STAR FUNDS, 485BPOS, 1997-06-30

STAR FUNDS
485BPOS, 1997-06-30

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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. 34 .................. X
------- ---

and/or

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

Amendment No. 35 ............................... 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 July 11, 1997, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
_ 75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

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

X filed the Notice required by that Rule on January 15, 1997; or intends to
file the Notice required by that Rule on or about ____________; or during
the most recent fiscal year did not sell any securities pursuant to Rule
24f-2 under the
Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need not
file the Notice.

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

<PAGE>

CROSS-REFERENCE SHEET

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

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

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

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

Item 3. Condensed Financial
Information.................(1-8) Financial Highlights; (1-9)
Performance Information.

Item 4. General Description of
Registrant..............(1-9) Objective and Investment Policies of
Each Fund; (1-2) Common Investment
Techniques of the Funds; (3-9) Portfolio
Investments and Strategies; (3-8) Additional
Risk Considerations; (1-9) Investment
Limitations.

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

<PAGE>

Item 6. Capital Stock and Other
Securities..................(1-2) Dividends;
(1-2) Capital
Gains; (3-9)
Dividends and
Capital Gains;
(1-9) Shareholder
Information; (1-9)
Voting Rights;
(1-9) Effect of
Banking Laws;
(1-9) Tax
Information; (1-9)
Federal Income
Tax;(1) Tax-Free
Money Market Fund
Additional Tax
Information;.(9)
The Stellar Bond
Fund-Additional
Federal Income Tax
Information; (1-9)
State and Local
Taxes.

Item 7. Purchase of Securities
Being
Offered..........................(1-9)
Net Asset Value;
(1-9) Investing in
the Funds; (1-9)
Share Purchases;
(1-9) Minimum
Investment
Required; (1-9)
What Shares Cost;
(3-9) Systematic
Investment Plan;
(3,4a,5,6,9)
Reducing the Sales
Charge; (1-9)
Exchanging
Securities for
Fund Shares; (1-9)
Certificates and
Confirmations;
(1-2) Shareholder
Service
Organizations;
(3-9) Frequent
Investor Program;
(1-9) Exchange
Privilege.

Item 8. Redemption or Repurchase....(1-9) Redeeming Shares; (1-2)
Checkwriting
------------------------
Privilege; (3-9) Systematic Withdrawal
Plan; (7,8) Contingent Deferred Sales
Charge; (7,8) Elimination of Contingent
Deferred Sales Charge; (1-9) Accounts
with Low Balances.

Item 9. Pending Legal Proceedings None.

<PAGE>

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

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

Item 11. Table of Contents (1-9) Table of Contents.

Item 12. General Information and
History.....................................(1-9) General Information
About the Fund;
(1-9) Investment
Limitations.

Item 13. Investment Objectives and
Policies....................................(1-9) Investment
Objective(s) and
Policies.

Item 14. Management of the Fund (1-9) Star Funds
Management.

Item 15. Control Persons and Principal
Holders of Securities (1-9) Fund Ownership.

Item 16. Investment Advisory and Other
Services....................................(1-9) Investment Advisory
Services; (1-8)
Administrative Services;
(9) Other Services;
(1-8) Custodian.

Item 17. Brokerage Allocation (1-9) Brokerage
Transactions.

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

Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered...............................(1-9) Purchasing Shares;
(1-9) Exchange
Privilege; (1-9)
Determining Net Asset
Value; (1-9) Redeeming
Shares; (1-9)
Redemption in Kind.

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

Item 21. Underwriters................................(1-8) Administrative
Arrangements;
------------
(1-3,4a,5-9) Distribution
Plan.

Item 22. Calculation of Performance
Data (1-9) Performance
Comparisons.

Item 23. Financial Statements........................(1,2(a),3-8) Incorporated
herein by
-------------------- reference from the
Funds' Annual
Reports dated
November 30, 1996
(File Nos.33-26915
and 811-5762);
2(b)to be filed by
amendment; (9)
Filed in Part A.

THE STELLAR INSURED TAX-FREE BOND FUND
[Logo]
STARFUNDS
- --------------------------------------------------------------------------------

SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED MARCH 31,
1997

Portfolio of the Star Funds, and Open-End, Management Investment Company

Dated July 11, 1997

A. Please insert the following "Financial Highlights" table for The Stellar
Insured Tax-Free Bond Fund immediately following the section entitled "Star
Capital Appreciation Fund Financial Highlights" on page 11 of the
prospectus.

THE STELLAR INSURED TAX-FREE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1997(A)

(UNAUDITED)
<S> <C>
- -----------------------------------------------------------------------------------------------
- -----------------
NET ASSET VALUE, BEGINNING OF PERIOD $
10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income
0.20
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
0.01
- -----------------------------------------------------------------------------------------------
- -------
Total from investment operations
0.21
- -----------------------------------------------------------------------------------------------
- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------
Distributions from net investment income
(0.20)
- -----------------------------------------------------------------------------------------------
- -------
NET ASSET VALUE, END OF PERIOD $
10.01
- -----------------------------------------------------------------------------------------------
- -------
TOTAL RETURN (B)
2.10%
- -----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------
Expenses
0.79%*
- -----------------------------------------------------------------------------------------------
Net investment income
4.73%*
- -----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c)
0.25%*
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$117,333
- -----------------------------------------------------------------------------------------------
Portfolio
turnover 11%
- -----------------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 30, 1996 (date of initial
public investments) to 31, 1997.

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

(See Notes which are an integral part of the Financial Statements)

B. Please delete the first paragraph of the section entitled "Voting Rights"
on page 44 of the prospectus and replace it with the following:

"Each share of a Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shateholders 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 entitiled 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, 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;
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, and therefore, may, for certain purposes, be deemed to
control these Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders.

As of June 9, 1997, Firstcinco, acting in various capacities for numerous
accounts, was the owner of record of 10,532,238 shares (89.49%) of the The
Stellar Tax-Free Bond 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."

C. Please insert the following "Financial Statements" for The Stellar Insured
Tax-Free Bond Fund immediately following the section entitled "Performance
Information" which begins on page 45 of the prospectus. In addition, please
add the heading "Financial Statements--The Stellar Insured Tax-Free Bond
Fund" to the Table of Contents page after the heading "Performance
Information."

