, the Fund has completed a successful
hedge.

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

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may
purchase put options on portfolio securities to protect against price
movements in the Fund's portfolio securities. A put option gives the

Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term
of the option.

OVER-THE-COUNTER OPTIONS. The Fund may generally purchase over-the-
counter options on portfolio securities in negotiated transactions
with the writers of the options when options on the portfolio
securities held by the Fund are not traded on an exchange. The Fund
purchases options only with investment dealers and other financial
institutions (such as commercial banks or savings associations)
deemed creditworthy by the Fund's investment adviser.

Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded
options are third party contracts with standardized strike prices and
expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while over-
the-counter options may not.

RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of
the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently to market
changes than the portfolio securities. In addition, the Fund's
investment adviser could be incorrect in its expectations about the

direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the futures
contract or option.

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

To minimize risks, the Fund may not purchase or sell futures
contracts or related options if immediately thereafter the sum of the
amount of margin deposits on the Fund's existing futures positions
and premiums paid for related options would exceed 5% of the market
value of the Fund's total assets after taking into account the
unrealized profits and losses on those contracts it has entered into;
and, provided further, that in the case of an option that is in-the-
money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the
Fund's custodian (or the broker, if legally permitted) to

collateralize the position and thereby insure that the use of such
futures contract is unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the
underlying future or security, or will make deposits to collaterize
the position as discussed above.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to
be purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets.

TEMPORARY INVESTMENTS

The Fund may also invest in temporary investments from time to time:

o as a reaction to market conditions;

o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally such proceeds from sales of shares
will be invested in municipal securities as quickly as possible;

o in anticipation of redemption requests; or

o for temporary defensive purposes, in which case the Fund may invest
more than 20% of the value of its net assets in cash or certain
money market instruments, U.S. Treasury bills or securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities, or repurchase agreements.

REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased
pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. government securities or
certificates of deposit to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one
year from the date of acquisition. The Fund or its custodian will
take possession of the securities subject to repurchase agreements.
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 may only enter into repurchase agreements

with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to
be creditworthy pursuant to guidelines established by the Trustees.

REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer,
in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time. When
effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to
be purchased, are segregated at the trade date. These securities are
marked to market daily and maintained until the transaction is
settled.

INVESTMENTS IN CASH
From time to time, such as when suitable municipal bonds are not
available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the
amount of assets in municipal securities and thereby reduce the
Fund's yield.

MUNICIPAL BOND INSURERS

Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated in the highest
rating category by an NRSRO. The claims-paying ability of each of the
following insurers has been rated in the highest rating category by an
NRSRO.

MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-
owned subsidiary of MBIA, Inc., a Connecticut insurance company,
which is owned by Aetna Life and Casualty, Credit Local DeFrance
CAECL, S.A., The Fund American Companies, and the public. The
investors of MBIA, Inc., are not obligated to pay the obligations
of MBIA. MBIA, domiciled in New York, is regulated by the New
York State Insurance Department and licensed to do business in
various states. The address of MBIA is 113 King Street, Armonk,
New York, 10504, and its telephone number is (914) 273-4345.

AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled
stock insurance company, regulated by the Insurance Department of
Wisconsin, and licensed to do business in various states. AMBAC
is a wholly-owned subsidiary of AMBAC, Inc., a financial holding
company which is owned by the public. Copies of certain
statutory required filings of AMBAC can be obtained from AMBAC.
The address of AMBAC's administrative offices is One State Street
Plaza, 17th Floor, New York, New York 10004, and its telephone
number is (212) 668-0340.

FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a
wholly-owned subsidiary of FGIC Corporation, a Delaware holding
company. FGIC Corporation is wholly-owned by General Electric
Capital Corporation. The investors in FGIC Corporation are not
obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is subject to regulation by the
State of New York Insurance Department and is licensed to do
business in various states. The address of Financial Guaranty is
175 Water Street, New York, New York 10038, and its telephone
number is (212) 607-3000.

FINANCIAL SECURITY ASSURANCE HOLDINGS
Financial Security Assurance ("FSA"), a wholly-owned subsidiary
of Financial Security Assurance Holdings domiciled in New York,
is a monoline financial guaranty insurer of municipal bonds and
asset-backed securities. The investors in FSA are not obligated
to pay the debts of or the claims against FSA. FSA is subject to
regulation by the State of New York Insurance Department and is
licensed to do business in all fifty states and in the District
of Columbia. The address of FSA is 350 Park Avenue, New York, NY
10022, and its telephone number is (212) 688-3101.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of
securities. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts
or related options transactions is not considered the purchase of
a security on margin.

CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of the value of the Fund's total assets
would be invested in any one industry, or in industrial
development bonds or other securities, the interest upon which is
paid from revenues of similar types of projects. However, the

Fund may invest as temporary investments more than 25% of the
value of its assets in cash or certain money market instruments,
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
The Fund does not intend to purchase securities (other than
securities guaranteed by the U.S. government or its agencies or
direct obligations of the U.S. government) if, as a result of
such purchases, 25% or more of the value of its total assets
would be invested in a governmental subdivision in any one state,
territory or possession of the United States.

BORROWING MONEY
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, except as described in the
prospectus, and 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. Interest paid on borrowed funds will serve to
reduce the Fund's income. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets
are outstanding.

INVESTING IN RESTRICTED SECURITIES

The Fund will not invest more than 15% of the value of its net
assets in securities subject to restrictions on resale under the
Securities Act of 1933.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets,
except to secure permitted borrowings. In those cases, it may
mortgage, pledge or hypothecate assets having a market value not
exceeding 10% of the value of its total assets at the time of the
pledge. Margin deposits for the purchase and sale of financial
futures contracts and related options are not deemed to be a
pledge.

INVESTING IN COMMODITIES AND MINERALS
The Fund will not purchase or sell commodities, commodity
contracts, oil, gas, or other mineral exploration or development
programs or leases, except that the Fund may purchase and sell
financial futures contracts.

INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests, although it may invest in securities
secured by real estate or interests in real estate.

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

ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except for when-issued
and delayed-delivery transactions and futures contracts, each of
which might be considered senior securities. In addition, the
Fund reserves the right to purchase municipal securities which
the Fund has the right or obligation to sell to a third-party
(including the issuer of a participation interest).

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets. This shall not prevent
the Fund from acquiring publicly or non-publicly issued municipal
securities or temporary investments, entering into repurchase
agreements, or engaging in other transactions in accordance with
its investment objective, policies, and limitations or
Declaration of Trust.

DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, spreads or any
combination of them, except that the Fund may purchase put
options on municipal securities in an amount up to 5% of its
total assets and may purchase municipal securities accompanied by
agreements of sellers to repurchase them at the Fund's option.

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

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net
assets in securities which are not readily marketable or which
are otherwise considered illiquid, including repurchase
agreements providing for settlement in more than seven days after
notice, certain restricted securities not determined by the
Trustees to be liquid, and participation interests and variable
rate municipal securities without a demand feature or with a
demand feature of longer than seven days and which the Fund's
investment adviser believes cannot be sold within seven days.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies
to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in
any one investment company, and invest no more than 10% of its
total assets in investment companies in general. The Fund will
limit its investments in the securities of other investment
companies to those having investment objectives and policies
similar to its own. The Fund will not purchase or acquire any
security issued by a registered closed-end investment company if,
immediately after the purchase or acquisition, 10% or more of the
voting securities of the closed-end investment company would be
owned by the Fund and other investment companies having the same
adviser and companies controlled by these investment companies.
The Fund will purchase securities of closed-end investment
companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are

not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies may incur certain
expenses which may be duplicative of certain fees incurred by the
Fund. The Fund's investment adviser will waive its investment
advisory fee on assets of the Fund invested in securities of
open-end investment companies.

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

The Fund has no present intent to borrow money or pledge securities (except
as a temporary, extraordinary or emergency measure) in excess of 5% of the
value of its net assets or to invest in securities of closed-end investment
companies.

STAR FUNDS MANAGEMENT

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,
1372 Custer Ave., Cincinnati 45208 (residence)
525 Vine St., Suite 2050, Cincinnati 45202
Birthdate: 9/12/63

Lawrence M. Turner
5709 Chestnut Ridge, Cincinnati 45230 (residence)

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.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;

Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; and World
Investment Series, Inc. Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment company: Liberty Term
Trust, Inc.-1999.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 3, 1997, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Firstcinco, Cincinnati, Ohio, owned
approximately 10,359,976 shares (90.39%).

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.
Because of the internal controls maintained by Star Bank to restrict the
flow of non-public information, Fund investments are typically made without

any knowledge of Star Bank's or its affiliates' lending relationships with
an issuer.

ADVISORY FEES

For its advisory services, Star Bank receives an annual investment advisory
fee as described in the prospectus.

BROKERAGE TRANSACTIONS

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

o advice as to the advisability of investing in securities;

o security analysis and reports;

o economic studies;

o industry studies;

o receipt of quotations for portfolio evaluations; and

o similar services.

Research services provided by brokers and dealers may be used by the
Adviser or its affiliates in advising the Fund and other accounts. To the
extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.

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

OTHER SERVICES

FUND ADMINISTRATION. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services to the
Fund for a fee as described in the prospectus.

CUSTODIAN. Star Bank is custodian for the securities and cash of the Fund.
Under the Custodian Agreement, Star Bank holds the Fund's portfolio
securities in safekeeping and keeps all necessary records and documents
relating to its duties. The custodian receives an annual fee equal to
0.025% of the Fund's average daily net assets. The fee is based on the
level of the Fund's average net assets for the period, plus out-of-pocket
expenses.

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

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

PURCHASING SHARES

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

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

DISTRIBUTION PLAN

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

Plan, Federated Securities Corp. may pay fees to brokers and others for
such services.

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

ADMINISTRATIVE ARRANGEMENTS

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

SHAREHOLDER SERVICES PLAN

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

CONVERSION TO FEDERAL FUNDS

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

DETERMINING NET ASSET VALUE

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

DETERMINING MARKET VALUE OF SECURITIES

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

o as provided by an independent pricing service;

o for short-term obligations, according to the mean between bid and
asked prices, as furnished by an independent pricing service, or
for short-term obligations with remaining maturities of less than
60 days at the time of purchase, at amortized cost unless the
Trustees determine this is not fair value; or

o at fair value as determined in good faith by the Trustees.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:

o yield;

o quality;

o coupon rate;

o maturity;

o type of issue;

o trading characteristics; and

o other market data.

Over-the-counter options will be valued at the mean between the bid and
asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such options are traded. Unlisted call
options will be valued at the latest bid price as provided by brokers.

EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE

Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made. This
privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, shares submitted for exchange are
redeemed and the proceeds invested in shares of the other fund. Further
information on the exchange privilege and prospectuses may be obtained by
calling Star Bank at the number on the cover of this Statement.

MAKING AN EXCHANGE

Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.

REDEEMING SHARES

REDEMPTION IN KIND

Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in
part, by a distribution of securities from the respective fund's portfolio.
To satisfy registration requirements in a particular state, redemption in
kind will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate. Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such securities at the
same value employed in determining net asset value and selecting the
securities in a manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them

before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required, by the Declaration of Trust, to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust cannot meet
its obligations to indemnify shareholders and pay judgments against them
from its assets.

TAX STATUS

THE FUND'S TAX STATUS

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

SHAREHOLDERS' TAX STATUS

No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.

CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because
of:

o the availability of higher relative yields;

o differentials in market values;

o new investment opportunities;

o changes in creditworthiness of an issuer; or

o an attempt to preserve gains or limit losses.

Distribution of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares.

TOTAL RETURN

The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.

Cumulative total return reflects the Fund's total performance over a
specific period of time. This total return assumes and is reduced by the
payment of the maximum sales charge. Any applicable redemption fee is
deducted from the ending value of the investment based on the lesser of the
original purchase price or the net asset value of the shares redeemed.

YIELD

The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the maximum offering price per share
of the Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.

TAX-EQUIVALENT YIELD

The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 39.60% tax rate (the maximum
effective federal rate for individuals) and assuming that income is 100%
tax-exempt.

TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal securities in the Fund's
portfolio generally remains free from federal income tax, * and is often
free from state and local taxes as well. As the table below indicates, a
"tax-free" investment can be an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.

TAXABLE YIELD EQUIVALENT FOR 1997

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050

SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050

Tax-Exempt
Yield Taxable Yield Equivalent

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.

*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's expenses;

o the relative amount of Fund cash flow; and

o various other factors.

The Fund's performance fluctuates on a daily basis largely because net
earnings and the offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of
yield and total return.

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any and takes into account any
change in offering price over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "insured
municipal funds" category in advertising and sales literature.

o LEHMAN BROTHERS TEN-YEAR INSURED BOND INDEX is an unmanaged index
that reflects the total performance of the Insured Bond sector
(includes all bond insurers with Aaa/AAA ratings) of the Lehman
Municipal Bond Index. The maturities range between eight and
twelve years.

o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total
returns calculated for the same periods as listed above.

o MORNINGSTAR, INC., an independent rating service, is the
publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values
rates more than 1,000 NASDAQ-listed mutual funds of all types,
according to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.

Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent historic change in the value of an investment in the
Fund based on monthly investment of dividends over a specific period of
time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge. In addition, advertisements and sales
literature for the Fund may include charts and other illustrations that
depict the hypothetical growth of a tax-free investment as compared to a
taxable investment.

Advertisements and sales literature for the Fund may include quotations
from financial publications and other sources relating to current economic
conditions in the municipal securities market or to the benefit and
popularity of municipal securities or mutual funds.

it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities markets. Such discussions may take the form of commentary on
these developments by the Fund's portfolio manager and the manager's views
and analysis on how such developments could affect the Fund. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute ("ICI").
For example, according to the ICI, twenty-seven percent of American
households are pursuing their financial goals through mutual funds. These
investors, as well as businesses and institutions, have entrusted over $3
trillion to the more than 5,500 funds available.

APPENDIX

STANDARD & POOR'S RATINGS GROUP ("S&P") MUNICIPAL BOND RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes

in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC-Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
C-The rating C is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus(+) or Minus (-): S&P may apply a plus (+) or minus (-) sign to show
relative standing within the major rating categories.

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATING
DEFINITIONS

AAA-Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an

exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have a speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA-Bonds which are rated CA represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NR-Not rated by Moody's
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from AA through BAA in its municipal bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates the mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to repay interest and repay principal is very strong,
although not quire as strong as bonds rated AAA. Because bonds rated in

the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whenever it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB-Bonds are considered to be speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.

DDD, DD AND D-Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these
bonds, and D represents the lowest potential for recovery.
NR-NR indicates that Fitch does not rate the specific issue.

Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.

DUFF & PHELPS CREDIT RATING CO. ("D&P") LONG-TERM DEBT RATING DEFINITIONS
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.
AA- High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB-Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the AAA category.

D&P SHORT-TERM DEBT RATING DEFINITIONS
D-1+-Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds,

is outstanding, and safety is just below U.S. Treasury short-term
obligations.
D-1-Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
D-1--High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very
small.
D-2-Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.

S&P COMMERCIAL PAPER RATING DEFINITIONS
A-1-This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2-Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.

MOODY'S COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings

coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternative liquidity.
P-2- Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.

FITCH COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.

182158.3
G00522-09 (3/97)

STAR RELATIVE VALUE FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds dated March 31, 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

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
Convertible Securities 1
When-Issued and Delayed Delivery Transactions 2
Temporary Investments 2
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Reverse Repurchase Agreements 3
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3

Fund Ownership 11
Trustee Liability 12
INVESTMENT ADVISORY SERVICES 12

Adviser to the Fund 12
Advisory Fees 12
BROKERAGE TRANSACTIONS 12

ADMINISTRATIVE SERVICES 12

CUSTODIAN 12

PURCHASING SHARES 12

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

DETERMINING NET ASSET VALUE 13

Determining Market Value of Securities 13
Trading in Foreign Securities 14
EXCHANGE PRIVILEGE 14

Requirements for Exchange 14
Making an Exchange 14
REDEEMING SHARES 14

Redemption in Kind 14
Massachusetts Partnership Law 14
TAX STATUS 15

The Fund's Tax Status 15
Foreign Taxes 15
Shareholders' Tax Status 15
TOTAL RETURN 15

YIELD 15

PERFORMANCE COMPARISONS 16

Economic and Market Information 16
Financial Statements 17
APPENDIX 18

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Star Funds (the ''Trust''). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated January 23, 1989. On May 1, 1993, the Board of Trustees (the
''Trustees'') approved changing the name of the Trust, effective May 1,
1993, from Losantiville Funds to Star Funds and changing the Fund's name
from Losantiville Relative Value Fund to Star Relative Value Fund.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to obtain the highest total return, a
combination of income and capital appreciation, as is consistent with
reasonable risk. The investment objective cannot be changed without the
approval of shareholders. The policies described below may be changed by
the Trustees without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
Although the Fund may invest in other securities of these companies and in
short-term money market instruments, it is the Fund's policy to invest at
least 70% of its portfolio in common stocks of high-quality companies.
Below are other securities in which the Fund may invest from time to time.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
These securities are backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;

othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe 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:
oFederal Home Loan Banks;
oFederal National Mortgage Association;
oStudent Loan Marketing Association; and
oFederal 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:
oEurodollar Certificates of Deposit issued by foreign branches of
U.S. or foreign banks;
oEurodollar Time Deposits, which are U.S. dollar-denominated deposits
in foreign branches of U.S. or foreign banks;
oCanadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
oYankee 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:
oinstruments 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
ocommercial 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:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe 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

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
The Fund will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of portfolio securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its net assets, including the
amount borrowed. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding. During the period any reverse repurchase agreements
are outstanding, the Fund will restrict the purchase of portfolio
securities to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements, but only to the

extent necessary to assure completion of the reverse repurchase
agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer, except in cash or cash investments,
securities guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements collateralized by such
securities.
ACQUIRING SECURITIES
The Fund will not purchase more than 10% of the outstanding voting
securities of any one issuer.

PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may acquire up to
10% of the voting securities of an issuer and may exercise its voting
power in the Fund's best interest. From time to time, the Fund,
together with other investment companies advised by affiliates or
subsidiaries of Star Bank, N.A., may together buy and hold substantial
amounts of a company's voting stock. All such stock may be voted
together. In some cases, the Fund and the other investment companies
might collectively be considered to be in control of the company in

which they have invested. Officers or affiliates of the Fund might
possibly become directors of companies in which the Fund holds stock.
PURCHASING SECURITIES OF OTHER ISSUERS
The Fund will not purchase securities of other investment companies,
except:
oby purchase in the open market involving only customary brokerage
commissions; or
oas 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.

STAR FUNDS MANAGEMENT

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

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.
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

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

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

fiscal year ended November 30, 1996, 1995, and 1994, the Fund paid total
brokerage commissions of $146,237, $151,942, and $109,775, respectively.

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

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

to achieve economic liability. It is also anticipated that an increase in
the size of the Fund will facilitate more efficient portfolio management
and assist the Fund in seeking to achieve its investment objective.

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

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.

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:
ofor equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange,
if available;
oin 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;
ofor unlisted equity securities, the latest bid prices; or

ofor 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.
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
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective Fund's portfolio. To
satisfy registration requirements in a particular state, redemption in kind
will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
respective Fund's net asset value during any 90-day period.

Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
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

oderive at least 90% of its gross income from dividends, interest,
and
ogains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute 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 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 average annual total return for the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the maximum net asset
value per share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional Shares, assuming the quarterly
reinvestment of all dividends and distributions.
YIELD

The Fund's yield for the thirty-day period ended November 30, 1996, was
1.39%. The yield for the Fund is determined by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by the Fund over a thirty-day period by the maximum offering price
per share of the Fund on the last day of the period. This value is then
annualized using semi- annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a 12-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange

Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both net
earnings and the maximum offering price per share are factors in the
computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:

oLIPPER 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.
oDOW 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.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies can be used to compare to the
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on reinvestment of dividends over a specified period of
time. Advertisements 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, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.

APPENDIX

STANDARD 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
9022104B (3/97)

STAR GROWTH EQUITY FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds dated March 31, 1997. This
Statement is not a prospectus itself. To request a copy of the
prospectus, free of charge, write to Star Growth Equity Fund (the
"Fund") or call 1-800-677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Convertible Securities 1
Collateralized Mortgage Obligations ("CMOs") 1
Warrants 2
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 3
"Margin" In Futures Transactions 3
Put Options on Financial Futures Contracts 3
Call Options on Financial and Stock Index
Futures Contracts 3
Stock Index Options 4
Over-the-Counter Options 4
Reverse Repurchase Agreements 4
Zero-Coupon Securities 4
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5

Fund Ownership 13
Trustee Liability 15
INVESTMENT ADVISORY SERVICES 15

Adviser to the Fund 15
Advisory Fees 15
ADMINISTRATIVE SERVICES 15

CUSTODIAN 16

PURCHASING SHARES 16

Distribution Plan 16
Administrative Arrangements 16
Shareholder Services Plan 16
Conversion to Federal Funds 16
DETERMINING NET ASSET VALUE 17

Determining Market Value of Securities 17
Trading in Foreign Securities 17
EXCHANGE PRIVILEGE 17

Requirements for Exchange 17
Making an Exchange 17
REDEEMING SHARES 18

Redemption in Kind 18
Massachusetts Partnership Law 18
TAX STATUS 18

The Fund's Tax Status 18
Foreign Taxes 18
Shareholders' Tax Status 19
TOTAL RETURN 19

YIELD 19

PERFORMANCE COMPARISONS 19

Economic and Market Information 20

Financial Statements 20
APPENDIX 21

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
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:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe 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

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
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies, and limitations or the Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following investment limitations may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
INVESTING IN 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.

STAR FUNDS MANAGEMENT

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

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.

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.

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

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

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

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.

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

Except under certain circumstances described in the prospectus, shares of
the Fund are sold at their net asset value, on days the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Except
under the circumstances described in the prospectus, the minimum initial
investment in the Fund by an investor is $1,000. The minimum initial
investment may be waived from time to time for employees and retired
employees of Star Bank, N.A., and for members of the families (including
parents, grandparents, siblings, spouses, children, aunts, uncles, and in-
laws) of such employees or retired employees. The procedure for purchasing
shares of the Fund is explained in the prospectus under "Investing in the
Funds."

DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the "Plan"). The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's
shares subject to the Plan. Such activities may include the advertising and
marketing of shares of the Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the
Plan, Federated Securities Corp. may pay fees to brokers and others for
such services. The Trustees expect that the adoption of the Plan will
result in the sale of a sufficient number of shares so as to allow the Fund
to achieve economic viability. It is also anticipated that an increase in
the size of the Fund will facilitate more efficient portfolio management
and assist the Fund in seeking to achieve its investment objective.

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

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
$25,248 were pursuant to the Shareholder Services Plan.

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:
oa for equity securities, according to the last sale price on a
national securities exchange, if applicable;
oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, latest bid prices;
ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor all other securities, at fair value as determined in good faith
by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good
faith that another method of valuing option positions is necessary to
appraise their fair value.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale

price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
the Fund values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they are
determined and the closing of the New York Stock Exchange. If such events
materially affect the value of portfolio securities, these securities may
be valued at their fair value as determined in good faith by the Trustees,
although the actual calculation may be done by others.
EXCHANGE PRIVILEGE

MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
REDEEMING SHARES

The Fund redeems shares at the next computed net asset value after Star
Bank receives the redemption request. Shareholder redemptions may be
subject to a contingent deferred sales charge. Redemptions will be made on
days on which the Fund computes its net asset value. Redemption requests
cannot be executed on days on which the New York Stock Exchange is closed
or on federal holidays restricting wire transfers. Redemption procedures
are explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective fund's portfolio. To
satisfy registration requirements in a particular state, redemption in kind
will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate. Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such securities at the
same value employed in determining net asset value and selecting the
securities in a manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.

oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United
States and foreign countries, however, may reduce or eliminate the amount
of foreign taxes to which the Fund would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends and any short-term capital gains are taxable as ordinary
income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held Fund shares.
TOTAL RETURN

For the 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 Fund were 22.05% and 27.14%,
respectively.

The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of Shares owned at the end of
the period by the 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 the thirty-day period ended November 30, 1996, was
0.85%.

Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS

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.
oSTANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON
STOCKS are composite indices of common stocks in industry,
transportation, and financial and public utility companies that can
be used to compare the total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard &
Poor's indices assume reinvestments of all dividends paid by stocks
listed on its indices. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in Standard
& Poor's figures.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on reinvestment of dividends over a specified period of
time.
Advertisements may quote performance information which does not reflect the
effect of the contingent deferred sales charge.
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.

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.

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.
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 (3/97)

STAR CAPITAL APPRECIATION FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of the Stock and Bond Funds of the Star Funds dated March
31, 1997. This Statement is not a prospectus itself. To request a copy
of the prospectus, free of charge, write to the Star Capital
Appreciation Fund (the ``Fund') or call 1-800-677-FUND.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Convertible Securities 1
Warrants 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Restricted and Illiquid Securities 2
Futures and Options Transactions 2
Futures Contracts 2
``Margin''in Futures Transactions 3
Put Options on Financial Futures Contracts 3
Call Options on Financial and Stock Index
Futures Contracts 3
Stock Index Options 4
Over-the-Counter Options 4
Reverse Repurchase Agreements 4
Zero-Coupon Securities 4
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5

Fund Ownership 12
Trustee Liability 13
INVESTMENT ADVISORY SERVICES 13

Adviser to the Fund 13
Advisory Fees 13
BROKERAGE TRANSACTIONS 14

ADMINISTRATIVE SERVICES 14

CUSTODIAN 14

PURCHASING SHARES 14

Distribution Plan 14
Administrative Arrangements 15
Shareholder Services Plan 15
Conversion to Federal Funds 15
DETERMINING NET ASSET VALUE 15

Determining Market Value of Securities 15
Trading in Foreign Securities 16
EXCHANGE PRIVILEGE 16

Requirements for Exchange 16
Making an Exchange 16
REDEEMING SHARES 16

Redemption in Kind 16
Massachusetts Partnership Law 16
TAX STATUS 17

The Fund's Tax Status 17
Foreign Taxes 17
Shareholders' Tax Status 17
TOTAL RETURN 17

YIELD 17

PERFORMANCE COMPARISONS 18

Economic and Market Information 18

Financial Statements 19
APPENDIX 20

GENERAL INFORMATION ABOUT THE FUND

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

The Fund's investment objective is to maximize capital appreciation. The
investment objective cannot be changed without the approval of
shareholders. The policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used, in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants,
which are options to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before the bond's
maturity. Convertible securities are senior to equity securities and,

therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible securities
are generally subordinated to similar nonconvertible securities of the same
company. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with generally higher
yields than common stocks, but lower than non-convertible securities of
similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common shares will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In
selecting convertible securities for the Fund, the adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of
the issuer's profits, and the issuer's management capability and practices.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period
of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life

of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment for
the securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction is settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase

agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and put options on financial futures contracts, and
writing call options on futures contracts. The Fund may also write covered
call options on portfolio securities to attempt to increase its current

income. The Fund will maintain its positions in securities, option rights,
and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out over-the-counter or on a nationally recognized
exchange which provides a secondary market for options of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge against
the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Fund also may purchase
and sell stock index futures to hedge against changes in prices. The Fund
will not engage in futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract (`going short'') and the buyer who agrees to take delivery of the
security (`going long'') at a certain time in the future. For example, in
the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., `go
short') to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would `go long'' (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index

futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
`MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of `initial margin'' in cash or U.S.
Treasury bills with its custodian (or the broker, if legally permitted).
The nature of initial margin in futures transactions is different from that
of margin in securities transactions in that initial margin in futures
transactions does not involve the borrowing of funds by the Fund to finance
the transactions. Initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called `variation margin,'' equal to the daily
change in value of the futures contract. This process is known as `marking
to market.''Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from
market factors, such as an anticipated increase in interest rates. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the
Fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
and over-the-counter call options on financial and stock index futures

contracts (including cash-settled stock index options) to hedge its
portfolio against an increase in market interest rates or a decrease in
stock prices. When the Fund writes a call option on a futures contract, it
is undertaking the obligation of assuming a short futures position (selling
a futures contract) at the fixed strike price at any time during the life
of the option if the option is exercised. As stock prices fall or market
interest rates rise, causing the prices of futures to go down, the Fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation
is exceeded at any time, the Fund will take prompt action to close out a

sufficient number of open contracts to bring its open futures and options
positions within this limitation.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Fund will realize a gain or loss
from the purchase of options on an index depends upon movements in the
level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in
the price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the Fund's
adviser to predict correctly movements in the directions of the stock
market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual
stocks.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange.

REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale may
be deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in
a dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
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 investing in zero-coupon
securities may fluctuate over a greater range than shares of other funds

and 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 1995, the Fund's portfolio turnover rates were 174% and 144%,
respectively.
For the fiscal year ended November 30, 1996 and 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

connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amount borrowed; and except to the extent that the Fund may enter
into futures contracts. The Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the Fund by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the pledge. For purposes
of this limitation, the following will not be deemed to be pledges of
the Fund's assets: (a) the deposit of assets in escrow in connection
with the writing of covered put or call options and the purchase of
securities on a when-issued basis; and (b) collateral arrangements
with respect to (i) the purchase and sale of stock options (and
options on stock indices) and (ii) initial or variation margin for
futures contracts. Margin deposits for the purchase and sale of
futures contracts and related options are not deemed to be a pledge.

DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more
than 5% of the value of its total assets would be invested in the
securities of that issuer. The Fund will not acquire more than 10% of
the outstanding voting securities of any one issuer.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.

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

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies, and limitations or the Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following investment limitations may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations becomes effective.
INVESTING IN 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 to be liquid
under criteria established by the Trustees.
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.''

STAR FUNDS MANAGEMENT

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

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.

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.

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 March 3, 1997, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Firstcinco, Cincinnati, Ohio, owned
approximately 4,871,240 shares (79.18%).

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

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 1995 and for the period from May 16, 1994 (start of business) to
November 30, 1994, the Fund's Adviser earned $665,476, $408,302 and
$99,048, respectively.
BROKERAGE TRANSACTIONS

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 for the period from May 16,
1994 (start of business) to November 30, 1994, the Fund paid total
brokerage commissions of $415,208, $239,676, and $33,050, respectively.

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, 1995 and
for the period from May 16, 1994 (start of business) to November 30, 1994,
the Fund incurred administrative service fees of $70,082, $52,388, and
$23,288, respectively, of which, $0, $5,242 and $10,739, were voluntarily
waived.

CUSTODIAN

Except under certain circumstances described in the prospectus, shares of
the Fund are sold at their net asset value plus a sales charge, if any, on
days the New York Stock Exchange and the Federal Reserve Wire System are
open for business. Except under the circumstances described in the
prospectus, the minimum initial investment in the Fund by an investor is
$1,000. The minimum initial investment may be waived from time to time for
employees and retired employees of Star Bank, N.A., and for members of the
families (including parents, grandparents, siblings, spouses, children,
aunts, uncles, and in-laws) of such employees or retired employees. The
procedure for purchasing shares of the Fund is explained in the prospectus
under `Investing in the Funds.''
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the `Plan''). The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's
shares subject to the Plan. Such activities may include the advertising and
marketing of shares of the Fund; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or

administrators; and implementing and operating the Plan. Pursuant to the
Plan, Federated Securities Corp. may pay fees to brokers and others for
such services.
The Trustees expect that the adoption of the Plan will result in the sale
of a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of
the Fund will facilitate more efficient portfolio management and assist the
Fund in seeking to achieve its investment objective.

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

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
$28,862 were pursuant to the Shareholder Services Plan.

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:
ofor equity securities, according to the last sale price on a
national securities exchange, if applicable;
oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, latest bid prices;

ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor 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
ofor all other securities, at fair value as determined in good faith
by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good
faith that another method of valuing option positions is necessary to
appraise their fair value.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
the Fund values foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also
be determined at the latest rate prior to the closing of the New York Stock

Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they are
determined and the closing of the New York Stock Exchange. If such events
materially affect the value of portfolio securities, these securities may
be valued at their fair value as determined in good faith by the Trustees,
although the actual calculation may be done by others.
EXCHANGE PRIVILEGE

REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the respective fund's portfolio. To
satisfy registration requirements in a particular state, redemption in kind
will be made in readily marketable securities to the extent that such
securities are available. If this state's policy changes, the Fund reserves
the right to redeem in kind by delivering those securities it deems
appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Trust is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
respective class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
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

States and foreign countries, however, may reduce or eliminate the amount
of foreign taxes to which the Fund would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. The dividends received
deduction for corporations will apply to ordinary income distributions to
the extent the
distribution represents amounts that would qualify for the dividends
received deduction to the Fund if the Fund were a regular corporation and
to the extent designated by the Fund as so qualifying. These dividends and
any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held Fund shares.
TOTAL RETURN

For the year ended November 30, 1996 and for the period from June 13, 1994
(date of initial public investment) to November 30, 1996, the average
annual total returns for the Fund were 4.02% and 9.10%, respectively.

The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the maximum net asset value per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, less

any applicable sales charge, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of all dividends and
distributions.
YIELD

The Fund's yield for the thirty-day period ended November 30, 1996, was
(0.15)%.