THE STELLAR INSURED TAX-FREE BOND FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--95.4%
- ----------------------------------------------------------------------------------
ALABAMA--7.3%
--------------------------------------------------------------------
$2,500,000 Alabama Water PCA, Revenue Bonds, 5.50% (AMBAC INS), 8/15/2012 AAA/Aaa $
2,518,625
--------------------------------------------------------------------
1,750,000 Alabama Water PCA, Revenue Bonds, 6.70% (AMBAC INS)/(Original Issue
Yield: 6.75%), 8/15/2006 AAA/Aaa
1,882,423
--------------------------------------------------------------------
2,500,000 Bessemer, AL Water Revenue, Revenue Refunding Bonds, 5.75% (AMBAC
INS)/(Original Issue Yield: 5.922%), 7/1/2016 AAA/Aaa
2,541,875
--------------------------------------------------------------------
1,500,000 Jefferson County, AL, Sewer Refunding Revenue Bonds, 5.65% (MBIA
INS)/(Original Issue Yield: 5.80%),
9/1/2008 AAA/Aaa
1,599,135
--------------------------------------------------------------------
- --------------
Total
8,542,058
--------------------------------------------------------------------
- --------------
CALIFORNIA--0.9%
--------------------------------------------------------------------
1,000,000 Oakland, CA, Refunding Revenue Bonds, 7.35% (FGIC INS)/(Original
Issue Yield: 7.45%), 8/1/2003 AAA/Aaa
1,053,900
--------------------------------------------------------------------
- --------------
COLORADO--1.1%
--------------------------------------------------------------------
1,250,000 Colorado Postsecondary Educational Facilities, Revenue Bonds, 5.75%
(Auraria Foundation Project)/(FSA INS)/ (Original Issue Yield:
5.85%), 9/1/2010 AAA/Aaa
1,286,675
--------------------------------------------------------------------
- --------------
FLORIDA--1.7%
--------------------------------------------------------------------
845,000 Cape Coral, FL, Special Obligation Wastewater Revenue Bond, 6.25%
(FSA INS)/(Original Issue Yield: 6.359%),
6/1/2006 AAA/Aaa
912,051
--------------------------------------------------------------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
FLORIDA--CONTINUED
--------------------------------------------------------------------
$1,000,000 St. Petersburg, FL Public Utility, Revenue Refunding Bonds, 6.55%,
10/1/2002 AA-/Aa $
1,067,770
--------------------------------------------------------------------
- --------------
Total
1,979,821
--------------------------------------------------------------------
- --------------
ILLINOIS--13.8%
--------------------------------------------------------------------
2,000,000 Chicago, IL Park District, GO UT, 5.60% (MBIA INS)/ (Original Issue
Yield: 5.75%), 1/1/2014 AAA/Aaa
2,000,900
--------------------------------------------------------------------
1,100,000 Chicago, IL, GO UT Refunding Bonds, 5.375% (MBIA INS)/(Original
Issue Yield: 5.60%), 1/1/2013 AAA/Aaa
1,095,347
--------------------------------------------------------------------
1,500,000 Cook County, IL, GO UT, 5.375% (MBIA INS)/(Original Issue Yield:
5.65%), 11/15/2012 AAA/Aaa
1,496,835
--------------------------------------------------------------------
2,500,000 Illinois Health Facilities Authority, Revenue Refunding Bonds, 5.80%
(Advocate Health Care Network)/(MBIA INS)/(Original Issue Yield:
5.90%), 8/15/2016 AAA/Aaa
2,509,525
--------------------------------------------------------------------
1,410,000 Illinois State, GO UT, 5.75% (MBIA INS)/(Original Issue Yield:
6.00%), 5/1/2021 AAA/Aaa
1,413,891
--------------------------------------------------------------------
2,400,000 McHenry County, IL Community Unit School District No. 200, Series A
GO UT, 5.85% (FSA INS)/(Original Issue Yield: 5.848%), 1/1/2016 AAA/Aaa
2,436,768
--------------------------------------------------------------------
2,500,000 Regional Transportation Authority, Series-A Revenue Bonds, 6.00%
(AMBAC INS)/(Original Issue Yield: 6.20%), 6/1/2009 AAA/Aaa
2,629,500
--------------------------------------------------------------------
2,500,000 Will County, IL Forest Preservation District, GO UT Refunding Bonds,
6.00% (AMBAC INS)/(Original Issue Yield: 6.30%), 12/1/2006 AAA/Aaa
2,635,550
--------------------------------------------------------------------
- --------------
Total
16,218,316
--------------------------------------------------------------------
- --------------
INDIANA--1.7%
--------------------------------------------------------------------
2,000,000 Indiana Transportation Finance Authority, Airport Lease Revenue
Refunding Bonds (Series A), 5.00% (AMBAC INS), 11/1/2007 AAA/Aaa
2,003,940
--------------------------------------------------------------------
- --------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
KENTUCKY--0.5%
--------------------------------------------------------------------
$ 500,000 Kentucky Infrastructure Authority, Revenue Bonds, 7.50%, 6/1/2004 A/A $
536,670
--------------------------------------------------------------------
- --------------
MASSACHUSETTS--2.1%
--------------------------------------------------------------------
2,500,000 Massachusetts Water Resources Authority, Revenue Bonds, 5.40% (FGIC
INS)/(Original Issue Yield: 5.50%), 11/1/2011 AAA/Aaa
2,513,650
--------------------------------------------------------------------
- --------------
MICHIGAN--7.3%
--------------------------------------------------------------------
1,200,000 Haslett, MI Public School District, GO UT, 5.70% (MBIA
INS)/(Original Issue Yield: 5.75%), 5/1/2016 AAA/Aaa
1,207,608
--------------------------------------------------------------------
1,500,000 Lansing, MI Sewer Disposal System, Revenue Bonds, 6.25% (MBIA
INS)/(Original Issue Yield: 6.795%),
5/1/2007 AAA/Aaa
1,604,220
--------------------------------------------------------------------
2,500,00 Michigan State Comprehensive Transportation Board, Refunding Revenue
Bonds, 5.75%, 5/15/2004 AA-/A1
2,639,775
--------------------------------------------------------------------
1,065,000 Richmond, MI Community School District, GO UT School Improvements,
5.60% (AMBAC INS)/(Original Issue Yield: 5.85%), 5/1/2018 AAA/Aaa
1,062,998
--------------------------------------------------------------------
2,000,000 Ypsilanti, MI School District, GO UT, 5.60% (FGIC INS)/ (Original
Issue Yield: 5.65%), 5/1/2012 AAA/Aaa
2,028,320
--------------------------------------------------------------------
- --------------
Total
8,542,921
--------------------------------------------------------------------
- --------------
NEBRASKA--0.9%
--------------------------------------------------------------------
1,000,000 Omaha, NE Public Power District, Series-B Electric Revenue Bonds,
6.00%, 2/1/2007 escrowed to maturity -/Aa2
1,081,830
--------------------------------------------------------------------
- --------------
NEVADA--6.6%
--------------------------------------------------------------------
2,500,000 Clark County, NV School District, GO UT, 5.75% (FGIC INS), 6/15/2010 AAA/Aaa
2,575,875
--------------------------------------------------------------------
2,500,000 Clark County, NV School District, GO UT, 5.80% (MBIA INS)/(Original
Issue Yield: 5.85%), 6/15/2011 AAA/Aaa
2,569,100
--------------------------------------------------------------------
1,000,000 Clark County, NV, Refunding Revenue Bonds, 5.90% (MBIA
INS)/(Original Issue Yield: 5.95%), 6/1/2009 AAA/Aaa
1,047,150
--------------------------------------------------------------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
NEVADA--CONTINUED
--------------------------------------------------------------------
$1,500,000 Washoe County, NV School District, GO UT, 5.75% (MBIA INS)/(Original
Issue Yield: 5.85%), 6/1/2011 AAA/Aaa $
1,535,430
--------------------------------------------------------------------
- --------------
Total
7,727,555
--------------------------------------------------------------------
- --------------
OHIO--21.1%
--------------------------------------------------------------------
2,555,000 Clermont County, OH , GO UT Refunding Bonds, 6.00% (AMBAC INS),
5/15/2007 AAA/Aaa
2,715,786
--------------------------------------------------------------------
2,500,000 Cleveland, OH Waterworks, Refunding & Improvement Revenue Bonds
(Series H), 5.75% (MBIA INS)/(Original Issue Yield: 5.84%), 1/1/2016 AAA/Aaa
2,528,500
--------------------------------------------------------------------
1,000,000 Columbus, OH Sewer System, Revenue Refunding Bonds, 6.25% (Original
Issue Yield: 6.60%), 6/1/2008 AA-/A1
1,073,800
--------------------------------------------------------------------
3,000,000 Columbus, OH Water System, Revenue Refunding Bonds, 6.375%,
11/1/2010 AA-/A1
3,184,650
--------------------------------------------------------------------
3,500,000 Greater Cleveland Regional Transportation Authority, OH, GO UT,
5.65% (FGIC INS)/(Original Issue Yield: 5.73%), 12/1/2016 AAA/Aaa
3,522,050
--------------------------------------------------------------------
1,000,000 Hamilton County, OH Hospital Facilities Authority, Refunding Revenue
Bonds, 5.20% (Children's Hospital Medical Center, Akron)/(FGIC
INS)/(Original Issue Yield: 5.35%), 5/15/2009 AAA/Aaa
1,007,510
--------------------------------------------------------------------
2,000,000 Montgomery County, OH, Water Revenue Bonds, 6.25% (Greater
Moraine-Beaver Creek)/(FGIC INS)/(Original Issue Yield: 6.45%),
11/15/2012 AAA/Aaa
2,127,760
--------------------------------------------------------------------
1,000,000 Ohio State Building Authority, Adult Correctional Facilities Revenue
Bonds, 5.70% (Adult Correctional Facilities)/(MBIA INS)/(Original
Issue Yield: 5.80%),
10/1/2006 AAA/Aaa
1,058,910
--------------------------------------------------------------------
1,000,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State
Facilities-Administration Building)/(MBIA INS)/ (Original Issue
Yield: 6.05%), 10/1/2008 AAA/Aaa
1,069,560
--------------------------------------------------------------------
1,225,000 Ohio State Building Authority, Revenue Bonds, 6.00% (State
Facilities-Administration Building)/(MBIA INS)/ (Original Issue
Yield: 6.10%), 10/1/2009 AAA/Aaa
1,301,783
--------------------------------------------------------------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
OHIO--CONTINUED
--------------------------------------------------------------------
$1,000,000 Ohio State Turnpike Commission, Series A, 5.70% (MBIA INS)/(Original
Issue Yield: 5.75%), 2/15/2013 AAA/Aaa $
1,020,390
--------------------------------------------------------------------
2,000,000 Ohio State Water Development Authority, Pollution Control Revenue
Bonds, 5.25% (MBIA INS)/(Original Issue Yield: 5.35%), 12/1/2009 AAA/Aaa
2,016,260
--------------------------------------------------------------------
1,000,000 Ohio State Water Development Authority, Revenue Bonds, 5.80% (AMBAC
INS)/(Original Issue Yield: 5.90%), 12/1/2011 AAA/Aaa
1,039,300
--------------------------------------------------------------------
1,000,000 Sylvania, OH City School District, GO UT, 5.80% (FGIC INS),
12/1/2015 AAA/Aaa
1,026,660
--------------------------------------------------------------------
- --------------
Total
24,692,919
--------------------------------------------------------------------
- --------------
PENNSYLVANIA--3.0%
--------------------------------------------------------------------
1,320,000 Pennsylvania Infrastructure Investment Authority, Subseries-A
Revenue Bonds, 6.90%, 9/1/2003 AA+/-
1,417,112
--------------------------------------------------------------------
2,000,000 Somerset County, PA General Authority, Commonwealth Lease Revenue
Bonds, 6.60% (FGIC INS)/(Original Issue Yield: 6.70%), 10/15/2001
(@100) AAA/Aaa
2,161,280
--------------------------------------------------------------------
- --------------
Total
3,578,392
--------------------------------------------------------------------
- --------------
TEXAS--8.7%
--------------------------------------------------------------------
2,500,000 Harris County, TX HFDC, Revenue Refunding Bonds, 5.75% (Memorial
Hospital System)/(MBIA INS)/(Original Issue Yield: 5.77%), 6/1/2019 AAA/Aaa
2,501,075
--------------------------------------------------------------------
2,500,000 Port Houston Authority, TX Harris County, Revenue Refunding Bonds,
6.50% (MBIA INS)/(Original Issue Yield: 6.59%), 5/1/2005 AAA/Aaa
2,665,000
--------------------------------------------------------------------
2,490,000 Texas State Public Finance Authority, Revenue Bonds, 5.10% (AMBAC
INS)/(Original Issue Yield: 5.15%),
8/1/2009 AAA/Aaa
2,475,334
--------------------------------------------------------------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
TEXAS--CONTINUED
--------------------------------------------------------------------
$2,500,000 Texas Water Development Board, Revenue Bonds, 5.50% (Original Issue
Yield: 5.55%), 7/15/2010 AAA/Aa1 $
2,547,400
--------------------------------------------------------------------
- --------------
Total
10,188,809
--------------------------------------------------------------------
- --------------
UTAH--4.4%
--------------------------------------------------------------------
2,500,000 Davis County, UT School District, GO UT, 5.70% (MBIA INS)/(Original
Issue Yield: 5.75%), 6/1/2007 AAA/Aaa
2,612,350
--------------------------------------------------------------------
2,400,000 Jordan, UT School District, GO UT, 5.90%, 6/15/2004 -/Aa3
2,532,480
--------------------------------------------------------------------
- --------------
Total
5,144,830
--------------------------------------------------------------------
- --------------
VIRGINIA--3.3%
--------------------------------------------------------------------
1,000,000 Chesapeake Bay Bridge & Tunnel District, VA, Revenue Bonds, 5.60%
(FGIC INS)/(Original Issue Yield: 5.75%), 7/ 1/2007 AAA/Aaa
1,049,860
--------------------------------------------------------------------
1,600,000 Virginia State Public Building Authority, Revenue Refunding Bonds
(Series A), 6.00%, 8/1/2003 AA/Aa
1,700,976
--------------------------------------------------------------------
1,000,000 Virginia State Public School Authority, Revenue Refunding Bonds,
6.25% (Original Issue Yield: 6.30%),
1/1/2004 AA/Aa
1,076,170
--------------------------------------------------------------------
- --------------
Total
3,827,006
--------------------------------------------------------------------
- --------------
WASHINGTON--4.5%
--------------------------------------------------------------------
2,500,000 Seattle, WA Municipal Lighting & Power , Revenue Bonds, 6.10%,
7/1/2005 AA/Aa
2,693,875
--------------------------------------------------------------------
2,500,000 Tacoma, WA Electric System, Revenue Refunding Bonds, 6.15% (AMBAC
INS)/(Original Issue Yield: 6.25%), 1/1/ 2008 AAA/Aaa
2,638,000
--------------------------------------------------------------------
- --------------
Total
5,331,875
--------------------------------------------------------------------
- --------------
WISCONSIN--6.5%
--------------------------------------------------------------------
1,000,000 Beloit, WI School District, GO UT, 6.125% (MBIA INS)/ (Original
Issue Yield: 6.20%), 10/1/2007 AAA/Aaa
1,040,920
--------------------------------------------------------------------
</TABLE>

THE STELLAR INSURED TAX-FREE BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING*
VALUE
<C> <S> <C> <C>
- ------------ -------------------------------------------------------------------- -------------
- --------------
LONG-TERM MUNICIPALS--CONTINUED
- ----------------------------------------------------------------------------------
WISCONSIN--CONTINUED
--------------------------------------------------------------------
$2,460,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, 5.60% (Aurora Medical Group)/(FSA INS), 11/15/2016 AAA/Aaa $
2,398,795
--------------------------------------------------------------------
2,000,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, 6.00% (Meriter Hospital, Inc.)/(MBIA INS)/(Original Issue
Yield: 6.125%), 12/1/2017 AAA/Aaa
2,050,960
--------------------------------------------------------------------
2,095,000 Wisconsin State, GO UT, 5.50% (FGIC INS)/(Original Issue Yield:
5.60%), 5/1/2010 AAA/Aaa
2,137,424
--------------------------------------------------------------------
- --------------
Total
7,628,099
--------------------------------------------------------------------
- --------------
TOTAL LONG-TERM MUNICIPALS
(IDENTIFIED COST $108,971,911)
111,879,266
--------------------------------------------------------------------
- --------------
MUTUAL FUND SHARES--3.0%
- ----------------------------------------------------------------------------------
3,561,388 SEI Tax Exempt Trust (AT NET ASSET VALUE) --
3,561,388
--------------------------------------------------------------------
- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $112,533,299) (A) $
115,440,654
--------------------------------------------------------------------
- --------------
</TABLE>