The performance of the Fund depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;

otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``growth'' category in
advertising and sales literature.
oSTANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON
STOCKS are composite indices of common stocks in industry,
transportation, and financial and public utility companies that can
be used to compare the total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard &
Poor's indices assume reinvestments of all dividends paid by stocks
listed on its indices. Taxes due on any of these distributions are

not included, nor are brokerage or other fees calculated in Standard
& Poor's figures.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on reinvestment of dividends over a specified period of
time.
Advertisements 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, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as

well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.
FINANCIAL STATEMENTS

APPENDIX

STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated `AAA'' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB--Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay

interest and repay principal for debt in this category than in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.

BAA--Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
NR--Not rated by Moody's.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated `AAA.'' Because bonds
rated in the `AAA'' and ``AA'' categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+.''
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the

ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of financial
markets and assured sources of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

FITCH INVESTORS SERVICE, INC., SHORT-TERM RATINGS
F-1+--EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--VERY STRONG CREDIT QUALITY. Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2--GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as
great as the F-1+ and F-1 ratings.

854911807
4041408B (3/97)

MONEY
[LOGO OF STAR FUNDS] MARKET FUNDS

COMBINED
PROSPECTUS

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

Dated March 31, 1997

Star Tax-Free Money Market Fund

Star Treasury Fund

STAR FUNDS MONEY MARKET FUNDS
PORTFOLIOS OF THE STAR FUNDS

PROSPECTUS

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

Money Market Funds

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

Stock and Bond Funds

. Star U.S. Government Income Fund
. Star Strategic Income Fund
. The Stellar Fund
. Star Relative Value Fund
. Star Growth Equity Fund
. Star Capital Appreciation Fund

. The Stellar Insured Tax-Free Bond Fund

This prospectus relates only to the Star Tax-Free Money Market Fund and Star
Treasury Fund and contains the information you should read and know before you

invest in either of these Funds. Keep this prospectus for future reference.

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

THE 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.

The Trust has also filed separate Statements of Additional Information for
each Fund dated March 31, 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 free of charge, obtain other
information, or make inquiries about a Fund by writing to the Fund or by
calling (513) 632-5547. The Statements of Additional Information, material
incorporated by reference into this document, and other information regarding
each Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated March 31, 1997

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

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

SUMMARY OF FUND EXPENSES 2
- ------------------------------------

FINANCIAL HIGHLIGHTS 3
- ------------------------------------

OBJECTIVE AND INVESTMENT POLICIES
OF EACH FUND 5
- ------------------------------------

Tax-Free Money Market Fund 5

Acceptable Investments 5

Participation Interests 5

Municipal Leases 5

Variable Rate Demand Notes 6

Credit Enhancement 6

Demand Features 6

Restricted and Illiquid
Securities 6

Investing in Securities of Other
Investment Companies 6

Temporary Investments 7

Municipal Securities 7

Investment Risks 7

Treasury Fund 7

Acceptable Investments 7

Reverse Repurchase Agreements 7

Investing in Securities of Other
Investment Companies 8

Common Investment Techniques of
the Funds 8

Repurchase Agreements 8

When-Issued and Delayed Delivery
Transactions 8

Regulatory Compliance 8

Investment Limitations 9

STAR FUNDS INFORMATION 9
- ------------------------------------

Management of the Trust 9

Board of Trustees 9

Investment Adviser 9

Advisory Fees 9

Adviser's Background 9

Distribution of Fund Shares 10

Distribution Plan 10

Administrative Arrangements 10

Administration of the Funds 11

Administrative Services 11

Shareholder Services Plan 11

Custodian 11

Transfer Agent, Dividend
Disbursing Agent, and
Portfolio Accounting
Services 11

Independent Public Accountants 11

Expenses of the Treasury Fund and
Trust Shares 11

NET ASSET VALUE 12
- ------------------------------------

INVESTING IN THE FUNDS 12
- ------------------------------------

Minimum Investment Required 12

What Shares Cost 12

Share Purchases 12

Through Star Bank 12

Through Shareholder Service
Organizations 12

Via a Sweep Account 13

Shareholder Service
Organizations 13

Exchanging Securities for Fund
Shares 13

Certificates and Confirmations 13

Dividends 13

Capital Gains 13

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

Exchanging Shares 14

Exchange-By-Telephone 14

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

By Telephone 15

Automatic Redemptions 15

Checkwriting Privilege 15

Accounts with Low Balances 15

SHAREHOLDER INFORMATION 15
- ------------------------------------

Voting Rights 15

EFFECT OF BANKING LAWS 16
- ------------------------------------

TAX INFORMATION 16
- ------------------------------------

Federal Income Tax 16

Tax-Free Money Market Fund--
Additional Tax Information 17

State and Local Taxes 17

PERFORMANCE INFORMATION 17
- ------------------------------------

ADDRESSES 19
- ------------------------------------

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

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

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

. Star Tax-Free Money Market Fund ("Tax-Free Money Market Fund")--seeks to
provide current income exempt from federal regular income tax consistent
with stability of principal. Tax-Free Money Market Fund pursues this
objective by investing in a diversified portfolio of short-term municipal
securities.
. Star Treasury Fund ("Treasury Fund")--seeks to achieve stability of
principal and current income consistent with stability of principal.
Treasury Fund pursues this objective by investing exclusively in short-
term U.S. Treasury obligations. Shares of the Treasury Fund are offered
in two separate classes: Trust Shares and Investment Shares (individually
and collectively referred to as "Shares").

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

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

<TABLE>
<CAPTION>
Star Treasury Fund
Star Tax-Free ---------------------------
Money Market Trust Investment
Fund Shares Shares
------------- ----------- -----------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of
offering price)........................ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)................................. None None None
Contingent Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, as applicable). None None None
Redemption Fee (as a percentage of
amount redeemed,
if applicable)......................... None None None
Exchange Fee............................ None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
<S> <C> <C> <C> <C> <C> <C>
Management Fee (after waiver) (1)....... 0.44% 0.50% 0.50%
12b-1 Fees (2).......................... 0.00% 0.00% 0.25%

Total Other Expenses.................... 0.26% 0.21% 0.21%
Shareholder Servicing Fee (3)......... 0.04% 0.05% 0.05%
Total Fund Operating Expenses (after
waiver) (4)......................... 0.70% 0.71% 0.96%
</TABLE>

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

(2) As of the date of this prospectus, the Funds (except for the Treasury
Fund--Investment Shares) are not paying or accruing 12b-1 fees. The Funds
can pay up to 0.25% of their 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 trust and investment
agency clients' investments in the Funds are converted to such Trust
class.
(3) 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.
(4) The Total Fund Operating Expenses of the Tax-Free Money Market Fund would
have been 0.81% absent the voluntary waiver described in Note 1. The Total
Fund Operating Expenses in the table above for the Treasury Fund Trust
Shares and Investment Shares are based on expenses expected during the
fiscal year ended November 30, 1997. The Total Fund Operating Expenses for
the fiscal year ended November 30, 1996, were 0.70% for the Treasury
Fund--Investment Shares.

* Annual Fund Operating Expenses in this table for the Treasury Fund Trust

Shares and Investment Shares were calculated as a percentage of projected
average net assets, and are based on average expenses expected to be
incurred during the fiscal year ending November 30, 1997.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of a Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Star Funds Information."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.

<TABLE>
<CAPTION>
Star Tax-Free Star Treasury Fund
Money Market Trust Investment
Fund Shares Shares
------------- -------- --------
<S> <C> <C> <C>
1 Year.......................................... $ 7 $ 7 $ 10
3 Years......................................... $22 $23 $ 31
5 Years......................................... $39 $40 $ 53
10 Years........................................ $87 $88 $118
</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.

STAR TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------
Net investment income 0.03 0.03 0.02 0.02 0.03 0.03
- -----------------------
LESS DISTRIBUTIONS
- -----------------------
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.03) (0.03)
- ----------------------- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 2.91% 3.32% 2.15% 1.91% 2.59% 2.84%
- -----------------------
RATIOS TO AVERAGE NET
ASSETS

- -----------------------
Expenses 0.70% 0.66% 0.65% 0.65% 0.66% 0.55%*
- -----------------------
Net investment income 2.87% 3.26% 2.12% 1.90% 2.54% 3.95%*
- -----------------------
Expense waiver/
reimbursement (c) 0.11% 0.15% 0.15% 0.40% 0.40% 0.48%*
- -----------------------
SUPPLEMENTAL DATA
- -----------------------
Net assets, end of pe-
riod
(000 omitted) $153,256 $167,356 $135,427 $135,022 $144,487 $113,731
- -----------------------
</TABLE>

* Computed on an annualized basis.

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

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

STAR TREASURY FUND

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

read in conjunction with the Fund's Financial Statements and notes thereto,
contained in the Fund's Annual Report, which may be obtained from the Fund.

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989(a)
- ----------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------
Net investment income 0.05 0.05 0.03 0.03 0.03 0.06 0.07 0.05
- -----------------------
LESS DISTRIBUTIONS
- -----------------------
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.03) (0.06) (0.07) (0.05)
- ----------------------- ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.80% 5.23% 3.30% 2.56% 3.41% 5.72% 7.72% 5.36%
- -----------------------
RATIOS TO AVERAGE NET
ASSETS

- -----------------------
Expenses 0.70% 0.71% 0.70% 0.70% 0.71% 0.71% 0.73% 0.77%*
- -----------------------
Net investment income 4.69% 5.14% 3.24% 2.53% 3.33% 5.51% 7.44% 8.28%*
- -----------------------
Expense waiver/
reimbursement (c) -- -- -- 0.25% 0.25% 0.10% 0.03% 0.01%*
- -----------------------
SUPPLEMENTAL DATA
- -----------------------
Net assets, end of pe-
riod
(000 omitted) $829,259 $654,963 $358,766 $386,020 $346,508 $307,278 $226,519 $174,062
- -----------------------
</TABLE>

* Computed on an annualized basis.

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

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

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

The investment objective and policies of each Fund appear below. The
investment objective of a Fund cannot be changed without the approval of
holders of a majority of that Fund's shares. While there is no assurance that
a Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds
and by following the investment policies described in this prospectus.

The investment policies and limitations described cannot be changed without

the approval of a majority of a Fund's shares, except as noted. Additional
information about investment limitations, strategies that either of the Funds
may employ, and certain investment policies mentioned below appear in the
"Common Investment Techniques of the Funds" section of this prospectus and in
each Fund's Statement of Additional Information.

TAX-FREE MONEY MARKET FUND

The investment objective of Tax-Free Money Market Fund is current income
exempt from federal regular income tax consistent with stability of principal.
Federal regular income tax refers to normal income tax that most U.S.
taxpayers compute and pay each year and does not include the federal
alternative minimum tax for individuals or corporations. Interest income of
the Fund that is exempt from federal regular income tax retains its tax-free
status when distributed to the Fund's shareholders. The Fund invests its
assets so that at least 80% of its annual interest income is exempt from
federal regular income tax and not subject to the alternative minimum tax.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus. Unless otherwise indicated, the investment
objective and the policies and limitations described below cannot be changed
without approval of shareholders.

The Fund pursues this investment objective by investing in a portfolio of
municipal securities maturing in 397 days or less. The average maturity of the
securities in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less.

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

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

PARTICIPATION INTERESTS. The Fund may purchase interests in Municipal
Securities from financial institutions such as commercial and investment
banks, savings associations and insurance companies. These interests may
take the form of participations, beneficial interests in a trust,
partnership interests or any other form of indirect ownership that allows
the Fund to treat the income from the investment as exempt from federal

income tax. The Fund invests in these participation interests in order to
obtain credit enhancement or demand features that would not be available
through direct ownership of the underlying Municipal Securities.

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

illiquid. They may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation interest in any
of the above.

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

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are Municipal

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

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the credit enhancer
will adversely affect the quality and marketability of the underlying security
and could cause losses to the Fund and affect its share price. The Fund may
have more than 25% of its total assets invested in securities credit-enhanced
by banks.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may be
issued by the issuer of the underlying securities, a dealer in the securities,

or by another third party and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund with
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer
of the demand feature, or a default on the underlying security or other event
that terminates the demand feature before its exercise, will adversely affect
the liquidity of the underlying security. Demand features that are exercisable
even after a payment default on the underlying security may be treated as a
form of credit enhancement.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Trustees, certain restricted securities are considered
liquid. To the extent that restricted securities or municipal leases are found
not to be liquid, the Fund will limit their purchase, together with other
illiquid securities, to 10% of its net assets.

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

if the securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies may incur
certain expenses which may be duplicative of certain fees incurred by the
Fund.

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

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

MUNICIPAL SECURITIES. Municipal Securities are generally issued to finance
public works such as airports, bridges, highways, housing, hospitals, mass

transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.

Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.

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

INVESTMENT RISKS. Yields on Municipal Securities depend on a variety of
factors, including: the general conditions of the short-term municipal note
market and of the municipal bond market; the size of the particular offering;
the maturity of the obligations; and the rating of the issue. The ability of
the Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Municipal Securities and demand features, or the
credit enhancers of either, to meet their obligations for the payment of

interest and principal when due.

TREASURY FUND

The investment objective of Treasury Fund is stability of principal and
current income consistent with stability of principal. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
Unless otherwise indicated, the investment objective and the policies and
limitations described below cannot be changed without approval of
shareholders.

ACCEPTABLE INVESTMENTS. The short-term U.S. Treasury obligations in which the
Fund invests are issued by the U.S. government and are fully guaranteed as to
principal and interest by the United States. They mature in 397 days or less
from the date of acquisition unless they are purchased under a repurchase
agreement that provides for repurchase by the seller within 397 days from the
date of acquisition. The average maturity of these securities, on a dollar-
weighted basis, will be 120 days or less. As a matter of operating policy,
however, the average maturity of the Fund's securities, on a dollar-weighted
basis, will be 90 days or less. The Fund may also retain Fund assets in cash.
The Fund does not intend to invest in treasury strips.

REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase

agreements. This transaction is similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration, plus interest at an agreed upon rate.

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

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

The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.

total assets in investment companies in general unless permitted to exceed
these limitations by action of the Securities and Exchange Commission. The
Fund will limit its investments in the securities of other investment
companies to those of money market funds having investment objectives and
policies similar to its own. In addition, these limitations are not applicable
if the securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies may incur
certain expenses which may be duplicative of certain fees incurred by the
Fund. This policy may be changed without the approval of shareholders.
Shareholders will be notified before any material change in this policy
becomes effective.

COMMON INVESTMENT TECHNIQUES OF THE FUNDS

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

The Funds or their custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from a
Fund, that Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that under the
regular procedures normally in effect for custody of the Funds' portfolio

securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Funds and allow retention or disposition of such
securities. The Funds will only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
deemed by the Funds' adviser to be creditworthy pursuant to guidelines
established by the Trustees.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase short-
term obligations on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Funds purchase securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Funds 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. The Funds may dispose of a
commitment prior to settlement if the adviser deems it appropriate to do so.
In addition, the Funds may enter in transactions to sell its purchase
commitments to third parties at current market values and simultaneously
acquire other commitments to purchase similar securities at later dates. The
Funds may realize short-term profits or losses upon the sale of such
commitments.

REGULATORY COMPLIANCE. The Funds may follow non-fundamental operational policies
that are more restrictive than their fundamental investment limitations, as set
forth in this prospectus and in each Fund's Statement of Additional Information,
in order to comply with applicable laws and regulations, including the
provisions of and regulations under the Investment Company Act of 1940. In
particular, the Funds will comply with the various requirements of Rule 2a-7,

which regulates money market mutual funds. The Funds will also determine the
effective maturity of their investments, as well as its ability to consider a
security as having received the requisite short-term ratings by a nationally
recognized statistical rating organization ("NRSROs"), according to Rule 2a-7.
The Funds may change these operational policies to reflect changes in the laws
and regulations without the approval of their shareholders.

INVESTMENT LIMITATIONS

Tax-Free Money Market Fund will not:

. borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 15% of the value of those assets to secure such borrowings;
or
. with respect to 75% of the value of its total assets, invest more than
5% of its total assets in securities of one issuer (except cash, cash
items, repurchase agreements collateralized by U.S. government securities
and U.S. government obligations). The remaining 25% of its total assets
may be invested in a single issuer if the investment adviser believes
such a strategy is prudent.

Treasury Fund will not:

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

total assets to secure such borrowings.

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

Tax-Free Money Market Fund will not:

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

Treasury Fund will not:

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

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

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising

all the Trust's powers except those reserved for the shareholders.

ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.50% of Treasury Fund's average daily net assets and 0.55% of
Tax-Free Money Market Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse one or all
of the Funds for certain operating expenses.

Star Bank's expertise in trust administration, investments, and estate
planning ranks it among the most predominant trust institutions in Ohio,
with assets of $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 their regular banking operations, Star Bank may make loans to
public companies. Thus, it may be possible from time to time, for the
Funds to hold or acquire the securities of issuers which are also lending
clients of Star Bank. The lending relationship will not be a factor in the
selection of securities.