(a) The cost of investments for federal tax purposes amounts to $112,533,299.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,907,355 which is comprised of $2,939,691 appreciation and
$32,336 depreciation at May 31, 1997.

* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.

Note: The categories of investments are shown as a percentage of net assets
($117,332,711) at May 31, 1997.

The following acronyms are used throughout this portfolio:

AMBAC--American Municipal Bond Assurance Corporation FGIC--Financial Guaranty
Insurance Company FSA--Financial Security Assurance GO--General Obligation
HFDC--Health Facility Development Corporation INS--Insured MBIA--Municipal Bond
Investors Assurance PCA--Pollution Control Authority UT--Unlimited Tax

(See Notes which are an integral part of the Financial Statements)

THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $112,533,299) $
115,440,654
- --------------------------------------------------------------------------------------------------
Income receivable
1,935,930
- --------------------------------------------------------------------------------------------------
- --------------
Total assets
117,376,584
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------
Accrued expenses $ 43,873
- --------------------------------------------------------------------------------------- ---------
Total
liabilities 43,873
- --------------------------------------------------------------------------------------------------
- --------------
NET ASSETS for 11,717,533 shares outstanding $
117,332,711
- --------------------------------------------------------------------------------------------------
- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $
114,168,693
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
2,907,355
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on
investments 254,176
- --------------------------------------------------------------------------------------------------
Undistributed net investment
income 2,487
- --------------------------------------------------------------------------------------------------
- --------------
Total Net Assets $
117,332,711
- --------------------------------------------------------------------------------------------------
- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($117,332,711 / 11,717,533 shares
outstanding) $10.01
- --------------------------------------------------------------------------------------------------
- --------------
Offering Price Per Share (100/99.55 of
$10.01)* $10.06
- --------------------------------------------------------------------------------------------------
- --------------
Redemption Proceeds Per
Share $10.01
- --------------------------------------------------------------------------------------------------
- --------------
</TABLE>

* See "What Shares Cost" in the Prospectus.

(See Notes which are an integral part of the Financial Statements)

THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF OPERATIONS
PERIOD ENDED MAY 31, 1997 (UNAUDITED)*
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $
2,661,522
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 358,736
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 44,444
- ---------------------------------------------------------------------------------------
Custodian fees 11,958
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,048
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,672
- ---------------------------------------------------------------------------------------
Legal fees 2,128
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 22,554
- ---------------------------------------------------------------------------------------
Shareholder services fee 23,916
- ---------------------------------------------------------------------------------------
Share registration costs 23,266
- ---------------------------------------------------------------------------------------
Printing and postage 2,736
- ---------------------------------------------------------------------------------------
Insurance premiums 1,672
- ---------------------------------------------------------------------------------------
Miscellaneous 1,824
- --------------------------------------------------------------------------------------- -----------
Total expenses 501,954
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (119,579)
- -------------------------------------------------------------------------- -----------
Total waivers (119,579)
- --------------------------------------------------------------------------------------- -----------
Net
expenses 382,375
- ----------------------------------------------------------------------------------------------------
- ------------
Net investment income
2,279,147
- ----------------------------------------------------------------------------------------------------
- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on
investments 254,176
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments
2,907,355
- ----------------------------------------------------------------------------------------------------
- ------------
Net realized and unrealized gain on investments
3,161,531
- ----------------------------------------------------------------------------------------------------
- ------------
Change in net assets resulting from operations $
5,440,678
- ----------------------------------------------------------------------------------------------------
- ------------
</TABLE>

* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.

(See Notes which are an integral part of the Financial Statements)

THE STELLAR INSURED TAX-FREE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD ENDED

(UNAUDITED)
MAY 31, 1997*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $
2,279,147
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($254,176 as computed
for federal tax purposes)
254,176
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation
2,907,355
- -----------------------------------------------------------------------------------------------
- -----------------
Change in net assets resulting from operations
5,440,678
- -----------------------------------------------------------------------------------------------
- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------------------
Distributions from net investment income
(2,276,660)
- -----------------------------------------------------------------------------------------------
- -----------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------------------
Proceeds from sale of shares
121,725,282
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions
declared 1,858
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed
(7,558,447)
- -----------------------------------------------------------------------------------------------
- -----------------
Change in net assets resulting from share transactions
114,168,693
- -----------------------------------------------------------------------------------------------
- -----------------
Change in net assets
117,332,711
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of
period 0
- -----------------------------------------------------------------------------------------------
- -----------------
End of period (including undistributed net investment income of $2,487) $
117,332,711
- -----------------------------------------------------------------------------------------------
- -----------------
</TABLE>

* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.

(See Notes which are an integral part of the Financial Statements)

THE STELLAR INSURED TAX-FREE BOND FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Star Funds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act") as an open-end, management investment company. The Trust
consists of nine portfolios. The financial statements included herein are only
those of The Stellar Insured Tax-Free Bond Fund (the "Fund"), a diversified
portfolio. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of The Stellar Insured Tax-Free Bond Fund is to provide current income
which is exempt from federal income tax.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed
corporate bonds, and unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value. Investments in other open-end regulated investment
companies are valued at net asset value.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.

OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:

<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1997*
<S> <C>
Shares sold
12,475,158
- -----------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 187
- -----------------------------------------------------------------------------------------------
Shares redeemed
(757,812)
- -----------------------------------------------------------------------------------------------
- -----------------
Net change resulting from Share transactions
11,717,533
- -----------------------------------------------------------------------------------------------
- -----------------
</TABLE>

* For the period from December 30, 1996 (date of initial public investment) to
May 31, 1997.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Star Bank, N.A., the Trust's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.75% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this waiver
at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.

DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to 0.25% of the average daily net assets of the Fund shares,
annually, to compensate FSC. Currently, the Fund will not accrue or pay any
distribution expenses pursuant to the plan.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Star Bank, N.A., the Fund will pay Star Bank, N.A. up to 0.25% of average
daily net assets of the Fund for the period. For the foreseeable future, Star
Bank N.A. plans to limit the Shareholder Servicing fee to 0.05% of average net
assets of the Fund. The fee is to obtain certain services for shareholders and
to maintain shareholder accounts. Star Bank, N.A. can modify or terminate this
limitation at any time at its sole discretion.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund
for which it receives a fee. The fee paid to FSSC is based on the size, type,
and number of accounts and transactions made by shareholders.

PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

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

ORGANIZATIONAL EXPENSES--Organizational expenses of $2,398 were borne initially
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following effective date. For the period ended May
31, 1997, no payments were made pursuant to this agreement.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1997, were as follows:

<TABLE>
<CAPTION>
<S> <C>
PURCHASES $
120,391,353
- --------------------------------------------------------------------------------------------------
- --------------
SALES $
11,663,324
- --------------------------------------------------------------------------------------------------
- --------------
</TABLE>

Trustees Officers
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Thomas L. Conlan, Jr. Edward C. Gonzales
Edward C. Gonzales President and Treasurer
Dr. Alfred Gottschalk Joseph S. Machi
Dr. Robert J. Hill Vice President and Assistant Treasurer
Dawn M. Hornback C. Grant Anderson
Lawrence M. Turner Secretary
William H. Zimmer III
</TABLE>

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government or the the
Federal Deposit Insurance Corporation. Investment in mutual funds involves
investment risk, including possible loss of principal.

This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.

STAR BANK, N.A.
Investment Adviser

FEDERATED SECURITIES CORP.
Distributor

G00446-03 (7/96)

[LOGO OF STARFUNDS] STOCK AND
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
- -------------------------------------------------------------------------------

The Trust, an open-end, management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated January 23,
1989. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.

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

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

. Star U.S. Government Income Fund ("U.S. Government Income Fund")--seeks
to provide current income. Capital appreciation is a secondary objective.
U.S. Government Income Fund pursues these objectives by investing
primarily in securities issued or guaranteed as to payment of principal
and interest by the U.S. government, its agencies or instrumentalities.
.Star Strategic Income Fund ("Strategic Income Fund")--seeks to generate high
current income. Strategic Income Fund pursues this objective by investing
approximately 40% of the Fund's assets in a core asset group of U.S.
government and corporate fixed income securities, and the remainder of the
Fund's assets in international bonds, real estate investment trusts, domestic
equity securities, money market securities, and the following structured
fixed income securities: mortgage-backed securities, collateralized mortgage
obligations ("CMOs"), adjustable rate mortgage securities ("ARMS"), and
asset-backed securities.
.The Stellar Fund--seeks to maximize total return, a combination of dividend
income and capital appreciation. The Stellar Fund pursues this objective by
investing in the following security categories: domestic equity securities,
domestic fixed income securities, international securities (equity and fixed
income), real estate securities, precious metal securities, and money market
securities. Shares of The Stellar Fund are offered in two separate classes:
Investment Shares and Trust Shares.
.The Stellar Insured Tax-Free Bond Fund ("The Stellar Tax-Free Bond
Fund")--seeks to provide current income which is exempt from federal income
tax. The Stellar Tax-Free Bond Fund pursues this investment objective by
investing its assets in municipal securities so that at least 80% of its
annual interest income is exempt from federal income tax including the
federal alternative minimum tax.
.Star Relative Value Fund ("Relative Value Fund")--seeks to obtain the
highest total return, a combination of income and capital appreciation, as is
consistent with reasonable risk. Relative Value Fund pursues this objective
by investing primarily in equity securities.
. 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, 1997. The total operating expenses were 1.39% and 1.66% for the Trust
Shares and Investment Shares, respectively for the fiscal year ended
November 30, 1996.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of 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 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>
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>
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>
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>
1 Year.................. $ 44 $ 14 $ 14 $ 61 $ 55 $ 12 $ 58 $ 53
3 Years................. $ 63 $ 43 $ 44 $ 95 $ 77 $ 38 $ 85 $ 69
5 Years................. $ 84 $ 74 $ 77 $131 $100 $ 65 $114 n/a
10 Years................ $144 $164 $168 $232 $166 $144 $197 n/a
</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
- --------------------------------------------------------
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.

The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales and/or administrative support services as agents for their clients or
customers who beneficially own shares of the Funds.

Financial institutions will receive fees from the distributor based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.

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

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

ADDITIONAL DISTRIBUTION PAYMENTS. The distributor will, periodically, uniformly
offer to pay additional amounts in the form of cash or promotional incentives
consisting of trips to sales seminars at luxury resorts, tickets or other items,
to all dealers selling shares of the Funds. Such payments will be predicated
upon the amount of shares of a Fund that are sold by the dealer. Any such
payments will be made from the assets of the distributor (including any portion
of any sales charge returned by the distributor) and will not result in a charge
to a Fund. In addition, the distributor will pay dealers an amount equal to 2.2%
of the net asset value of all shares of Strategic Income Fund and 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 Star Bank, N.A.
CUSIP 854911708 Investment Adviser
CUSIP 854911609 ----------------------------
CUSIP 854911401 Federated Securities Corp.
CUSIP 854911864 Distributor
CUSIP 854911807 ----------------------------

G00522-05 (3/97)
4806TR

THE STELLAR INSURED TAX-FREE BOND FUND
(A PORTFOLIO OF THE STAR FUNDS)
Supplement to the Statement of Additional Information dated March 31, 1997

A. Please add the following section entitled "Portfolio Turnover"
immediately following the section entitled "Municipal Bond Insurers-Financial
Security Assurance Holdings" on page 8 of the Statement of Additional
Information: "Portfolio Turnover Securities in the Fund's portfolio will be sold
whenever the adviser believes it is appropriate to so do in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. For the period from December 24, 1996 (start of business) to
May 31, 1997, the Fund's portfolio turnover rate was 11%."

B. Please delete the section entitled "Fund Ownership" on page 14 of the
Statement of Additional Information and replace it with the following: "Fund
Ownership Officers and Directors own less than 1% of the Fund's outstanding
shares. As of June 9, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Firstcinco, acting in various
capacities for numerous accounts, was the owner of record of approximately
10,532,238 shares (89.49%)."

C. Please add the following as the second paragraph of the section entitled
"Advisory Fees" on page 15 of the Statement of Additional Information:

"For the period from December 24, 1996 (start of business) to May 31,
1997, Star Bank earned advisory fees of $358,736, of which $119,579 were
waived."

D. Please add the following as the last sentence of the second paragraph of
the section entitled "Brokerage Transactions" on page 15 of the Statement of
Additional Information: "During the period from December 24, 1996 (start of
business) to May 31, 1997, the Fund paid no brokerage commissions on brokerage
transactions."

E. Please add the following as the last sentence of the paragraph of the
section entitled "Other Services-Fund Administration" on page 16 of the
Statement of Additional Information: "For the period from December 24, 1996
(start of business) to May 31, 1997, the Fund incurred costs for administrative
services of $44,444."

F. Please delete the section entitled "Total Return" on page 20 of the
Statement of Additional Information and replace it with the following: "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. The Fund's cumulative total return for the
period from December 30, 1996 (date of initial public investment) to May 31,
1997 was (2.49%). Cumulative total return reflects the Fund's total performance
over a specific period of time. The Fund's total return assumes and is reduced
by the payment of the maximum sales charge. The Fund's total return is
representative of approximately 5 months of investment activity since the Fund's
effective date."

<PAGE>

G. Please add the following as the third paragraph of the section entitled
"Yield" on page 20 of the Statement of Additional Information: "The Fund's yield
for the thirty-day period ended May 31, 1997 was 4.38%."

H. Please add the following as the second paragraph of the section entitled
"Tax-Equivalent Yield" on page 20 of the Statement of Additional Information:
"The Fund's Tax-Equivalent yield for the thirty-day period ended May 31, 1997
was 7.25%."