DISTRIBUTION OF FUND SHARES

DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted
in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the
Tax-Free Money Market Fund and the Treasury Fund will pay to Federated
Securities Corp. an amount computed at an annual rate of 0.25% of the average
daily net asset value of shares to finance any activity which is principally
intended to result in the sale of shares subject to the Plan. Currently, only
the Investment Shares of the Treasury Fund are paying 12b-1 fees. The Tax-Free
Money Market Fund and the Trust Shares of the Treasury Fund are not currently
paying fees subject to the Plan. Should the Fund begin to pay these fees,
shareholders will be notified.

The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to
provide sales and/or administrative services as agents for their clients or
customers who beneficially own shares. Administrative services may include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel (including clerical,
supervisory, and computer) as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding each Fund; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Funds reasonably request.

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

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 associations) to provide administrative services. These
administrative services include distributing prospectuses and other
information, providing accounting assistance, and communicating or
facilitating purchases and redemptions of the Funds' shares.

Brokers, dealers, and administrators will receive fees from the distributor
based upon shares of each Fund owned by their clients or customers. The fees
are calculated as a percentage of the average aggregate net asset value of
shareholder accounts during the period for which the brokers, dealers, and

administrators provide services. The current annual rate of such fees is up to
0.30% for each Fund. Any fees paid for these services by the distributor will
be reimbursed by the Adviser. Payments made here are in addition to any
payments made under the Funds' Rule 12b-1 Distribution Plan or Shareholder
Services Plan.

ADMINISTRATION OF THE FUNDS

<TABLE>
<CAPTION>
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
.075% on assets in excess of $750 million
</TABLE>

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

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 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. The fee is to obtain certain services for shareholders and to
maintain shareholder accounts.

CUSTODIAN. Star Bank, N.A. is the Funds' custodian for which it receives a fee
of 0.025% 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.

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

EXPENSES OF THE TREASURY FUND AND TRUST SHARES

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

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

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

At present, the only expense allocated to Trust Shares as a class are expenses
under the Shareholder Services Agreement. However, the Trustees reserve the
right to allocate certain other expenses to holders of Trust Shares as they deem
appropriate ("class expenses"). In any case, class expenses would be limited to:
transfer agent fees as identified by the transfer agent as attributable to
holders of Trust Shares; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Trust Shares; legal fees relating solely to Trust Shares; and Trustees' fees
incurred as a result of issues relating solely to Trust Shares.

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

The Funds attempt to stabilize the net asset value of their shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share of the Tax-Free Money Market Fund is determined by
subtracting total liabilities of the Fund from the Fund's total assets and
dividing the remainder by the number of the Fund's shares outstanding. The net
asset value per share of each class of the Treasury Fund is determined by
subtracting liabilities attributable to that class of Shares from the value of
Fund assets attributable to that class of Shares, and dividing the remainder
by the number of Shares outstanding within that class. The Funds cannot
guarantee that their net asset value will always remain at $1.00 per share.

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

MINIMUM INVESTMENT REQUIRED

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

investment. (See "Shareholder Service Organizations.") Shareholders purchasing
through sweep accounts should refer to their sweep agreement or other account
agreement for required investment minimums.

WHAT SHARES COST

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

The net asset value is determined at 12:00 noon and as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open for business. A customer of Star Bank may
purchase shares of a Fund through Star Bank. In connection with the sale of
Fund shares, the distributor may from time to time offer certain items of
nominal value to any shareholder or investor. The Funds reserve the right to
reject any purchase request.

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

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

THROUGH SHAREHOLDER SERVICE ORGANIZATIONS. To purchase shares of the Funds for
an investor, the relevant Shareholder Service Organization, as defined below,
must open an account by calling Star Bank at 1-800-677-FUND. Information
needed to establish the account will be taken over the telephone. The Funds
reserve the right to reject any purchase request.

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

SHAREHOLDER SERVICE ORGANIZATIONS

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

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

EXCHANGING SECURITIES FOR FUND SHARES

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

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

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

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

CERTIFICATES AND CONFIRMATIONS

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

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

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

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends will be reinvested in

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

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

CAPITAL GAINS

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

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

EXCHANGING SHARES

All shareholders of the Funds are shareholders of the Star Funds. Star Funds
currently consist of those Funds listed on the cover page of this prospectus.
Through a telephone exchange program, shareholders can exchange shares of the
money market funds for shares of the other Star Funds.

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

Shares of a Star money market fund may be exchanged for shares of another Star
money market fund at net asset value. Shares of a Star money market fund may
be exchanged for shares of a Star Fund which imposes a front-end sales charge
at net asset value plus the front-end sales charge of the fund into which the
shares are to be exchanged. Shares of a Star money market Fund may be
exchanged for shares of a Star Fund which imposes a contingent deferred sales
charge ("CDSC") at net asset value. However, if the shareholder redeems these
shares within five years of the original purchase, a CDSC will be imposed. For
purposes of computing the CDSC, the length of time the shareholder has owned
the shares to be redeemed, will be measured from the date of original purchase
and will not be affected by the exchange.

Shareholders who exercise the exchange privilege must exchange shares having a
net asset value of at least $1,000. Accounts established through a Shareholder
Service Organization may be subject to a smaller minimum exchange investment,
and shareholders should consult their account agreement with their Shareholder
Service Organization for information and procedures on effecting exchanges.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the Fund into which an exchange is to be effected.

Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange will be redeemed at the next-determined net
asset value.

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

EXCHANGE-BY-TELEPHONE

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

Telephone exchange instructions must be received before 3:00 p.m. (Eastern
time) for shares to be exchanged the same day. The telephone exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of such modification or termination. Shareholders of the Funds may
have difficulty in making exchanges by telephone through brokers, banks, or
other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker, bank, or financial
institution by telephone, it is recommended that an exchange request be made

in writing and sent by overnight mail.

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

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

The Funds redeem shares at their net asset value next determined after Star
Bank receives the redemption request. A CDSC will be imposed only in those
circumstances in which the shares of the Fund being redeemed were acquired in
exchange for shares of those Star Funds which charge a CDSC.

A description of the CDSC is contained in the prospectus relating to the Star
Funds which charge a CDSC. Redemptions will be made on days on which the Funds
compute their net asset value. Redemption requests cannot be executed on days
on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Requests for redemption can be made in person or
by telephone through Star Bank.

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

BY TELEPHONE. A shareholder who is a customer of Star Bank may redeem shares
of a Fund by telephoning Star Bank at 1-800-677-FUND. The minimum amount that
may be redeemed in this manner is $250. Redemption requests given by telephone

may be electronically recorded. For calls received by Star Bank before 10:30
a.m. (Eastern time), proceeds will normally be wired the same day to the
shareholder's account at Star Bank or a check will be sent to the address of
record. Those shares will not be entitled to the dividend declared that day.
For calls received by Star Bank after 10:30 a.m. (Eastern time), proceeds will
normally be wired or a check mailed the following business day. Those shares
will be entitled to the dividend declared on the day the redemption request
was received. In no event will proceeds be wired or a check mailed more than
seven days after a proper request for redemption has been received. If at any
time any or all of the Funds shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.

An authorization form permitting any of the Funds to accept telephone requests
must first be completed. Authorization forms and information on this service
are available from Star Bank.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered. If reasonable procedures
are not followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

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

CHECKWRITING PRIVILEGE

You can redeem shares of the Star Tax-Free Money Market Fund or the Star
Treasury Fund by writing a check in the amount of at least $250. You must have
completed the checkwriting section of your account application and the
attached signature card, or have completed a subsequent application form,
which you can obtain from Star Funds. The Fund will then provide you with the
checks. Your check is treated as a redemption order for Fund shares equal to
the amount of the check. A check for an amount in excess of your available
Fund account balance will be returned marked "insufficient funds." Shares
purchased by check or through Automated Clearing House (ACH) cannot be
redeemed until all checks in payment for the purchase of the shares to be
redeemed have been honored, which may take upto 15 days. Checks written on
these shares will be returned and
marked "uncollected funds." Checks cannot be used to close your Fund account
balance.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Shareholders establishing accounts through a
Shareholder Service Organization should consult their account agreement for
information regarding accounts with low balances. Shareholders who purchase
shares via a sweep account are not subject to an investment minimum.

Before shares are redeemed to close an account, the shareholder is notified in

writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

VOTING RIGHTS

Each share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each fund in the Trust have equal voting rights,

except that in matters affecting only a particular fund or class, only
shareholders of that fund or class are entitled to vote. As a Massachusetts
business trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust or a
Fund's operation and for the election of Trustees under certain circumstances.
As of March 3, 1997, with respect to Tax-Free Money Market Fund, Star Bank
N.A., Cincinnati, Ohio, acting in various capacities for numerous accounts,
was the owner of record of 122,938,749 shares (86.10%) of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders. As of March 3, 1997, with respect to Treasury Fund Investment
Shares, Star Bank N.A., Cincinnati, Ohio, acting in various capacities for
numerous accounts, was the owner of record of 345,001,457 Investment Shares

(36.51%) of the Fund and therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.

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 bank or non-bank 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 bank or non-bank 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
customers.

Some entities providing services to the Funds are subject to such banking laws
and regulations. They believe, based on the advice of counsel, that they may
perform those services for the Funds contemplated by any agreement entered
into with the Trust without violating the Glass-Steagall Act or other
applicable banking laws or regulations. Changes in either federal or state

statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes and
regulations, could prevent these entities from continuing to perform all or a
part of the above services. If this happens, the Trustees would consider
alternative means of continuing available investment services. It is not
expected that Fund 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 they expect to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

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

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

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

TAX-FREE MONEY MARKET FUND--ADDITIONAL TAX INFORMATION

Shareholders of Tax-Free Money Market Fund are not required to pay the federal
regular income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest earned on some municipal bonds are
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.

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

The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities,
private activity bonds provide benefits to private parties. Tax-Free Money
Market Fund may purchase all types of municipal bonds, including "private

activity" bonds. Thus, while the Fund has no present intention of purchasing
any private activity bonds, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.

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

Dividends of Tax-Free Money Market Fund representing net interest income
earned on some temporary investments and any realized net short-term gains are
taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and
distributions is provided annually.

STATE AND LOCAL TAXES. Distributions representing net interest received on
tax-exempt municipal securities are not necessarily free from income taxes of
any state or local taxing authority. State laws differ on this issue and

shareholders are urged to consult their own tax advisers.

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

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

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

For the Tax-Free Money Market Fund, the tax-equivalent yield of the Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Fund would have had to earn to equal its actual yield, assuming
a specific tax rate.

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

Yield, effective yield and total return will be calculated separately for
Trust Shares and Investment Shares of the Treasury Fund. Because Investment
Shares are subject to 12b-1 fees, the yield, effective yield and total return
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> <C>
Star Tax-Free Money Market Fund Federated Investors Tower
Star Treasury Fund Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- -------------------------------------------------------------------------------------------------
Custodian
Star Bank, N.A. 425 Walnut Street
Cincinnati, Ohio 45202
- -------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
</TABLE>

-----------------------------
CUSIP 854911302 Star Bank, N.A.
CUSIP 854911104 Investment Adviser
-----------------------------
2010907A (3/97) Federated Securities Corp.
4289TR Distributor
-----------------------------

PROSPECTUS

The Investment Shares of Star Treasury Fund (the "Fund") offered by this
prospectus represent interests in a portfolio of the Star Funds (the "Trust"),
an open-end management investment company (a mutual fund).

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS

TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.

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

The Trust has also filed a Statement of Additional Information for the Fund
dated March 31, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information,
or make inquiries about the Fund by calling 1-800-677-FUND. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).

Prospectus dated March 31, 1997

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

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

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

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

Investment Objective 3

Investment Policies 3

Investment Limitations 5

NET ASSET VALUE 5
- -------------------------------------

INVESTING IN THE FUND 6
- -------------------------------------

How to Purchase Shares 6

Exchanging Securities for Shares 6

Certificates and Confirmations 7

Dividends 7

Capital Gains 7
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

REDEEMING SHARES 7
- -------------------------------------

How to Redeem Shares 7

Accounts with Low Balances 8

FUND INFORMATION 8
- -------------------------------------

Management of the Trust 8

Distribution of Investment Shares 9

Administration of the Fund 10

SHAREHOLDER INFORMATION 11
- -------------------------------------

Voting Rights 11

EFFECT OF BANKING LAWs 11
- -------------------------------------

TAX INFORMATION 12
- -------------------------------------

Federal Income Tax 12

PERFORMANCE INFORMATION 12
- -------------------------------------

OTHER CLASSES OF SHARES 13
- -------------------------------------

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

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)................................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable).......................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................... None
Exchange Fee..................................................................................... None

ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)

Management Fee.................................................................................. 0.50%
12b-1 Fees...................................................................................... 0.25%
Total Other Expenses............................................................................ 0.21%
Shareholder Servicing Fee (1)............................................................... 0.05%
Total Fund Operating Expenses (2)........................................................... 0.96%
</TABLE>

(1) The Fund can pay up to 0.25% of its average daily net assets as a
Shareholder Servicing Fee. For the foreseeable future, the Fund plans to
limit the Shareholder Servicing Fee to 0.05% of its average daily net
assets.

(2) The Total Fund Operating Expenses in the table above are based on expenses
expected during the fiscal year ending November 30, 1997. The Total Fund
Operating Expenses were 0.70% for the fiscal year ended November 30, 1996.

* Total Fund Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1997. During
the course of this period, expenses may be more or less than the average
amount shown.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF A FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS
AND EXPENSES, SEE "STAR FUNDS INFORMATION."

<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return
and (2) redemption at the end of
each time period..................................................... $10 $31 $53 $118

</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.

STAR TREASURY FUND

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989(A)
- ----------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------
Net investment income 0.05 0.05 0.03 0.03 0.03 0.06 0.07 0.05
- -----------------------
LESS DISTRIBUTIONS
- -----------------------
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.03) (0.06) (0.07) (0.05)
- ----------------------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN (B) 4.80% 5.23% 3.30% 2.56% 3.41% 5.72% 7.72% 5.36%
- -----------------------
RATIOS TO AVERAGE NET
ASSETS

* Computed on an annualized basis.

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

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

GENERAL INFORMATION
- -------------------------------------------------------------------------------

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. With respect to the Fund, as of the date of this prospectus, the
Board of Trustees has established two classes of shares known as Investment
Shares and Trust Shares. This prospectus relates only to Investment Shares of
the Fund ("Shares"). The Fund is designed as a convenient means of

accumulating an interest in a professionally managed portfolio investing
exclusively in short-term U.S. Treasury obligations. A minimum initial
investment of $1,000 is required for Shares.

The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.

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

INVESTMENT OBJECTIVE

The investment objective of the Fund is stability of principal and current
income consistent with stability of principal. The investment objective of the
Fund cannot be changed without the approval of holders of a majority of the
Fund's shares. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by complying with the
diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing in a portfolio
consisting exclusively of short-term U.S. Treasury obligations. The Fund may
purchase these securities pursuant to repurchase agreements. Unless otherwise
indicated, the investment policies and limitations described below cannot be
changed without approval of shareholders.

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

The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the

regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.

REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. This transaction is similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument
to another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration, plus interest at an agreed
upon rate.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-
term obligations on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund may dispose of a
commitment prior to settlement if the adviser deems it appropriate to do so.
In addition, the Fund may enter into transactions to sell its purchase
commitments to third parties at current market values and simultaneously
acquire other commitments to purchase similar securities at later dates. The
Fund may realize short-term profits or losses upon the sale of such
commitments.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund will limit its
investment in other investment companies to no more than 3% of the total
outstanding voting stock of any investment company, invest more than 5% of its
total assets in any one investment company, or invest more than 10% of its
total assets in investment companies in general unless permitted to exceed
these limitations by action of the Securities and Exchange Commission. The Fund
will limit its investments in the securities of other investment companies to

those of money market funds having investment objectives and policies similar
to its own. In addition, these limitations are not applicable if the securities
are acquired in a merger, consolidation, reorganization, or acquisition of
assets. It should be noted that investment companies may incur certain expenses
which may be duplicative of certain fees incurred by the Fund. This policy may
be changed without the approval of shareholders. Shareholders will be notified
before any material change in this policy becomes effective.

REGULATORY COMPLIANCE. The Fund may follow non-fundamental operational
policies that are more restrictive than its fundamental investment
limitations, as set forth in this prospectus and in the Fund's Statement of
Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the Investment
Company Act of 1940. In particular, the Fund will comply with the various
requirements of Rule 2a-7, which regulates money market mutual funds. The Fund
will also determine the effective maturity of its investments, as well as its
ability to consider a security as having received the requisite short-term
ratings by a nationally recognized statistical rating organization ("NRSRO"),
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.

INVESTMENT LIMITATIONS

The Fund will not borrow money directly or through reverse repurchase
agreements or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets and pledge up to 10% of the value

of its total assets to secure such borrowings.

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

The Fund will not commit more than 10% of its net assets to illiquid
obligations, including repurchase agreements providing for settlement in more
than seven days after notice.

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

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

INVESTING IN THE FUND

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

HOW TO PURCHASE SHARES

Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange and the Federal Reserve wire system are open for business. In
connection with the sale of Shares, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. Shares may be purchased as
described below, either through a financial institution (such as a bank or
broker/dealer), by check or by federal funds, with a minimum intial investment
of $1,000. Subsequent investments may be in any amount.

THROUGH A FINANCIAL INSTITUTION. Investors may purchase Shares through a
financial institution which has a sales agreement with the Distributor. Orders
are considered received when the Fund converts payment by check from the
financial institution into federal funds. The financial institution will
provide certain support and/or distribution services to their customers who
are the beneficial owners of the Fund's Shares. These services provided by a
financial institution are fully discussed in the account agreement between the
financial institution and its customers, but generally include assisting
customers in processing purchase, exchange, and redemption requests.

Financial institutions are responsible for prompt transmission of orders.
These financial institutions are the record owners of the shares of the Fund
and may charge their customers for services relating to their investment in
the Fund. This prospectus should, therefore, be read together with any account

agreement between the customer and the financial institution with regard to
the services provided, the fees charged for those services, and any
restrictions and limitations imposed.

BY CHECK. Shares may be purchased by check or federal funds. Orders are
considered received after payment by check is converted into federal funds and
received by the Adviser. When payment is made with federal funds, the order is
considered received when federal funds are received by the Adviser. Purchase
orders must be telephoned to the financial institution by 10:30 a.m. (Eastern
time) and payment by federal funds must be received by the Adviser before 3:00
p.m. (Eastern time) on the same day as the order to earn dividends for that
day. Shares cannot be purchased on days on which the New York Stock Exchange
is closed or on federal holidays restricting wire transfers.

EXCHANGING SECURITIES FOR SHARES

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

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

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company
maintains a Share account for each shareholder of record. Share certificates
are not issued. Monthly confirmations are sent to report transactions such as
purchases and redemptions, as well as dividends, paid during the month.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional Shares on payment dates unless cash payments are requested by
writing to the financial institution. Share purchase settlements received by
the Adviser before 3:00 p.m. (Eastern time) earn dividends that day.

CAPITAL GAINS

If the Fund experiences capital gains, it could result in an increase in
dividends for the Fund. Capital losses could result in a decrease in dividends

for the Fund. If for some extraordinary reason the Fund realizes net long-term
capital gains, the Fund will distribute them at least once every 12 months.

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

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value next determined after the
financial institution 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 requests
must be received in proper form and can be made as described below.

THROUGH A FINANCIAL INSTITUTION. Shares may be redeemed by contacting the
shareholder's financial institution. Shares will be redeemed at the net asset
value next determined after the financial institution receives the redemption
request. According to the shareholder's instructions, redemption proceeds can
be sent to the financial institution or to the shareholder by check or by
wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution for
this service.

BY TELEPHONE. Redemptions in a minimum amount of $250 may be made by calling
the financial institution, provided the financial institution has a properly
completed authorization form. Redemption requests given by telephone may be

electronically recorded. Proceeds from redemption requests received before
10:30 a.m. (Eastern time), will normally be wired the same day to the
shareholder's account or a check will be sent to the address of record, but
will not include that day's dividend. Proceeds from redemption requests
received after 10:30 a.m. (Eastern time), will normally be wired or a check
mailed the following business day but will include that day's dividend. 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
determines it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be considered. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized
or fraudulent telephone instructions.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.

FUND INFORMATION
- -------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

INVESTMENT ADVISER. Investment decisions for the Fund are made by Star Bank,
N.A., 425 Walnut Street, Cincinnati, Ohio, 45202, the Fund's investment
adviser (the "Adviser"), subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses.

ADVISER'S BACKGROUND. The Adviser, a national bank, was founded in 1863
and is the largest bank and trust organization of StarBanc Corporation.

The Adviser has managed commingled funds since 1957, and has advised the
portfolios of the Trust since 1989. 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.

As part of their regular banking operations, the Adviser may make loans to
public companies. Thus, it may be possible from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of the Adviser. The lending relationship will not be a factor in the
selection of securities.

DISTRIBUTION OF INVESTMENT SHARES

Federated Securities Corp., Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222, is the distributor for Shares of the Fund. It is a
Pennsylvania corporation organized on November 14, 1969, and is the
distributor for a number of investment companies. Federated Securities Corp.
is a subsidiary of Federated Investors.

DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted
in accordance with the Investment Company Act Rule 12b-1 (the "Plan"),
Investment Shares of the Fund will pay to Federated Securities Corp. an amount
computed at an annual rate of 0.25% of the average daily net asset value of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Plan.

Federated Securities Corp. may from time to time, and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.

The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to
provide sales and/or administrative services as agents for their clients or
customers who beneficially own Shares. Administrative services may include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel (including clerical,
supervisory, and computer) as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Fund; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Fund reasonably requests.

The Fund's Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund
does not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the Fund,
interest, carrying or other financing charges in connection with excess
amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.

The Glass-Steagall Act prohibits a depository institution (such as a commercial

bank or a savings and loan association) from being an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed
to prohibit depository institutions from acting in the administrative
capacities described above or should Congress relax current restrictions on
depository institutions, the Trustees will consider appropriate changes in the
services.

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 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 Shares.

Brokers, dealers, and administrators will receive fees from the distributor
based upon Shares 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%. Any
fees paid for these services by the distributor will be reimbursed by the
Adviser. Payments made here are in addition to any payments made under the
Fund's Rule 12b-1 Distribution Plan or Shareholder Services Plan.

SHAREHOLDER SERVICES PLAN. Under the terms of the Shareholder Services
Agreement with the Adviser, the Fund will pay the Adviser up to 0.25% of
average daily net assets of Shares for the period. For the foreseeable future,
the Fund plans to limit the Shareholder Servicing fee to 0.05% of the average

daily net assets of Shares. The fee is to obtain certain services for
shareholders and to maintain shareholder accounts.

ADMINISTRATION OF THE FUND

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

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

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

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Shareholder Services Company, Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222, a subsidiary of Federated Investors, is transfer agent
and dividend disbursing agent for the Fund. It also provides certain
accounting and recordkeeping services with respect to the Fund's portfolio
investments.

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

VOTING RIGHTS

Each Share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights, except that
in matters affecting only a particular portfolio or class, only shareholders
of that portfolio or class are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust or

the Fund's operation and for the election of Trustees under certain
circumstances. As of March 3, 1997, with respect to Treasury Fund Investment
Shares, Star Bank N.A., Cincinnati, Ohio, acting in various capacities for
numerous accounts, was the owner of record of 345,001,457 Investment Shares
(36.51%) of the Fund and therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.

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

Some entities providing services to the Fund are subject to such banking laws

and regulations. They believe, based on the advice of counsel, that they may
perform those services for the Fund contemplated by any agreement entered into
with the Trust without violating the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present or future statutes and regulations,
could prevent these entities from continuing to perform all or a part of the
above services. If this happens, the Trustees would consider alternative means
of continuing available investment services. It is not expected that Fund
shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.

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

FEDERAL INCOME TAX

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

The Fund will be treated as a single, separate entity for federal income tax
purposes.

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

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

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

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

Yield, effective yield and total return will be calculated separately for
Trust Shares and Investment Shares of the Fund. Because Investment Shares are
subject to 12b-1 fees, the yield, effective yield and total return for Trust
Shares, for the same period, will exceed that of Investment Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare a
Fund's performance to certain indices.

OTHER CLASSES OF SHARES
- -------------------------------------------------------------------------------

The Fund also offers another class of shares called Trust Shares. Trust Shares
are sold at net asset value primarily to financial institutions acting in an
fiduciary capacity and are subject to a minimum initial investment of $1,000.

Both classes are subject to certain of the same expenses.

Trust Shares are not distributed pursuant to a 12b-1 Plan, but are subject to
shareholder services fees.

Expense differences between classes may affect the performance of each class.

To obtain more information and a prospectus for Trust Shares, investors may
call 1-800-677-FUND.

Cusip 854911104

GO0522-10 (3/97)

STAR TAX-FREE MONEY MARKET FUND
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of the Money Market Funds of the Star Funds dated March 31,
1997. This Statement is not a prospectus itself. To receive a copy of
the prospectus, write to Star Tax-Free Money Market Fund (the "Fund")
or call (513) 632- 5547.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

Star Bank, N.A.
Investment Adviser
Federated Securities Corp.
Distributor

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

INVESTMENT LIMITATIONS 5

STAR FUNDS MANAGEMENT

Fund Ownership 6
Trustees' Compensation 24
Trustee Liability 16
INVESTMENT ADVISORY SERVICES 17

Adviser to the Fund 17
Advisory Fees 17
BROKERAGE TRANSACTIONS 17

ADMINISTRATIVE SERVICES 7

CUSTODIAN 7

PURCHASING SHARES 7

Distribution Plan 20
Shareholder Services Plan 20
Administrative Arrangements 21
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8

Use of the Amortized Cost Method 8
Monitoring Procedures 22
Investment Restrictions 23
EXCHANGE PRIVILEGE 9

Requirements for Exchange 9
Making an Exchange 9
REDEEMING SHARES 9

Redemption in Kind 9
MASSACHUSETTS PARTNERSHIP LAW 25

TAX STATUS 10

The Fund's Tax Status 10
Capital Gains 10
YIELD 10

TAX-EQUIVALENT YIELD 27

EFFECTIVE YIELD 12

TOTAL RETURN 12

PERFORMANCE COMPARISONS 30

Economic and Market Information 13
FINANCIAL STATEMENTS 13

APPENDIX 14

GENERAL INFORMATION ABOUT THE FUND

The Fund is an investment portfolio of the Star Funds (the `Trust''). The
Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 23, 1989. On May 1, 1993, the Board of Trustees (the
`Trustees'') approved changing the name of the Trust, effective May 1,
1993, from Losantiville Funds to Star Funds and changing the Fund's name
from Losantiville Tax-Free Money Market Fund to Star Tax-Free Money Market
Fund.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income exempt from
federal regular income tax consistent with stability of principal. The
investment objective cannot be changed without the approval of
shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of
states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivisions or financing authority
of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax (`Municipal
Securities''). The Fund invests in Municipal Securities with remaining
maturities of 397 days or less at the time of purchase by the Fund.
CHARACTERISTICS
When determining whether a Municipal Security presents minimal credit
risks, the investment adviser considers the creditworthiness of the
issuer of a Municipal Security, the issuer of a demand feature if the
Fund has the unconditional right to demand payment from the issuer of
the interest, or the credit enhancer of payment by either of those

issuers. The Fund is not required to sell a Municipal Security if the
security's rating is reduced below the required minimum subsequent to
the Fund's purchase of the security. The Trustees and the investment
adviser consider this event, however, in the determination of whether
the Fund should continue to hold the security in its portfolio. If
ratings made by Moody's Investors Service, Inc., Standard & Poor's
Ratings Group, or Fitch Investors Service, Inc., change because of
changes in those organizations or in their rating systems, the Fund
will try to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase Municipal Securities in the form of
participation interests that represent an undivided proportional
interest in lease payments by a governmental or nonprofit entity. The
lease payments and other rights under the lease provide for and secure
payments on the certificates. Lease obligations may be limited by
municipal charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic
appropriation. If the entity does not appropriate funds for future
lease payments, the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the participants cannot
accelerate lease obligations upon default. The participants would only
be able to enforce lease payments as they became due. In the event of
a default or failure of appropriation, unless the participation
interests are credit enhanced, it is unlikely that the participants
would be able to obtain an acceptable substitute source of payment.
RATINGS

The securities in which the Fund is permitted to invest are rated in
the highest short-term rating category by one or more nationally
recognized securities rating organization (`NRSRO''). A NRSRO's
highest rating category is determined without regard for sub-
categories and gradations. For example, securities rated A-1 or A-1+
by Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's
Investors Service, Inc. ("Moody's"), or F-1 (+ or -) by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in the
highest short-term rating category. The Fund will follow applicable
regulations in determining whether a security rated by more than one
NRSRO can be treated as being in the highest short-term rating
category. Additionally, the Fund may purchase unrated securities which
are determined to be of comparable quality of securities rated in the
highest short-term rating category by NRSRO's and which are otherwise
eligible for purchase by the Fund.
The Fund may also purchase bonds which have no short-term ratings but
which have long-term ratings by NRSROs in the two highest ratings
categories. The Fund has the ability but no present intention of
investing in Municipal Securities that are rated MIG2 or VMIG2 by
Moody's, F-2 by Fitch, or A-2 or SP-2 by S&P and tax-exempt commercial
paper that is rated P-2 by Moody's, A-2 by S&P, or F-2 by Fitch, or
securities which are not rated but are deemed to be of comparable
quality. Shareholders of the Fund will be notified should the Fund
decide to invest in these securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price and yield for the Fund.

The Fund may also sell Municipal Securities on a delayed delivery basis
with settlement taking place more than five days after the sale as a normal
form of portfolio transaction. It is the investment adviser's experience
that it is not unusual in the Municipal Securities market for settlement
periods to be slightly longer than this period.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment for
the securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction is settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer.
TEMPORARY INVESTMENTS
The Fund may also invest in high-quality temporary investments from time to
time for temporary defensive purposes.
From time to time, such as when suitable Municipal Securities are not
available, the Fund may invest a portion of its assets in cash. Any portion
of the Fund's assets maintained in cash will reduce the amount of assets in
Municipal Securities and thereby reduce the Fund's yield.
This policy may, from time to time, result in high portfolio turnover.
Since the cost of these transactions is small, high turnover is not
expected to adversely affect net asset value or yield. The adviser does not

anticipate that portfolio turnover will result in adverse tax consequences
to the Fund.
INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary
for clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly in amounts up to one-third of the value of its
total assets including the amount borrowed. The Fund will not borrow
money for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under the Securities
Act of 1933 except for certain restricted securities which meet
criteria for liquidity as established by the Trustees.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets, except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the Fund at the time
of the pledge.

INVESTING IN COMMODITIES
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests, although it may invest in securities secured by
real estate or interests in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding bonds,
debentures, notes, certificates of indebtedness or other debt
securities, entering into repurchase agreements or engaging in other
transactions where permitted by its investment objective, policies,
and limitations or Declaration of Trust.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its assets, the Fund will not
purchase securities of any one issuer (other than securities issued
or guaranteed by the government of the United States or its agencies
or instrumentalities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer.
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees

without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities and municipal leases not determined by the Trustees to be
liquid.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will limit its investments in the
securities of other investment companies to those of money market
funds having investment objectives and policies similar to its own.
The Fund will not purchase or acquire any security issued by a
registered closed- end investment company if, immediately after the
purchase or acquisition, 10% or more of the voting securities of the
closed-end investment company would be owned by the Fund and other
investment companies having the same adviser and companies controlled
by these investment companies. The Fund will purchase securities of
closed-end investment companies only in open- market transactions
involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies may incur certain expenses
which may be duplicative of certain fees incurred by the Fund.

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
instruments issued by a U.S. branch of a domestic bank having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Fund did not borrow money or pledge securities (except as a temporary,
extraordinary, or emergency measure) in excess of 5% of the value of its
net assets and did not invest in securities of closed-end investment
companies during the last fiscal year and has no present intent to do so in
the coming fiscal year.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
more than 25% of the value of the Fund's assets would be invested in any
one industry.
However, the Fund may invest more than 25% of the value of its assets in
cash or cash items, securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
The Fund does not intend to purchase securities that would increase the
percentage of its assets invested in the securities of governmental
subdivisions located in any one state, territory, or U.S. possession to
more than 25%. However, the Fund may invest more than 25% of the value of
its assets in tax-exempt project notes guaranteed by the U.S. government,
regardless of the location of the issuing municipality.

If the value of Fund assets invested in the securities of a governmental
subdivision changes because of changing values, the Fund will not be
required to make any reduction in its holdings.

STAR FUNDS MANAGEMENT

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

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.

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.

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 March 3, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund:
Star Bank, N.A., Cincinnati, OH, owned approximately 142,641,613 shares
(99.90%).
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

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Star Bank, N.A. (`Star Bank'' or
`Adviser''). Star Bank is a wholly-owned subsidiary of StarBanc
Corporation. Star Bank shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or omitted
by it, except acts or omissions involving willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Trust. Because of the internal controls maintained by
Star Bank to restrict the flow of non-public information, Fund investments
are typically made without any knowledge of Star Bank's or its affiliates'
lending relationships with an issuer.
ADVISORY FEES

For its advisory services, Star Bank receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30,
1996, 1995 and 1994, the Fund's adviser earned $984,158, $862,867 and
$756,063, respectively, of which $201,332, $235,327 and $206,199,
respectively, were voluntarily waived.