July 11, 1997

STAR BANK, N.A.
INVESTMENT ADVISER

FEDERATED SECURITIES CORP.
Distributor

Cusip 854911 85 6
G00446-06 (7/97)

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

<PAGE>

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

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

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 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

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

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

<PAGE>

Lawrence M. Turner
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.

<PAGE>

* 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; 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.

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.

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

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 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:

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

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:

<PAGE>

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.

<PAGE>

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.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:

o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any 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.

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 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.

<PAGE>

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)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements: (1,2(a),3-8) Incorporated herein by reference
from the Funds' Annual Reports dated November 30, 1996
(File Nos.33-26915 and 811-5762); 2(b)to be
filed by amendment; (9) Filed in Part A.
(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)

+ 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)

<PAGE>

(xiv) Conformed Copy of Amendment No. 16 to Declaration of
Trust; (25)
(2) Copy of By-Laws of the Registrant; (1)
(3) Not applicable;
(4) Not applicable;
(5) Conformed copy of Investment Advisory Contract between Losantiville
Funds and Star Bank, N.A. through and including Exhibit G; (13)
(i) Conformed copy of Exhibit H to Investment Advisory Contract
of the Registrant 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 (27);
(6) (i) Conformed copy of Distributor's Contract of the Registrant
through and including Exhibit E; (13)
(ii) Conformed copy of Exhibit F to Distributor's Contract of
the Registrant; (17)
(iii) Conformed copy of Exhibit G to Distributor's Contract of
the Registrant; (19)
(iv) Conformed copy of Exhibit H to
Distributor's Contract of the
Registrant 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)
25. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 32 to the
Registration Statement on Form N-1A filed January 24, 1996. (File Nos.
33-26915 and 811-5762)
27. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed March
25, 1997. (File Nos. 33-26915 and 811-5762)

<PAGE>

(vi) Conformed copy of Exhibit J to Distributor's Contract of the
Registrant to add Star Growth Equity Fund; (21)
(vii) Conformed copy of Exhibit K to
Distributor's Contract of the
Registrant to add The Stellar
Insured Tax-Free Bond Fund (27);
(viii) Conformed copy of Exhibit L to
Distributor's Contract of the
Registrant to add Star Treasury
Fund, Trust Shares; +
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the Registrant; (15)
(9) (i) Conformed copy of Fund Accounting, Shareholder Recordkeeping,
and Custody Services Procurement Agreement; (21)
(ii) Conformed copy of Amendment #1 to
fees and Expenses for Shareholder
Recordkeeping pursuant to the Fund
Accounting, Shareholder
Recordkeeping, and Custody Services
Procurement Agreement; +
(iii) Conformed copy of Administrative Services Agreement; (17)
(iv) Conformed copy of Shareholder Services Plan of the Registrant
through and including Exhibit A; (19)
(v) Conformed copy of Exhibit B to Shareholder Services Plan of
the Registrant to add Star Strategic Income Fund; (20)
(vi) Conformed copy of Exhibit C to Shareholder Services Plan of
the Registrant to add Star Growth Equity Fund (21);

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

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

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

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

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

27. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed March 25, 1997. (File Nos. 33-26915 and
811-5762)

<PAGE>

(vii) Conformed copy of Exhibit D to Shareholder Services Plan of the
Registrant to add The Stellar Fund (Trust Shares); (22)
(viii) Conformed copy of Exhibit E to Shareholder Services Plan of the
Registrant to add The Stellar Fund (Investment Shares); (22)
(ix) Conformed copy of Exhibit F to Shareholder Services Plan of the
Registrant to add Star Tax-Free Money Market Fund; (22)
(x) Conformed copy of Exhibit G to Shareholder Services Plan of the
Registrant to add Star Treasury Fund; (22)
(xi) Conformed copy of Exhibit H to Shareholder Services Plan of the
Registrant to add Star U.S. Government Income Fund; (22)
(xii) Conformed copy of Exhibit I to
Shareholder Services Plan of the
Registrant to add Star Relative
Value Fund; (22)
(xiii) Conformed copy of Exhibit J to
Shareholder Services Plan of the
Registrant to add Star Prime
Obligations Fund; (22)
(xiv) Conformed copy of Exhibit K to Shareholder Services Plan of the
Registrant to add The Stellar Insured Tax-Free Bond Fund (27);
(xv) Conformed copy of Exhibit L to Shareholder Services Plan of the
Registrant to add Star Treasury Fund, Trust Shares; +
(xvi) Conformed copy of Shareholder Services
Agreement including Exhibits 1
and 2 (27);
(10) Conformed copy of Opinion and Consent of Counsel as to Legality of
Shares being Issued; (24)
(11) (i) Not applicable;
(ii) Conformed Copy of Opinion and Consent of
Special Counsel; (9)

+ All exhibits have been filed electronically.
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 to the Registration
Statement on Form N-1A filed March 12, 1991. (File Nos. 33-26915 and
811-5762)
N-1A filed September 15, 1994. (File Nos. 33-26915 and 811-5762)
22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March
28, 1995. (File Nos. 33-26915 and 811-5762)
24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed October
10, 1996. (File Nos. 33-26915 and 811-5762)
27. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed March 25, 1997.
(File Nos. 33-26915 and 811-5762)

<PAGE>

(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan; (13)
(ii) Copy of Rule 12b-1 Agreement through and including
Amendment No. 1 to Exhibit A; (7)
(iii) Copy of Amendment No. 2 to Exhibit A to 12b-1 Agreement;
(11)
(iv) Copy of Amendment No. 3 to Exhibit A to 12b-1 Agreement;
(11)
(v) Copy of Amendment No. 4 to Exhibit A to 12b-1 Agreement;
(13)
(vi) Conformed copy of Exhibit E to the Distribution Plan; (17)
(vii) Copy of Amendment No. 5 to Exhibit A to 12b-1 Agreement;
(18)
(viii) Conformed copy of Exhibit F to Distribution Plan of the
Registrant to add Star Growth Equity Fund (now known as
Star Capital Appreciation Fund); (19)

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

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

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

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

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

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

<PAGE>

(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
(27);
(16) (i) Copy of Schedule for Computation of Fund Performance Data,
Star Relative Value Fund; (24)
(ii) Copy of Schedule for Computation of Fund
Performance Data, The Stellar Fund (12);
(iii) Copy of Schedule for Computation of Fund Performance Data,
Star U.S. Government Income Fund; (15)
(iv) Copy of Schedule for Computation of Fund Performance Data,
Star Capital Appreciation Fund (21);
(v) Copy of Schedule for Computation of Fund Performance Data,
Star Strategic Income Fund; (22)
(vi) Copy of Schedule for Computation of Fund Performance Data,
Star Growth Equity Fund; (22)
(vii) Copy of Schedule for Computation of Fund Performance Data,
The Stellar Insured Tax-Free Bond Fund; +
(17) Copy of Financial Data Schedules; +
(18) Conformed copy of Amended and Restated Multiple Class Plan
including
Exhibit A; +
(19) Conformed copy of Power of Attorney; +

+ All exhibits have been filed electronically.

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

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

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

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

22. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed March 28, 1995. (File Nos. 33-26915 and
811-5762)

24. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed October 10, 1996. (File Nos. 33-26915 and
811-5762)

26. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 32 on Form N-1A filed March 24, 1997. (File Nos. 33-26915 and
811-5762)

27. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 33 on Form N-1A filed March 25, 1997. (File Nos. 33-26915 and
811-5762)

<PAGE>

Item 25...........Persons Controlled by or Under Common Control with Registrant:

None.

Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of June 9, 1997
-------------- --------------------

Shares of beneficial interest
(no par value)
Star Treasury Fund
Investment Shares 215
Trust Shares 9
Star Relative Value Fund 2,860
Star Tax-Free Money Market Fund 14
The Stellar Fund
Investment Shares 5,629
Trust Shares 50
Star U.S. Government Income Fund 313
Star Capital Appreciation Fund 463
Star Strategic Income Fund 1,585
Star Growth Equity Fund 2,561
The Stellar Insured Tax-Free Bond Fund 51

Item 27. Indemnification: (3)

Item 28. Business and Other Connections of Investment Adviser:

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

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

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

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

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

(b)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
<S> <C> <C>

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

David M. Moffett Executive Vice President N/A

Richard K. Davis Executive Vice President N/A

Joseph A. Campanella Executive Vice President N/A

Thomas J. Lakin Executive Vice President N/A

Timothy J. Fogarty Executive Vice President N/A

Wayne J. Shircliff Executive Vice President N/A

Daniel B. Benhase Executive Vice President N/A

Daniel R. Noe Executive Vice President N/A

Jerome C. Kohlhepp Executive Vice President N/A

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

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

Andrew E. Randall Executive Vice President N/A

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

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

V. B. Buyniski Director United Medical
Resources, Inc.
Mt. Auburn Partnership,
American Operations Management, NCG
and Schmidt Marble

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

Raymond R. Clark Director N/A

V. Anderson Coombe Director Wm. Powell Company

John C. Dannemiller Director Bearings, Inc.

Jerry A. Grundhofer Director Traditional Interiors

Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment

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

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

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

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

Chares S. Mechem, Jr. Director N/A

Daniel J. Meyer Director Cincinnati Milacron, Inc.

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

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

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

William C. Portman Director Portman Equipment Company

Oliver W. Waddell Director N/A

</TABLE>

<PAGE>

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.

<PAGE>

b)
<S> <C> <C>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Federated Investors Tower
Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

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

<PAGE>

(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

<PAGE>

(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

<PAGE>

(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

<PAGE>

(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
</TABLE>

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.

<PAGE>

SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, STAR FUNDS, certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 30th day of June, 1997.

STAR FUNDS

BY: /s/ C. Grant Anderson
C. Grant Anderson, Secretary
Attorney in Fact for Edward C. Gonzales
June 30, 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 June 30, 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 6 (viii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Exhibit L
to the
Distributor's Contract

STAR FUNDS

Star Treasury Fund
Trust Shares

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 Class 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

(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/s/ Byron F. Bowman By: /s/ David M. Taylor
Byron F. Bowman David M. Taylor
Secretary Executive Vice President
(SEAL)

Exhibit 9 (ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

Amendment #1 to
Fees and Expenses
for
Shareholder Recordkeeping
pursuant to the
Agreement for Fund Accounting, Shareholder Recordkeeping
and
Custody Services Procurement
<TABLE>
<CAPTION>

I. Annual Maintenance Charge
<S> <C> <C>

Base Fee*
Annual fee per fund $24,000
Annual fee per each additional class $18,000

Account Fee* Annual account charge ( includes system access and funds control
and reconcilement)

Daily dividend fund $16.00
Non-daily dividend fund $10.00
Contingent deferred sales charge ( Additional Charge)
(Non-daily dividend funds only) $ 5.00

Other Account Fees* Services or features not covered above.

Account Activity Processing ( includes account
establishment, transaction and maintenance processing) $ 3.50
Account Servicing ( includes shareholder servicing and
correspondence) $ 4.50
</TABLE>

*All fees are annualized and will be prorated on a monthly basis for billing
purposes. Out of pocket expenses are not covered by these fees.

II. Out-of-Pocket Expenses

Out-of-pocket expenses include, but are not limited to: postage (including
overnight courier service), statement stock, envelopes, telecommunication
charges (including Fax), travel, duplicating, forms, supplies, microfiche,
computer access charges, client specific enhancements, disaster recovery, closed
account fees, processing fees (including check encoding), and expenses incurred
at the specific direction of the fund. Postage for mass mailings is due seven
days in advance of the mailing date.

III. Term of Schedule

The parties agree that this fee schedule shall be effective as of February 13,
1997 and will remain in effect until it is revised in a writing signed by both
parties.

FEDERATED SHAREHOLDER THE STAR FUNDS
SERVICES COMPANY

By: /s/ David G. Rainville By: /s/ William H. Zimmer, III
Name: David G. Rainville Name: William H. Zimmer, III
Title: Senior Vice President Title: Trustee

Exhibit 9 (xv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

EXHIBIT L
to the
Shareholder Services Plan

Star Funds

Star Treasury Fund
Trust Shares

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 Star Treasury 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 16 (vii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Schedule for Computation Initial
of Fund Performance Data Invest of: $1,000
Offering
Steller Insured Price/
Tax-Free Bond Fund Share= $10.47

Return Since Inception
ending 5/31/97 NAV= $10.05

FYE: November 30
Begin Capital Reinvest Ending Total
DECLARED: MONTHLY Reinvest Period Dividend Gain Price Period Ending Invest
PAID: MONTHLY Dates Shares /Share /Share /Share Shares Price Value
1/22/97 95.511 0.038000000 0.00000 $9.96 95.875 $10.00 $958.75
2/24/97 95.875 0.040000000 0.00000 $10.08 96.256 $10.03 $965.45
3/24/97 96.256 0.040000000 0.00000 $9.93 96.644 $9.87 $953.87
4/22/97 96.644 0.040000000 0.00000 $9.85 97.036 $9.91 $961.63
5/22/97 97.036 0.039000000 0.00000 $9.99 97.415 $10.01 $975.12

$1,000 (1+T) = End Value
T = -2.49%
</TABLE>

<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
STELLER INSURED TAX-FREE BOND FUND Yield = 2{( $519,139.41 - $77,311.30 )+1)^6-1}=
-----------------------------------------------------------
Computation of SEC Yield 11,660,672 *( $0.00 - 0.01010)
As of: May 31, 1997
SEC Yield = 4.38%

Dividend and/or Interest
Inc for the 30 days ended $519,139.41

Net Expenses for $77,311.30
the Period

Avg Daily Shares
Outstanding and entitled
to receive dividends 11,660,672

Maxium offering price
per share as of 5-31-97 10.48

Undistributed net income 0.01010

Tax Equivalent Yield
(assumes individual
does not itemize
on Federal Return)

100 % minus the Federal
taxable % (100%-28%=72%)

30 SEC yield / by the tax
equiv % (0.00% / 72.0%)= 6.08%

</TABLE>

StarFunds mcp120196
Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K

STAR FUNDS
AMENDED AND RESTATED MULTIPLE CLASS PLAN

This Amended and Restated Multiple Class Plan ("Plan") is adopted by
STAR FUNDS (the "Trust"), a Massachusetts Business Trust with respect to the
classes of shares ("Classes") of the portfolios of the Trust (the "Funds") set
forth in the exhibits hereto.

Purpose

1. This Plan is adopted pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "Rule"), so as to allow the Trust to issue more than
one class of shares of any or all of the Funds ("Covered Classes") in reliance
on the rule and to make payments as contemplated herein.