BROKERAGE TRANSACTIONS

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, the Fund
paid no brokerage commissions.
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 the fees set
forth in the prospectus. For the fiscal year ended November 30, 1996, 1995
and 1994, the Fund incurred administrative service fees of $179,533,
$172,949 and $168,559, respectively, none of which was voluntarily waived.

CUSTODIAN

Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to .025% of the Fund's
average daily net assets.
PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange and the Federal Reserve Wire System are open for
business. The minimum initial investment in the Fund by an investor is
$1,000 ($25 for Star Bank Connections Group Banking customers and Star Bank
employees and members of their immediate family). The minimum initial
investment may be waived from time to time for employees and retired
employees of Star Bank, N.A., and for members of the families (including
parents, grandparents, siblings, spouses, children, aunts, uncles, and in-
laws) of such employees or retired employees. The procedure for purchasing

shares of the Fund is explained in the Prospectus under `Investing in the
Funds.''
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule
12b-1 which was promulgated by the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940 (the "Plan''). The Plan
provides for shares payment of fees to Federated Securities Corp. to
finance any activity which is principally intended to result in the sale of
the Fund's shares subject to the Plan. Such activities may include the
advertising and marketing of shares; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the
Plan, Federated Securities Corp. may pay fees to brokers and others for
such services.
The Trustees expect that the adoption of the Plan will result in the sale
of sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
The Tax-Free Money Market Fund is not currently making payments under the
Plan, nor does it anticipate doing so in the future.
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, the Fund paid shareholder
services fees in the amount of $72,090.

DETERMINING NET ASSET VALUE

The Fund attempts to stabilize the value of a share at $1.00. The days on
which net asset value is calculated by the Fund are described in the
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions of Rule 2a-7
(the ``Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule,
a demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party (1) on no more than 30 days'
notice or (2) at specified intervals not exceeding one year on no more than
30 days' notice. A standby commitment entitles the Fund to achieve same day
settlement and to receive an exercise price equal to the amortized cost of
the underlying instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share

based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than .5% between the two values. The Trustees will take any steps
they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods
of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally
recognized statistical rating organization. If the instruments are not
rated, the Trustees must determine that they are of comparable
quality. The Rule also requires the Fund to maintain a dollar-weighted
average portfolio maturity (not more than 90 days) appropriate to the
objective of maintaining a stable net asset value of $1.00 per share.
In addition, no instruments with a remaining maturity of more than 397
days can be purchased by the Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90
days or less as soon as possible. Shares of investment companies
purchased by the Fund will meet these same criteria and will have
investment policies consistent with Rule 2a-7.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from time
to time, result in high portfolio turnover. Under the amortized cost method
of valuation, neither the amount of daily income nor the net asset value is

affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the
indicated daily yield on shares of the Fund computed the same way may tend
to be lower than a similar computation made by using a method of
calculation based upon market prices and estimates.
EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made. 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

federal holidays restricting wire transfers. Redemption procedures are
explained in the prospectus under `Redeeming Shares.''
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in
part, by a distribution of securities from the Fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be
made in readily marketable securities to the extent that such securities
are available. If this state's policy changes, the Fund reserves the right
to redeem in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW

for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD

The Fund's yield for the seven-day period ended November 30, 1996, was
2.85%. The Fund calculates its yield daily based upon the seven days ending
on the day of the calculation, called the `base period.''

This yield is computed by:
determining the net change in the value of a hypothetical account
with a balance of one share are the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased shares;
dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.

TAX-EQUIVALENT YIELD

The Fund's tax-equivalent yield for the seven-day period ended November 30,
1996, was 4.13%.

The tax-equivalent yield of the Fund is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 31% tax rate and assuming
that income is 100% tax-exempt.

TAXABLE YIELD EQUIVALENT FOR 1997

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050

SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050

Tax-Exempt
Yield Taxable Yield Equivalent

1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%

2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

EFFECTIVE YIELD

The Fund's effective yield for the seven-day period ended November 30,
1996, was 2.89%.

The Fund's effective yield is computed by compounding the unannualized base
period return by:

adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TOTAL RETURN

Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions. The Fund's average annual total return for the
one year and five year periods ended November 30, 1996 and 1995 and for the
period from March 15, 1991 (date of initial public investment), to November
30, 1996, were 2.91%, 2.58%, and 2.76%, respectively.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instrument sin which the portfolio is invested;
changes in interest rates on money market instruments;
changes in Fund expenses; and
the relative amount of Fund cash flow.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund will
quote its Lipper ranking in the ``tax-free money market funds''
category in advertising and sales literature.
SALOMON BROTHERS SIX-MONTH PRIME MUNI NOTES is an index of selected
municipal notes, maturing in six months, whose yields are chosen as
representative of this market. Calculations are made weekly and
monthly.
SALOMON BROTHERS ONE-MONTH TAX-EXEMPT COMMERCIAL PAPER is an index of
selected tax-exempt commercial paper issues, maturing in one month,
whose yields are chosen as representative of this particular market.
Calculations are made weekly and monthly. Ehrlich-Bober & Co., Inc.,
also tracks this Salomon Brothers index.
MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature. Advertisements and other
sales literature for the Fund may refer to total return. Total return

is the historic change in the value of an investment in the Fund based
on the monthly reinvestment of dividends over a specified period of
time.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's 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 Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`ICI''). For example,
according to the ICI, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.

FINANCIAL STATEMENTS

APPENDIX

STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A - S&P note rating reflects the liquidity concerns and market access risks
unique to notes.
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDN'S) AND TENDER OPTION BONDS (TOB'S) RATINGS
Standard & Poor's Ratings Group ("S&P") assigns dual ratings to all long-
term debt issues that have as part of their provisions a variable rate
demand feature. The first rating (long-term rating) addresses the
likelihood of repayment of principal and interest when due, and the second
rating (short-term rating) describes the demand characteristics. Several
examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term
and the short-term ratings are provided below.)

COMMERCIAL PAPER (CP) RATINGS
A- S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA - Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA - Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest 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.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's short-term ratings are designated Moody's Investment Grade (MIG or
VMIG) (see below)).
The purpose of the MIG or VMIG ratings is to provide investors with a
simple system by which the relative investment qualities of short-term
obligations may be evaluated.

MIG1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on
external liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1);
the first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The
VMIG rating can be assigned a 1 or 2 designation using the same definitions
described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1 - Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries,
high rates of return on funds employed, conservative capitalization
structure with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal
cash generation, well-established access to a range of financial markets
and assured sources of alternate liquidity
P-2 - Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This

will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
LONG-TERM DEBT 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 is 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.
NR - Indicates that both the bonds and the obligor or credit enhancer are
not currently rated by S&P or Moody's with respect to short-term

indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.
NR(1)- The underlying issuer/obligor/guarantor has other outstanding debt
rated "AAA" by S&P or "Aaa" by Moody's.
NR(2)- The underlying issuer/obligor/guarantor has other outstanding debt
rated "AA" by S&P or "Aa" by Moody's.
NR(3)- The underlying issuer/obligor/guarantor has other outstanding debt
rated "A" by S&P or Moody's.

854911302
1010901B (3/97)

STAR TREASURY FUND
INVESTMENT SHARES
TRUST SHARES
(A PORTFOLIO OF THE STAR FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of the Money Market Funds of the Star Funds and the prospectus of the Star
Treasury Fund, both dated March 31, 1997. This Statement is not a
prospectus itself. To receive a copy of either of the prospectuses, write
to Star Treasury Fund (the "Fund") or call (513) 632-5547.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997

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

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

INVESTMENT LIMITATIONS 2

STAR FUNDS MANAGEMENT 3

FUND OWNERSHIP 10
TRUSTEES' COMPENSATION
TRUSTEE LIABILITY 11
INVESTMENT ADVISORY SERVICES 11

ADVISER TO THE FUND 11
ADVISORY FEES 7
BROKERAGE TRANSACTIONS 7

ADMINISTRATIVE SERVICES 7

CUSTODIAN 7

PURCHASING SHARES 7

DISTRIBUTION PLAN (INVESTMENT SHARES) 7
SHAREHOLDER SERVICES PLAN 8
ADMINISTRATIVE ARRANGEMENTS 8
CONVERSION TO FEDERAL FUNDS 8
DETERMINING NET ASSET VALUE 8

USE OF THE AMORTIZED COST METHOD 8
MONITORING PROCEDURES 17
INVESTMENT RESTRICTIONS 9
EXCHANGE PRIVILEGE 9

REQUIREMENTS FOR EXCHANGE 19
MAKING AN EXCHANGE 19
REDEEMING SHARES 19

REDEMPTION IN KIND 19
MASSACHUSETTS PARTNERSHIP LAW 20

TAX STATUS 21

THE FUND'S TAX STATUS 21
SHAREHOLDERS' TAX STATUS 21
CAPITAL GAINS 21
YIELD 22

EFFECTIVE YIELD 11

TOTAL RETURN 11

PERFORMANCE INFORMATION 23

ECONOMIC AND MARKET INFORMATION 12
FINANCIAL STATEMENTS 12

APPENDIX 13

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of the Star Funds (the `Trust''). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated January 23, 1989. On May 1, 1993, the Board of Trustees (the
`Trustees''), approved changing the name of the Trust, effective May 1,
1993, from Losantiville Funds to Star Funds and changing the Fund's name
from Losantiville Treasury Fund to Star Treasury Fund.
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 Statement of Additional Information relates to
both classes of Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide stability of principal and
current income consistent with stability of principal. The investment
objective and policies cannot be changed without approval of shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Fund sufficient to make payment for
the securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained
until the transaction is settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any portfolio instruments short or purchase any
portfolio instruments on margin but may obtain such short-term credits
as may be necessary for clearance of purchases and sales of portfolio
instruments.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements as a
temporary measure for extraordinary or emergency purposes and then
only in amounts not in excess of 5% of the value of its total assets
or in an amount up to one-third of the value of its total assets,
including the amount borrowed, in order to meet redemption requests
without immediately selling portfolio instruments. Any such borrowings
need not be collateralized. The Fund will not borrow money or engage
in reverse repurchase agreements for investment leverage purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the
borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase
or hold U.S. Treasury obligations, including repurchase agreements.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, can be changed by the

Trustees without shareholder approval. Shareholders will be notified before
any material change in these limitations become effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities, including certain restricted securities not
determined to be liquid under criteria established by the Trustees and
repurchase agreements providing for settlement in more than seven days
after notice.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general unless permitted to exceed these limitations by
action of the Securities and Exchange Commission. The Fund will limit
its investments in the securities of other investment companies to
those of money market funds having investment objectives and policies
similar to its own. In addition, these limitations are not applicable
if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. It should be noted that
investment companies may incur certain expenses which may be
duplicative of certain fees incurred by the Fund.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not borrow money or pledge securities, except as a temporary,
extraordinary, or emergency measure, in excess of 5% of the value of its

net assets during the last fiscal year and has no present intent to do so
in the coming fiscal year.

STAR FUNDS MANAGEMENT

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

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.

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.

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 Investment
Shares.
As of March 3, 1997, the following shareholder of record owned 5% or more
of the outstanding Investment Shares of the Fund: Star Bank N.A.,
Cincinnati, OH, owned approximately 874,773,264 shares (91.57%).
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.

ADVISER TO THE FUND
The Fund's investment adviser is Star Bank, N.A. (``Star Bank'' or
``Adviser''). Star Bank is a wholly-owned subsidiary of StarBanc
Corporation. Star Bank shall not be liable to the Trust, the Fund, or any
shareholder of the Fund for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or omitted
by it, except acts or omissions involving willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Trust. Because of the internal controls maintained by

Star Bank to restrict the flow of non-public information, Fund investments
are typically made without any knowledge of Star Bank's or its affiliates'
lending relationships with an issuer.
ADVISORY FEES

For its advisory services, Star Bank receives an annual investment advisory
fee as described in the prospectus. For the fiscal year ended November 30,
1996, 1995, and 1994, the Fund's Adviser earned $3,586,051, $2,293,566, and
$1,672,434, respectively, none of which was voluntarily waived.

BROKERAGE TRANSACTIONS

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, the Fund
paid no brokerage commissions.
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 the fees set
forth in the prospectus. For the fiscal year ended November 30, 1996, 1995
and 1994, the Fund incurred administrative service fees of $717,407,
$503,167 and $409,841 respectively, none of which was voluntarily waived.

CUSTODIAN

Star Bank is custodian for the securities and cash of the Fund. Under the
Custodian Agreement, Star Bank holds the Fund's portfolio securities in
safekeeping and keeps all necessary records and documents relating to its
duties. The custodian receives an annual fee equal to .025% of the Fund's
average daily net assets.
PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the
News York Stock Exchange and the Federal Reserve Wire System are open for
business. The minimum initial investment in the Fund by an investor is
$1,000 ($25 for Star Bank Connections Group Banking customers and Star Bank
employees and members of their immediate family). The minimum initial
investment may be waived from time to time for employees and retired
employees of Star Bank, N.A., and for members of the families (including
parents, grandparents, siblings, spouses, children, aunts, uncles, and in-
laws) of such employees or retired employees. The procedure for purchasing
Shares of the Fund is explained in the prospectus under `Investing in the
Fund.''
DISTRIBUTION PLAN (INVESTMENT SHARES)
With respect to Investment Shares, 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 Shares
subject to the Plan. Such activities may include the advertising and
marketing of Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators;

and implementing and operating the Plan. Pursuant to the Plan, Federated
Securities Corp. may pay fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale
of sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.

For the fiscal year ended November 30, 1996, no payments on behalf of
Investment Shares were made pursuant to the Plan.

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, the Fund paid shareholder
services fees in the amount of $295,244.

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.
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 Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Fund's investment objective. Under the Rule, the Fund is permitted to
purchase instruments which are subject to demand features or standby
commitments. As defined by the Rule, a demand feature entitles the Fund to
receive the principal amount of the instrument from the issuer or a third
party (1) on no more than 30 days' notice or (2) at specified intervals not
exceeding one year on no more than 30 days' notice. A standby commitment
entitles the Fund to achieve same day settlement and to receive an exercise
price equal to the amortized cost of the underlying instrument plus accrued
interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than .5% between the two values. The Trustees will take any steps
they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods
of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are

not rated, the Trustees must determine that they are of comparable
quality. The Rule also requires the Fund to maintain a dollar-weighted
average portfolio maturity (not more than 90 days) appropriate to the
objective of maintaining a stable net asset value of $1.00 per share.
In addition, no instruments with a remaining maturity of more than 397
days can be purchased by the Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90
days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from time
to time, result in high portfolio turnover. Under the amortized cost method
of valuation, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares
of the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of
the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market prices
and estimates.

EXCHANGE PRIVILEGE

REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange Shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
Upon receipt of proper instructions and required supporting documents,
Shares submitted for exchange are redeemed and the proceeds invested in
shares of the other fund. Further information on the exchange privilege and
prospectuses may be obtained by calling Star Bank at the number on the
cover of this Statement.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions
may require a signature guarantee.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after Star
Bank receives the redemption request. Redemption will be made on days on
which the Fund computes its net asset value. Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed or on
federal holidays restricting wire transfers. Redemption procedures are
explained in the prospectus under `Redeeming Shares.''
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in
part, by a distribution of securities from the Fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be
made in readily marketable securities to the extent that such securities

are available. If this state's policy changes, the Fund reserves the right
to redeem in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW

its obligations to indemnify shareholders and pay judgments against them
from its assets.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional Shares. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends and any short-term capital gains are taxable
as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.

YIELD

The yield for Investment Shares for the seven-day period ended November 30,
1996, was 4.79%. The yield for Investment Shares is calculated daily based
upon the seven days ending on the day of the calculation, called the `base
period.'' This yield is computed by:

o determining the net change in the value of a hypothetical account with
a balance of one Share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original
one Share and all dividends declared on the original and any purchased
Shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge fees
in connection with services and provided in conjunction with an investment
in Shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD

The effective yield for Investment Shares for the seven-day period ended
November 30, 1996, was 4.90%.

The Fund's effective yield is computed by compounding the unannualized base
period return by:
o adding 1 to the base period return;
o raising the sum of the 365/7th power; and
o subtracting 1 from the result.
TOTAL RETURN

The Fund's average annual total return for the one year and five year
periods ended November 30, 1996 and for the period from April 14, 1989
(date of initial public investment), to November 30, 1996 were 4.80%, 3.86%
and 4.99%, respectively. Average annual total return is the average
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the net asset value per Share at the end
of the period. The number of Shares owned at the end of the period is based
on the number of Shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional Shares, assuming the
monthly reinvestment of all dividends and distributions.

PERFORMANCE INFORMATION

o the relative amount of Fund cash flow.
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 `short-term U.S. government funds''
category in advertising and sales literature.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
Advertising and other promotional literature may include charts, graphs and
other illustrations using either class of Shares of 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, either class of Shares 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 Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute (`ICI''). For example,
according to the ICI, twenty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as
well as businesses and institutions, have entrusted over $3 trillion to the
more than 5,500 funds available.
FINANCIAL STATEMENTS

APPENDIX

STANDARD & POOR'S RATINGS GROUP
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A S&P note rating reflects the liquidity concerns and market access risks
unique to notes.
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus sign (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Standard & Poor's Ratings Group ("S&P") assigns dual ratings to all long-
term debt issues that have as part of their provisions a variable rate
demand feature. The first rating (long-term rating) addresses the
likelihood of repayment of principal and interest when due, and the second
rating (short-term rating) describes the demand characteristics. Several
examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the long-term
and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
LONG-TERM DEBT RATINGS
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rate "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest 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.
SHORT-TERM MUNICIPAL OBLIGATION RATINGS
Moody's short-term ratings are designated Moody's Investment Grade (MIG or
VMIG) (see below)).
The purpose of the MIG or VMIG ratings is to provide investors with a
simple system by which the relative investment qualities of short-term
obligations may be evaluated.
MIG1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS
Short-term ratings on issues with demand features are differentiated by the
use of the VMIG symbol to reflect such characteristics as payment upon

periodic demand rather than fixed maturity dates and payment relying on
external liquidity.
In this case, two ratings are usually assigned, (for example, Aaa/VMIG-1);
the first representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the second representing an
evaluation of the degree of risk associated with the demand feature. The
VMIG rating can be assigned a 1 or 2 designation using the same definitions
described above for the MIG rating.

COMMERCIAL PAPER (CP) RATINGS
P-1 Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries,
high rates of return on funds employed, conservative capitalization
structure with moderate reliance on debt and ample asset protection, broad
margins in earning coverage of fixed financial charges and high internal
cash generation, well-established access to a range of financial markets
and assured sources of alternate liquidity
P-2 Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
LONG-TERM DEBT 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 is 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.
NR Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to
securities rated A-1 or P-1.
NR(1) The underlying issuer/obligor/guarantor has other outstanding debt
rated "AAA" by S&P or "Aaa" by Moody's.
NR(2) The underlying issuer/obligor/guarantor has other outstanding debt
rated "AA" by S&P or "Aa" by Moody's.

NR(3) The underlying issuer/obligor/guarantor has other outstanding debt
rated "A" by S&P or Moody's.

854911104
9022104B (3/97)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements. (1,2(a),3-8) The Financial Statements
for the fiscal period ended November 30, 1996, are
incorporated herein by reference from the Fund's Annual
Reports dated November 30, 1996; 2(b),(9) to be filed by
Amendment.
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant; (15)
(i) Conformed copy of Amendment No. 1 to Declaration
of Trust; (2)
(ii) Conformed copy of Amendment No. 2 to Declaration
of Trust (2)
(iii) Conformed copy of Amendment No. 3 to Declaration
of Trust; (2)
(iv) Conformed copy of Amendment No. 4 to Declaration
of Trust; (4)
(v) Conformed copy of Amendment No. 5 to Declaration
of Trust; (12)
(vi) Conformed copy of Amendment No. 6 to Declaration
of Trust; (12)
(vii) Conformed copy of Amendment No. 7 to Declaration
of Trust; (12)
(viii)Conformed copy of Amendment No. 8 to Declaration
of Trust (15)
(ix) Conformed copy of Amendment No. 9 to Declaration
of Trust; (15)
(x) Conformed copy of Amendment No. 10 to
Declaration of Trust; (15)
(xi) Conformed copy of Amendment No. 11 to
Declaration of Trust; (15)
(xii) Conformed copy of Amendment No. 12 to
Declaration of Trust; (18)
(xiii)Conformed copy of Amendment No. 13 to
Declaration of Trust; (19)
(xiv) Conformed copy of Amendment No. 14 to
Declaration of Trust; (19)
(xv) Conformed Copy of Amendment No. 15 to
Declaration of Trust; (25)
(xiv) Conformed Copy of Amendment No. 16 to
Declaration of Trust; (25)

+ 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)
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)

(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 to add Star
Growth Equity Fund (now known as Star Capital
Appreciation Fund); (19)
(ii) Conformed copy of Exhibit I to Investment
Advisory Contract of the Registrant to add Star
Strategic Income Fund; (20)
(iii)Conformed copy of Exhibit J to Investment
Advisory Contract of the Registrant to add Star
Growth Equity Fund; (21)
(iv) Conformed copy of Exhibit K to Investment
Advisory Contract of the Registrant to add The
Stellar Insured Tax-Free Bond Fund; +
(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 to add Star Growth
Equity Fund (now known as Star Capital
Appreciation Fund); (19)
(v) Conformed copy of Exhibit I to Distributor's
Contract of the Registrant to add Star Strategic
Income Fund; (20)

+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed February 3, 1989. (File Nos.
33-26915 and 811-5762)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed
November 20, 1992. (File Nos. 33-26915 and 811-5762)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A filed
February 4, 1994. (File Nos. 33-26915 and 811-5762)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed
May 13, 1994. (File Nos. 33-26915 and 811-5762)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)

(vi) Conformed copy of Exhibit J to Distributor's
Contract of the Registrant to add Star Growth
Equity Fund; (21)
(vii)Conformed copy of Exhibit K to Distributor's
Contract of the Registrant to add The Stellar
Insured Tax-Free Bond Fund; +
(viii) Conformed copy of Exhibit L to Distributor's
Contract of the Registrant to add Star Treasury
Fund, Trust Shares; (26)
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the
Registrant; (15)
(9) (i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement
Agreement; (21)
(ii) Conformed copy of Administrative Services
Agreement; (17)
(iii)Conformed copy of Shareholder Services Plan of
the Registrant through and including Exhibit A;
(19)
(iv) Conformed copy of Exhibit B to Shareholder
Services Plan of the Registrant to add Star
Strategic Income Fund; (20)
(v) Conformed copy of Exhibit C to Shareholder
Services Plan of the Registrant to add Star
Growth Equity Fund (21);
(vi) Conformed copy of Exhibit D to Shareholder
Services Plan of the Registrant to add The
Stellar Fund (Trust Shares); (22)
(vii)Conformed copy of Exhibit E to Shareholder
Services Plan of the Registrant to add The
Stellar Fund (Investment Shares); (22)

+ All exhibits have been filed electronically.
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A filed
July 2, 1993. (File Nos. 33-26915 and 811-5762)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A filed
February 4, 1994. (File Nos. 33-26915 and 811-5762)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed
May 13, 1994. (File Nos. 33-26915 and 811-5762)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-
26915 and 811-5762)
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)

(viii) Conformed copy of Exhibit F to Shareholder
Services Plan of the Registrant to add Star Tax-
Free Money Market Fund; (22)
(ix) Conformed copy of Exhibit G to Shareholder
Services Plan of the Registrant to add Star
Treasury Fund; (22)
(x) Conformed copy of Exhibit H to Shareholder
Services Plan of the Registrant to add Star U.S.
Government Income Fund; (22)
(xi) Conformed copy of Exhibit I to Shareholder
Services Plan of the Registrant to add Star
Relative Value Fund; (22)
(xii)Conformed copy of Exhibit J to Shareholder
Services Plan of the Registrant to add Star Prime
Obligations Fund; (22)
(xii)Conformed copy of Exhibit K to Shareholder
Services Plan of the Registrant to add The
Stellar Insured Tax-Free Bond Fund; +
(xiv)Conformed copy of Exhibit L to Shareholder
Services Plan of the Registrant to add Star
Treasury Fund, Trust Shares; (26)
(xv) Conformed copy of Shareholder Services
Agreement including Exhibits 1 and 2; +
(10) Conformed copy of Opinion and Consent of Counsel as to
Legality of Shares being Issued; (24)
(11) (i) Conformed copy of Consent of Independent Public
Accountants: +
(ii) Conformed Copy of Opinion and Consent of Special
Counsel; (9)
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;

+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed
April 10, 1989. (File Nos. 33-26915 and 811-5762)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A filed
March 12, 1991. (File Nos. 33-26915 and 811-5762)
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)
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)

(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 to add Star Strategic Income
Fund; (20)
(x) Conformed copy of Exhibit H to Distribution Plan
of the Registrant to add Star Growth Equity
Fund; (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 to add The Stellar Insured
Tax-Free Bond Fund; +
(16) (i) Copy of Schedule for Computation of Fund
Performance Data, Star Relative Value Fund; (24)

+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A filed
December 4, 1990. (File Nos. 33-26915 and 811-5762)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A filed
August 29, 1991. (File Nos. 33-26915 and 811-5762)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed
November 20, 1992. (File Nos. 33-26915 and 811-5762)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A filed
February 4, 1994. (File Nos. 33-26915 and 811-5762)
18. Response is incorporated by reference to Registrant's Post-Amendment
No. 22 to the Registration Statement on Form N-1A filed March 17,
1994. (File Nos. 33-26915 and 811-5762)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A filed
May 13, 1994. (File Nos. 33-26915 and 811-5762)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 to the Registration Statement on Form N-1A filed
September 15, 1994. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
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)

(ii) Copy of Schedule for Computation of Fund
Performance Data, The Stellar Fund (12);
(iii) Copy of Schedule for Computation of Fund
Performance Data, Star U.S. Government Income
Fund; (15)
(iv) Copy of Schedule for Computation of Fund
Performance Data, Star Capital Appreciation Fund
(21);
(v) Copy of Schedule for Computation of Fund
Performance Data, Star Strategic Income Fund;
(22)
(vi) Copy of Schedule for Computation of Fund
Performance Data, Star Growth Equity Fund; (22)
(17) Financial Data Schedules; +
(18) Conformed copy of Amended and Restated Multiple
Class Plan including
Exhibit A; (26)
(19) Conformed copy of Power of Attorney; (26)

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 March 3, 1997

Shares of beneficial interest
(no par value)
Star Treasury Fund
Investment Shares 188
Trust Shares not yet effective
Star Relative Value Fund 2,483
Star Tax-Free Money Market Fund 12
The Stellar Fund
Investment Shares 5,586
Trust Shares 49
Star U.S. Government Income Fund 304
Star Capital Appreciation Fund 453
Star Strategic Income Fund 1,393
Star Growth Equity Fund 1,991
The Stellar Insured Tax-Free Bond Fund 47

+ All exhibits have been filed electronically.
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 to the Registration Statement on Form N-1A filed
January 29, 1992. (File Nos. 33-26915 and 811-5762)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A filed
July 2, 1993. (File Nos. 33-26915 and 811-5762)
21. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to the Registration Statement on Form N-1A filed
January 26, 1995. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-
26915 and 811-5762)
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)

Item 27. Indemnification: (3)

Item 28. Business and Other Connections of Investment Adviser:

(a)Star Bank, N.A. ("Star Bank"), a national bank, was founded
in 1863 and is the largest bank and trust organization of
StarBanc Corporation. Star Bank had an asset base of $9.6
billion as of June 30, 1996, and trust assets of $23.6
billion as of June 30, 1996.

Star Bank has managed commingled funds since 1957. It
currently manages seven common trust funds and collective
investment funds having a market value in excess of $271
million.

The officers and directors of the Star Bank any other
business, profession, vocation, or employment of a
substantial nature in which each such officer and director is
or has been engaged during the past two years, is set forth
below. Unless otherwise noted, the position listed under
"Other Business, Profession, Vocation or Employment" is with
Star Bank.
(b)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Jerry A. Grundhofer Chairman, President and Chief Traditional
Executive Officer Interiors

David M. Moffett Executive Vice President N/A

Richard K. Davis Executive Vice President N/A

Joseph A. Campanella Executive Vice President
N/A

Thomas J. Lakin Executive Vice President N/A

Timothy J. Fogarty Executive Vice President N/A

Wayne J. Shircliff Executive Vice President N/A

Daniel B. Benhase Executive Vice President N/A

Daniel R. Noe Executive Vice President N/A

Jerome C. Kohlhepp Executive Vice President N/A

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

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

Andrew E. Randall Executive Vice President N/A

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

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

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

V. B. Buyniski Director United Medical Resources, Inc.
Mt. Auburn Partnership, American
Operations Management, NCG and
Schmidt Marble

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

Raymond R. Clark Director .N/A

V. Anderson Coombe Director Wm. Powell Company

John C. Dannemiller Director Bearings, Inc.

Jerry A. Grundhofer Director Traditional Interiors

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

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

Roger L. Howe Director U.S. Precision Lens, Inc.
T. J. Klinedinst, Jr. Director Thomas E. Wood, Inc.,
Ohio Cap Insurance Co., Ltd., The
Tomba Co., Ltd.

Chares S. Mechem, Jr. Director N/A

Daniel J. Meyer Director Cincinnati Milacron, Inc.

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

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

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

William C. Portman Director Portman Equipment Company

Oliver W. Waddell Director N/A

Item 29. Principal Underwriters:

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

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Federated
Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

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

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

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

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

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

James E. Hickey 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

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

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

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

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant 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

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff 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

Item 30. Location of Accounts and Records:

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

Star Funds Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
(`Administrator'')

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

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

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

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

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

Registrant hereby undertakes to file a post-effective amendment
on behalf of The Stellar Insured Tax-Free Bond Fund, using
financial statements which need not be certified, within four to
six months from the effective date of Post-Effective Amendment
No. 30.

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 25th day of March,
1997.

STAR FUNDS

BY: /s/ C. Grant Anderson
C. Grant Anderson, Secretary
Attorney in Fact for Edward C. Gonzales
March 25, 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 March 25, 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

Exhibit 11 under Form N-1A
Exhibit 8 under Item 601/Reg. S-K

ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in Post-
Effective Amendment No. 33 to Form N-1A Registration Statement of Star
Funds (Star Tax-Free Money Market Fund, Star Treasury Fund, 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 or made a part of this registration statement.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Pittsburgh, Pennsylvania,
March 25, 1997

Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

SHAREHOLDER SERVICES AGREEMENT

AGREEMENT made as of the first day of March, 1994, by and between those
investment companies listed on Exhibit 1, as may be amended from time to time,
having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 and who have approved a Shareholder Services
Plan (the "Plan") and this form of Agreement (individually referred to herein
as a "Fund" and collectively as "Funds") and Federated Shareholder Services, a
Delaware business trust, having its principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1.The Funds hereby appoint FSS to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance of
accounts of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed the
Funds' agent to select, negotiate and subcontract for the performance of
Services. FSS hereby accepts such appointments. FSS agrees to provide or
cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description of
the Services which FSS is providing hereunder.
2.During the term of this Agreement, each Fund will pay FSS and FSS
agrees to accept as full compensation for its services rendered hereunder a
fee at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate proration
of the monthly fee on the basis of the number of days that this Agreement is
in effect with respect to such Fund during the month. To enable the Funds to
comply with an applicable exemptive order, FSS represents that the fees
received pursuant to this Agreement will be disclosed to and authorized by any
person or entity receiving Services, and will not result in an excessive fee
to FSS.
3.This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are not
interested persons of the Fund and have no direct or indirect financial
interest in the operation of the Funds' Plan or in any related documents to
the Plan ("Independent Board Members") cast in person at a meeting called for
that purpose.
4.Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote
of a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined
in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to
terminate.
5.FSS agrees to obtain any taxpayer identification number certification
from each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any applicable
Treasury regulations, and to provide each Fund or its designee with timely
written notice of any failure to obtain such taxpayer identification number
certification in order to enable the implementation of any required backup
withholding.
6.FSS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
FSS shall be entitled to rely on and may act upon advice of counsel (who may
be counsel for such Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Any person,
even though also an officer, trustee, partner, employee or agent of FSS, who
may be or become a member of such Fund's Board, officer, employee or agent of
any Fund, shall be deemed, when rendering services to such Fund or acting on
any business of such Fund (other than services or business in connection with
the duties of FSS hereunder) to be rendering such services to or acting solely
for such Fund and not as an officer, trustee, partner, employee or agent or
one under the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7.No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination
is sought.
8.FSS is expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust of each Fund that is a Massachusetts
business trust and agrees that the obligations assumed by each such Fund
pursuant to this Agreement shall be limited in any case to such Fund and its
assets and that FSS shall not seek satisfaction of any such obligations from
the shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.
9.The execution and delivery of this Agreement have been authorized by
the Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS as provided in
the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to
any Fund and to such Fund at the following address: Federated Investors
Tower, Pittsburgh, PA 15222-3779, Attention: President and if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Pennsylvania law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the Investment Company Act of 1940 or any rule or regulation promulgated by
the Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the same
instrument.