2. Separate Arrangements/Class Differences

a. Designation of Classes: The Funds set forth on Exhibit A offer
two classes of shares: Investment Shares and Trust Shares.

b. Sales Load and Expenses: Purchases of Investment Shares of Funds
whose net asset value fluctuates are subject to a sales load as
described in the Prospectus. Purchases of Investment Shares of money
market funds, and purchases of Trust Shares, are not subject to a sales
load. The only expenses allocated to Investment Shares as a class are
the expenses incurred under the applicable distribution plan adopted
pursuant to Rule 12b-1.

c. Distribution of Shares: Investment Shares are sold primarily to
individuals who purchase shares through Star Bank, N.A. and MDS
Securities. Quantity discounts, accumulated purchases, concurrent
purchases, purchases in conjunction with a letter of intent,
reinstatement privileges, systematic withdrawal and purchases at net
asset value as they relate to Investment Shares of Funds whose net
asset value fluctuates, are as described in the applicable prospectus.
Trust Shares are offered primarily to trusts, fiduciaries and other
institutions through Star Bank, N.A.

d. Minimum Investment Amounts: The minimum initial investment in the
Funds is $1,000 ($25 for Star Bank Connections Group banking customers
and Star Bank employees and members of their immediate family). For
Trust Shares, the minimum investment will be calculated by combining
all mutual fund accounts which the shareholder maintains with Star Bank
and invests with Star Funds.

e. Voting Rights: Shareholders of each class are entitled to one vote
for each share held on the record date for any action requiring a vote
by the shareholders and a proportionate fractional vote for each
fractional vote held. Shareholders of the Trust will vote in the
aggregate and not by Fund or class except (i) as otherwise expressly
required by law or when the Trustees determine that the matter to be
voted upon affects only the interests of the shareholders of a
particular Fund or class, and (ii) only holders of Investment Shares
will be entitled to vote on matters submitted to shareholder vote with
respect to the Rule 12b-1 Plan applicable to such class.

3. Expense allocations

The expenses incurred pursuant to the Rule 12b-1 Plan will be borne
solely by the Investment Shares class of the applicable Fund, and constitute the
only expenses allocated to one class and not the other.

4. Exchange Features

Holders of any Star money market fund may exchange such shares for
shares of any other Star money market fund, at net asset value. Holders of
shares of any Star non-money market fund which imposes a contingent deferred
sales charge may exchange such shares for shares of any other Star non-money
market fund which imposes a contingent deferred sales charge, at net asset
value. Holders of any shares of Star non-money market fund which imposes a
front-end sales charge may exchange such shares for shares of any other Star
non-money market fund which imposes a front-end sales charge, at net asset value
plus the difference (if any) between the sales charge already paid on the shares
of the Fund which are being exchange out of, and any sales charge imposed by the
fund which is being exchanged into. In all cases, shareholders will be required
to pay a sales charge only once.

Effectiveness

5. This Plan shall become effective with respect to each class, (i) to the
extent required by the Rule, after approval by a majority vote of: (a) the
Trust's Board of Trustees; (b) the members of the Board of the Trust who are not
interested persons of the Trust and have no direct or indirect financial
interest in the operation of the Trust's Plan, and/or (iii) upon execution of an
exhibit adopting this Plan with respect to such class.

<PAGE>

EXHIBIT A
to the
Amended and Restated Multiple Class Plan
STAR FUNDS

The Stellar Fund
Investment Shares
Trust Shares

Star Treasury Money Market Fund
Investment Shares
Trust Shares

This Amended and Restated Multiple Class Plan is adopted by Star Funds
with respect to the Classes of Shares of the portfolios of Star Funds as set
forth above.

Witness the due execution hereof this 1st day of December, 1996.

Star Funds

By: /s/ William H. Zimmer, III
Title: Trustee
Date: December 1, 1996

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of STAR FUNDS and the Deputy
General Counsel of Federated Services Company, and each of them, their true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ Edward C. Gonzales President, Treasurer March 18, 1997
Edward C. Gonzales and Trustee
(Principal Financial
and Accounting Officer)

/s/ Thomas L. Conlan, Jr. Trustee March 18, 1997
- -------------------------------------------------
Thomas L. Conlan, Jr.

/s/ Dr. Alfred Gottschalk Trustee March 18, 1997
- -------------------------------------------------
Dr. Alfred Gottschalk

Trustee March 18, 1997
Dr. Robert J. Hill

/s/ Lawrence M. Turner Trustee March 18, 1997
- -------------------------------------------------
Lawrence M. Turner

/s/ Dawn M. Hornback Trustee March 18, 1997
- -------------------------------------------------
Dawn M. Hornback

/s/ William H. Zimmer, III Trustee March 18, 1997
- -------------------------------------------------
William H. Zimmer, III

</TABLE>

Sworn to and subscribed before me this 19th day of March, 1997
--------------

/s/ Marie M. Hamm
Marie M. Hamm

Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Oct. 9, 2000
Member, Pennsylvania Association of Notaries

<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> 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> 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> 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> 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
<GROSS-ADVISORY-FEES> 984,158
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,446,937
<AVERAGE-NET-ASSETS> 178,937,819
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.030
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<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

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<INVESTMENTS-AT-COST> 828,757,299
<INVESTMENTS-AT-VALUE> 828,757,299
<RECEIVABLES> 3,681,285
<ASSETS-OTHER> 4,794
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 832,443,378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,184,287
<TOTAL-LIABILITIES> 3,184,287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 829,259,091
<SHARES-COMMON-STOCK> 829,259,091
<SHARES-COMMON-PRIOR> 654,885,993
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 829,259,091
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,628,782
<OTHER-INCOME> 0
<EXPENSES-NET> 5,021,148
<NET-INVESTMENT-INCOME> 33,607,634
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 33,607,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33,607,634
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,139,876,502
<NUMBER-OF-SHARES-REDEEMED> 6,965,683,064
<SHARES-REINVESTED> 102,722
<NET-CHANGE-IN-ASSETS> 174,296,160
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,586,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,021,148
<AVERAGE-NET-ASSETS> 717,209,970
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<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> 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> 051
<NAME> Star Funds
The Stellar Fund
Trust 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> 4,934,041
<SHARES-COMMON-PRIOR> 5,320,673
<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> 67,047,005
<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> 1,925,727
<DISTRIBUTIONS-OF-GAINS> 1,066,240
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,265,521
<NUMBER-OF-SHARES-REDEEMED> 1,837,574
<SHARES-REINVESTED> 185,421
<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> 0.370
<PER-SHARE-GAIN-APPREC> 1.620
<PER-SHARE-DIVIDEND> 0.370
<PER-SHARE-DISTRIBUTIONS> 0.200
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.590
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

STAR FUNDS

Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

(412) 288-1900

June 30, 1997

EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549

RE: STAR FUNDS (The "Trust")
The Stellar Insured Tax-Free Bond Fund
1933 Act File No. 33-26915
1940 Act File No. 811-5762

Dear Sir or Madam:

Post-Effective Amendment No. 34 under the Securities Act of 1933 and
Amendment No. 35 under the Investment Company Act of 1940 to the Registration
Statement of the above-referenced Trust is hereby electronically transmitted.
This filing represents the four to six month update for, and relates only to,
The Stellar Insured Tax-Free Bond Fund, a portfolio of the Trust.

The Trust may marketed through banks, savings associations or credit
unions.

As indicated on the facing page of the Amendment, the Registrant has
specified that it is to become effective July 11, 1997, pursuant to paragraph
(b) of Rule 485 under the Securities Act of 1933.

If you have any questions regarding this filing, please call me at
(412) 288-8094.

Very truly yours,

/s/ J. Martin Levine
J. Martin Levine
Compliance Analyst

Enclosures