13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the Funds
in the case of assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party. Nothing
in this Section 14 shall prevent FSS from delegating its responsibilities to
another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Star Funds

By: /s/ John F. Donahue
John F. Donahue
Chairman

Attest: /s/ John W. McGonigle
John W. McGonigle

Federated Shareholder Services

By: /s/ James J. Dolan

Title: President

Attest: /s/ John W. McGonigle
John W. McGonigle

EXHIBIT 1
SHAREHOLDER SERVICES AGREEMENT

MAXIMUM CONTRACTUAL FEES:
Star Capital 0.25% of ADNA
Appreciation Fund
Star Growth Equity 0.25% of ADNA
Fund
Star Relative Value 0.25% of ADNA
Fund
Star Strategic Income 0.25% of ADNA
Fund
Star Tax-Free Money 0.25% of ADNA
Market Fund
Star Treasury Fund 0.25% of ADNA
Star U.S. Government 0.25% of ADNA
Income Fund
The Stellar Fund
Investment Shares 0.25% of ADNA
Trust Shares 0.25% of ADNA

EXHIBIT 2
SHAREHOLDER SERVICES AGREEMENT

MAXIMUM CONTRACTUAL FEES:
Star Capital Appreciation 0.25% of ADNA
Fund
Star Growth Equity Fund 0.25% of ADNA
Star Relative Value Fund 0.25% of ADNA
Star Strategic Income 0.25% of ADNA
Fund
Star Tax-Free Money 0.25% of ADNA
Market Fund
Star Treasury Fund
Investment Shares 0.25% of ADNA
Trust Shares 0.25% of ADNA
Star U.S. Government 0.25% of ADNA
Income Fund
The Stellar Fund
Investment Shares 0.25% of ADNA
Trust Shares 0.25% of ADNA
The Stellar Insured Tax- 0.25% of ADNA
Free Bond Fund

Exhibit 5 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

EXHIBIT K
to the
Investment Advisory Contract

THE STELLAR INSURED TAX-FREE BOND FUND

For all services rendered by Adviser hereunder, the above-named Fund
of the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to 0.75 of 1% of the average daily net assets of the
Fund.

The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of 0.75 of 1% applied to
the daily net assets of the Fund.

The advisory fee so accrued shall be paid to Adviser daily.

Witness the due execution hereof this 1st day of December, 1996.

Attest: STAR BANK, N.A.

/s/ Jennie Carlson By: /s/ B. Randolph Bateman
Jennie Carlson B. Randolph Bateman
Assistant Secretary Vice President

Attest: STAR FUNDS

/s/ C. Grant Anderson By: /s/ William H. Zimmer III
C. Grant Anderson William H. Zimmer III
Secretary Trustee

Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

EXHIBIT I
to the
Rule 12b-1 Plan

STAR FUNDS

THE STELLAR INSURED TAX-FREE BOND FUND

The Plan is adopted by Star Funds with respect to the Class of Shares
of the portfolio of the Trust set forth above.

In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of the
average aggregate net asset value of The Stellar Insured Tax-Free Bond Fund
held during the month.

Witness the due execution hereof this 1st day of December, 1996.

STAR FUNDS

By: /s/ William H. Zimmer III
William H. Zimmer III
Trustee

Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Exhibit K
to the
Distributor's Contract

STAR FUNDS

THE STELLAR INSURED TAX-FREE BOND FUND

The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 15th day of November, 1990, between
Star Funds and Federated Securities Corp. with respect to Classes of the
Funds set forth above.

1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Portfolio
(`Shares''). Pursuant to this appointment, FSC is authorized to select a
group of brokers (`Brokers'') to sell Shares at the current offering price
thereof as described and set forth in the respective prospectuses of the
Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
administrators (`Administrators'') to render administrative support
services to the Trust and its shareholders.

2. Administrative support services may include, but are not limited
to, the following functions: 1) account openings: the Broker or
Administrator communicates account openings via computer terminals located
on the Broker's or Administrator's premises; 2) account closings: the
Broker or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase transactions are
entered through the Broker's or Administrator's own personal computer or
through the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption transactions in
the same manner as purchases; 5) account maintenance: Broker or
Administrator provides or arranges to provide accounting support for all
transactions. Broker or Administrator also wires funds and receives funds
for Trust share purchases and redemptions, confirms and reconciles all
transactions, reviews the activity in the Trust's accounts, and provides
training and supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker
or Administrator continuously provides names of potential customers; 10)
design services: the Broker or Administrator continuously designs material
to send to customers and develops methods of making such materials
accessible to customers; and 11) consultation services: the Broker or
Administrator continuously provides information about the product needs of
customers.

3. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual
rate of .25% of the average aggregate net asset value of the Shares held
during the month. For the month in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of any fee payable
on the basis of the number of days that the Agreement is in effect during
the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the Trust,
voluntarily declare to be effective.

5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1 herein.
FSC, in its sole discretion, may pay Brokers and Administrators a periodic
fee in respect of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by FSC in its sole
discretion.

6. FSC will prepare reports to the Board of Trustees of the
Trust on a quarterly basis showing amounts expended hereunder including
amounts paid to Brokers and Administrators and the purpose for such
payments.

In consideration of the mutual covenants set forth in the
Distributor's Contract dated November 15, 1990 between Star Funds and
Federated Securities Corp., Star Funds executes and delivers this Exhibit
on behalf of the Funds, and with respect to the separate Classes of Shares
thereof, first set forth in this Exhibit.

Witness the due execution hereof this 1st day of December, 1996.

ATTEST: STAR FUNDS

/s/ C. Grant Anderson By: /s/ William H. Zimmer III
C. Grant Anderson William H. Zimmer III
Secretary Trustee

ATTEST: FEDERATED SECURITIES CORP.

/s/ Byron F. Bowman By: /s/ David M. Taylor
Byron F. Bowman David M. Taylor
Secretary Executive Vice President

Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

EXHIBIT K
to the
Shareholder Services Plan

Star Funds

THE STELLAR INSURED TAX-FREE BOND FUND

This Plan is adopted by Star Funds with respect to the Class of
Shares of the portfolio of the Trust set forth above.

In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of 0.25 of
1% of the average aggregate net asset value of The Stellar Insured Tax-Free
Bond Fund held during the month.

Witness the due execution hereof this 1st day of December, 1996.

Star Funds

By: /s/ William H. Zimmer III
William H. Zimmer III
Trustee

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 006
<NAME> Star Funds
Star U.S. Government Income Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 133,419,294
<INVESTMENTS-AT-VALUE> 136,818,366
<RECEIVABLES> 2,259,301
<ASSETS-OTHER> 10,174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,087,841
<PAYABLE-FOR-SECURITIES> 54,982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,278
<TOTAL-LIABILITIES> 214,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 138,152,508
<SHARES-COMMON-STOCK> 14,131,815
<SHARES-COMMON-PRIOR> 10,986,487
<ACCUMULATED-NII-CURRENT> 28,783
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,706,782)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,399,072
<NET-ASSETS> 138,873,581
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,962,183
<OTHER-INCOME> 0
<EXPENSES-NET> 1,076,793
<NET-INVESTMENT-INCOME> 6,885,390
<REALIZED-GAINS-CURRENT> (1,134,865)
<APPREC-INCREASE-CURRENT> 293,860
<NET-CHANGE-FROM-OPS> 6,044,385
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,869,461
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,580,878
<NUMBER-OF-SHARES-REDEEMED> 3,751,557
<SHARES-REINVESTED> 316,007
<NET-CHANGE-IN-ASSETS> 29,207,136
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,559,063)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 702,550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,076,793
<AVERAGE-NET-ASSETS> 117,444,508
<PER-SHARE-NAV-BEGIN> 9.980
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> (0.150)
<PER-SHARE-DIVIDEND> 0.570
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.830
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> Star Funds
Star Strategic Income Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 106,451,532
<INVESTMENTS-AT-VALUE> 109,369,799
<RECEIVABLES> 10,298,136
<ASSETS-OTHER> 19,240
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119,687,175
<PAYABLE-FOR-SECURITIES> 8,770,190
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,170
<TOTAL-LIABILITIES> 8,912,360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,852,276
<SHARES-COMMON-STOCK> 10,546,598
<SHARES-COMMON-PRIOR> 4,513,598
<ACCUMULATED-NII-CURRENT> 285,912
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,275,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,912,036
<NET-ASSETS> 110,774,815
<DIVIDEND-INCOME> 2,599,149
<INTEREST-INCOME> 3,661,597
<OTHER-INCOME> 0
<EXPENSES-NET> 988,667
<NET-INVESTMENT-INCOME> 5,272,079
<REALIZED-GAINS-CURRENT> (1,275,409)
<APPREC-INCREASE-CURRENT> 2,107,201
<NET-CHANGE-FROM-OPS> 6,103,871
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,063,250
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,987,337
<NUMBER-OF-SHARES-REDEEMED> 1,133,224
<SHARES-REINVESTED> 178,887
<NET-CHANGE-IN-ASSETS> 63,262,154
<ACCUMULATED-NII-PRIOR> 85,109
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 8,026
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 689,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 988,667
<AVERAGE-NET-ASSETS> 72,796,354
<PER-SHARE-NAV-BEGIN> 10.530
<PER-SHARE-NII> 0.730
<PER-SHARE-GAIN-APPREC> (0.040)
<PER-SHARE-DIVIDEND> 0.720
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.500
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> Star Funds
The Stellar Fund
Investment Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 97,033,311
<INVESTMENTS-AT-VALUE> 116,803,400
<RECEIVABLES> 1,266,072
<ASSETS-OTHER> 371
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,069,843
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 927,928
<TOTAL-LIABILITIES> 927,928
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,783,731
<SHARES-COMMON-STOCK> 3,686,471
<SHARES-COMMON-PRIOR> 4,018,517
<ACCUMULATED-NII-CURRENT> 217,736
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,370,358
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,770,090
<NET-ASSETS> 50,094,910
<DIVIDEND-INCOME> 2,217,323
<INTEREST-INCOME> 2,683,309
<OTHER-INCOME> 0
<EXPENSES-NET> 1,707,551
<NET-INVESTMENT-INCOME> 3,193,081
<REALIZED-GAINS-CURRENT> 4,345,528
<APPREC-INCREASE-CURRENT> 10,205,542
<NET-CHANGE-FROM-OPS> 17,744,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,310,474
<DISTRIBUTIONS-OF-GAINS> 800,304
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 288,055
<NUMBER-OF-SHARES-REDEEMED> 788,848
<SHARES-REINVESTED> 168,747
<NET-CHANGE-IN-ASSETS> 3,485,875
<ACCUMULATED-NII-PRIOR> 260,856
<ACCUMULATED-GAINS-PRIOR> 1,885,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,078,738
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,707,551
<AVERAGE-NET-ASSETS> 113,937,744
<PER-SHARE-NAV-BEGIN> 12.170
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> 1.620
<PER-SHARE-DIVIDEND> 0.340
<PER-SHARE-DISTRIBUTIONS> 0.200
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.590
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Star Funds
Star Relative Value Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 145,738,645
<INVESTMENTS-AT-VALUE> 215,417,370
<RECEIVABLES> 647,319
<ASSETS-OTHER> 596
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 216,065,285
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222,042
<TOTAL-LIABILITIES> 222,042
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,231,363
<SHARES-COMMON-STOCK> 11,340,828
<SHARES-COMMON-PRIOR> 8,787,015
<ACCUMULATED-NII-CURRENT> 537,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,395,183
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 69,678,725
<NET-ASSETS> 215,843,243
<DIVIDEND-INCOME> 4,275,580
<INTEREST-INCOME> 301,662
<OTHER-INCOME> 0
<EXPENSES-NET> 1,727,434
<NET-INVESTMENT-INCOME> 2,849,808
<REALIZED-GAINS-CURRENT> 4,395,132
<APPREC-INCREASE-CURRENT> 38,173,415
<NET-CHANGE-FROM-OPS> 45,418,355
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,646,694
<DISTRIBUTIONS-OF-GAINS> 82,169
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,556,654
<NUMBER-OF-SHARES-REDEEMED> 1,062,532
<SHARES-REINVESTED> 201,504
<NET-CHANGE-IN-ASSETS> 83,864,095
<ACCUMULATED-NII-PRIOR> 334,860
<ACCUMULATED-GAINS-PRIOR> 82,222
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,249,213
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,727,434
<AVERAGE-NET-ASSETS> 166,940,251
<PER-SHARE-NAV-BEGIN> 15.020
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> 4.010
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0.010
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.030
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> Star Funds
Star Growth Equity Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 70,400,705
<INVESTMENTS-AT-VALUE> 85,667,901
<RECEIVABLES> 418,902
<ASSETS-OTHER> 23,674
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,110,477
<PAYABLE-FOR-SECURITIES> 413,296
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 385,791
<TOTAL-LIABILITIES> 799,087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,210,637
<SHARES-COMMON-STOCK> 5,625,443
<SHARES-COMMON-PRIOR> 3,834,979
<ACCUMULATED-NII-CURRENT> 189,064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,752,819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,158,870
<NET-ASSETS> 85,311,390
<DIVIDEND-INCOME> 1,341,410
<INTEREST-INCOME> 178,676
<OTHER-INCOME> 0
<EXPENSES-NET> 725,419
<NET-INVESTMENT-INCOME> 794,667
<REALIZED-GAINS-CURRENT> 5,752,898
<APPREC-INCREASE-CURRENT> 9,454,543
<NET-CHANGE-FROM-OPS> 16,002,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 700,531
<DISTRIBUTIONS-OF-GAINS> 2,544,369
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,614,772
<NUMBER-OF-SHARES-REDEEMED> 1,025,812
<SHARES-REINVESTED> 201,504
<NET-CHANGE-IN-ASSETS> 36,612,396
<ACCUMULATED-NII-PRIOR> 94,928
<ACCUMULATED-GAINS-PRIOR> 2,544,290
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 455,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 725,419
<AVERAGE-NET-ASSETS> 61,285,752
<PER-SHARE-NAV-BEGIN> 12.700
<PER-SHARE-NII> 0.170
<PER-SHARE-GAIN-APPREC> 3.120
<PER-SHARE-DIVIDEND> 0.160
<PER-SHARE-DISTRIBUTIONS> 0.660
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.170
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> Star Funds
Star Capital Appreciation Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 68,453,606
<INVESTMENTS-AT-VALUE> 79,749,523
<RECEIVABLES> 74,751
<ASSETS-OTHER> 5,811
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79,830,085
<PAYABLE-FOR-SECURITIES> 600,339
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66,937
<TOTAL-LIABILITIES> 667,276
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,722,066
<SHARES-COMMON-STOCK> 6,306,199
<SHARES-COMMON-PRIOR> 4,773,324
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (191,233)
<ACCUMULATED-NET-GAINS> (663,939)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,295,915
<NET-ASSETS> 79,162,809
<DIVIDEND-INCOME> 542,868
<INTEREST-INCOME> 214,619
<OTHER-INCOME> 0
<EXPENSES-NET> 928,221
<NET-INVESTMENT-INCOME> (170,734)
<REALIZED-GAINS-CURRENT> (656,505)
<APPREC-INCREASE-CURRENT> 6,695,619
<NET-CHANGE-FROM-OPS> 5,868,380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,408,024
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,651,433
<NUMBER-OF-SHARES-REDEEMED> 1,172,964
<SHARES-REINVESTED> 54,406
<NET-CHANGE-IN-ASSETS> 22,733,165
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,400,591
<OVERDISTRIB-NII-PRIOR> 20,499
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 665,476
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 928,221
<AVERAGE-NET-ASSETS> 70,114,526
<PER-SHARE-NAV-BEGIN> 11.820
<PER-SHARE-NII> (0.030)
<PER-SHARE-GAIN-APPREC> 1.050
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.290
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.550
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Star Funds
Star Tax-Free Money Market Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 152,674,155
<INVESTMENTS-AT-VALUE> 152,674,155
<RECEIVABLES> 999,607
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 153,673,762
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 418,055
<TOTAL-LIABILITIES> 418,055
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,255,707
<SHARES-COMMON-STOCK> 153,255,707
<SHARES-COMMON-PRIOR> 167,356,172
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 153,255,707
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,378,856
<OTHER-INCOME> 0
<EXPENSES-NET> 1,245,605
<NET-INVESTMENT-INCOME> 5,133,251
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,133,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,133,251
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 573,340,058
<NUMBER-OF-SHARES-REDEEMED> 587,441,413
<SHARES-REINVESTED> 890
<NET-CHANGE-IN-ASSETS> (14,100,465)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Star Funds
Star Treasury Fund

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<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
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</TABLE>