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 Stellar Insured Tax-Free Bond Fund (the "Fund") dated December 24,
1996. This Statement is not a prospectus itself. You may request a copy of
a prospectus or a paper copy of this Statement of Additional Information,
if you received it electronically, free of charge by calling 1-800-677-
FUND.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779



                Statement dated February 4, 1997



    STAR BANK, N.A.

   INVESTMENT ADVISER


FEDERATED SECURITIES CORP.

      Distributor
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND            1


INVESTMENT OBJECTIVE AND POLICIES             1

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

STAR FUNDS MANAGEMENT                         11
   Fund Ownership                             13
   Officers and Trustees Compensation         13
   Trustee Liability                          14

INVESTMENT ADVISORY SERVICES                  14
   Adviser to the Fund                        14
   Advisory Fees                              14

BROKERAGE TRANSACTIONS                        14

OTHER SERVICES                                15
   Fund Administration                        15
   Custodian                                  15
   Transfer Agent, Dividend Disbursing
      Agent and Portfolio Accounting
      Services                                15
Independent Public Accountants                15
PURCHASING SHARES                             15
   Distribution Plan                          15
   Administrative Arrangements                16
   Shareholder Services Plan                  16
   Conversion to Federal Funds                16

DETERMINING NET ASSET VALUE                   16
   Determining Market Value of Securities     16

EXCHANGE PRIVILEGE                            17
   Requirements for Exchange                  17
   Making an Exchange                         17

REDEEMING SHARES                              17
   Redemption in Kind                         17

MASSACHUSETTS PARTNERSHIP LAW                 18

TAX STATUS                                    18
   The Fund's Tax Status                      18
   Shareholders' Tax Status                   18

TOTAL RETURN                                  19

YIELD                                         19

TAX-EQUIVALENT YIELD                          19
   Tax-Equivalency Table                      20
PERFORMANCE COMPARISONS                       20
   Economic and Market Information            22

APPENDIX                                      23




GENERAL INFORMATION ABOUT THE FUND

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

INVESTMENT OBJECTIVE AND POLICIES

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

ACCEPTABLE INVESTMENTS

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

     CHARACTERISTICS




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

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

     TYPES OF ACCEPTABLE INVESTMENTS

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




     o industrial development bonds;

     o municipal notes and bonds;

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

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

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

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

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

     PARTICIPATION INTERESTS

     The financial institutions from which the Fund purchases
     participation interests frequently provide or secure from other
     financial institutions irrevocable letters of credit or guarantees




     and give the Fund the right to demand payment on specified notice
     (normally within thirty days) from the issuer of the letter of credit
     or guarantee.  These financial institutions may charge certain fees
     in connection with their repurchase commitments, including a fee
     equal to the excess of the interest paid on the municipal securities
     over the negotiated yield at which the participation interests were
     purchased by the Fund.  By purchasing participation interests, the
     Fund is buying a security meeting the quality requirements of the
     Fund and is also receiving the tax-free benefits of the underlying
     securities.

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

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

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

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

     VARIABLE RATE MUNICIPAL SECURITIES

     Variable interest rates generally reduce changes in the market value
     of municipal securities from their original purchase prices.




     Accordingly, as interest rates decrease or increase, the potential
     for capital appreciation or depreciation is less for variable rate
     municipal securities than for fixed income obligations.

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

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

     FUTURES CONTRACTS.  The Fund may purchase and sell financial futures
     contracts to hedge against the effects of changes in the value of
     portfolio securities due to anticipated changes in interest rates and




     market conditions without necessarily buying or selling the
     securities.  Although some financial futures contracts call for
     making or taking delivery of the underlying securities, in most cases
     these obligations are closed out before the settlement date.  The
     closing of a contractual obligation is accomplished by purchasing or
     selling an identical offsetting futures contract.  Other financial
     futures contracts by their terms call for cash settlements.

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

     "MARGIN" IN FUTURES TRANSACTIONS.  Unlike the purchase or sale of a
     security, the Fund does not pay or receive money upon the purchase or




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

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




     Fund's custodian (or the broker, if legally permitted) to
     collateralize the position and thereby insure that the use of such
     futures contracts is unleveraged.

     To the extent required to comply with CFTC Regulation 4.5 and thereby
     avoid status as a "commodity pool operator," the Fund will not enter
     into a futures contract for other than bona fide hedging purposes, or
     purchase an option thereon, if immediately thereafter the initial
     margin deposits for futures contracts held by it, plus premiums paid
     by it for open options on futures contracts, would exceed 5% of the
     market value of the Fund's net assets, after taking into account the
     unrealized profits and losses on those contracts it has entered into;
     and, provided further, that in the case of an option that is in-the-
     money at the time of purchase, the in-the-money amount may be
     excluded in computing such 5%.  Second, the Fund will not enter into
     these contracts for speculative purposes; rather, these transactions
     are entered into only for bona fide hedging purposes, or other
     permissible purposes pursuant to regulations promulgated by the CFTC.
      Third, since the Fund does not constitute a commodity pool, it will
     not market itself as such, nor serve as a vehicle for trading in the
     commodities futures or commodity options markets.  Finally, because
     the Fund will submit to the CFTC special calls for information, the
     Fund will not register as a commodities pool operator.

     PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS.  The Fund may purchase
     listed put options on financial contracts to protect portfolio




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

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

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





     The Fund may write listed put options on financial futures contracts
     to hedge its portfolio against a decrease in market interest rates.
     The Fund will use these transactions to attempt to protect its
     ability to purchase portfolio securities in the future at price
     levels existing at the time it enters into the transaction.  When the
     Fund writes (sells) a put on a futures contract, it receives a cash
     premium in exchange for granting to the purchaser of the put the
     right to receive from the Fund, at the strike price, a short position
     in such futures contract (the Fund undertakes the obligation to
     assume a long futures position), even though the strike price upon
     exercise of the option is greater than the value of the futures
     position received by such holder.  As market interest rates decrease,
     the market price of the underlying futures contract normally
     increases.  As the market value of the underlying futures contract
     increases, the buyer of the put option has less reason to exercise
     the put because the buyer can sell the same futures contract at a
     higher price in the market.  If the value of the underlying futures
     position is not such that exercise of the option would be profitable
     to the option holder, the option will generally expire without being
     exercised.  The premium received by the Fund can then be used to
     offset the higher prices of portfolio securities to be purchased in
     the future.

     In will generally be the policy of the Fund, in order to avoid the
     exercise of an option sold by it, to cancel its obligations under the




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

     CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS.  In addition to
     purchasing put options on futures, the Fund may write (sell) listed
     and over-the-counter call options on financial futures contracts to
     hedge its portfolio.  When the Fund writes a call option on a futures
     contract, it is undertaking the obligation of assuming a short
     futures position (selling a futures contract) at the fixed strike
     price at any time during the life of the option if the option is
     exercised.  As market interest rates rise, causing the prices of
     futures to go down, the Fund's obligation under a call option on a
     future (to sell a futures contract) costs less to fulfill, causing
     the value of the Fund's call option position to increase.  In other
     words, as the underlying futures price does down below the strike
     price, the buyer of the option has no reason to exercise the call, so




     that the Fund keeps the premium received for the option.  This
     premium can substantially offset the drop in value of the Fund's
     portfolio securities.

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

     An additional way in which the Fund may hedge against decreases in
     market interest rates is to buy a listed call option on a financial
     futures contract.  The Fund will use these transactions to attempt to
     protect its ability to purchase portfolio securities in the future at
     price levels existing at the time it enters into the transaction.
     When the Fund purchases a call on a financial futures contract, it
     receives in exchange for the payment of a cash premium the right, but
     not the obligation, to enter into the underlying futures contract at
     a strike price determined at the time the call was purchased,
     regardless of the comparative market value of such futures position
     at the time the option is exercised.  The holder of a call option has
     the right to receive a long (or buyer's) position in the underlying
     futures contract.  As market interest rates fall or stock prices
     increase, the value of the underlying futures contract will normally
     increase, resulting in an increase in value of the Fund's option




     position.  When the market price of the underlying futures contract
     increases above the strike price plus premium paid, the Fund could
     exercise its option and buy the futures contract below market price.
      Prior to the exercise or expiration of the call option, the Fund
     could sell an identical call option and close out its position.  If
     the premium received upon selling the offsetting call is greater than
     the premium originally paid, the Fund has completed a successful
     hedge.

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

     PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES.  The Fund may
     purchase put options on portfolio securities to protect against price
     movements in the Fund's portfolio securities.  A put option gives the
     Fund, in return for a premium, the right to sell the underlying
     security to the writer (seller) at a specified price during the term
     of the option.





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

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



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




     movements.  In these events, the Fund may lose money on the futures
     contract or option.

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

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




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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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

TEMPORARY INVESTMENTS

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

     o as a reaction to market conditions;




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

     o in anticipation of redemption requests; or

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

REPURCHASE AGREEMENTS
     Certain securities in which the Fund invests may be purchased
     pursuant to repurchase agreements.  Repurchase agreements are
     arrangements in which banks, broker/dealers, and other recognized
     financial institutions sell U.S. government securities or
     certificates of deposit to the Fund and agree at the time of sale to
     repurchase them at a mutually agreed upon time and price within one
     year from the date of acquisition.  The Fund or its custodian will
     take possession of the securities subject to repurchase agreements.
     To the extent that the original seller does not repurchase the
     securities from the Fund, the Fund could receive less than the
     repurchase price on any sale of such securities.  In the event that
     such a defaulting seller filed for bankruptcy or became insolvent,
     disposition of such securities by the Fund might be delayed pending




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




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

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





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

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



     AMBAC INDEMNITY CORPORATION
         AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled
         stock insurance company, regulated by the Insurance Department of
         Wisconsin, and licensed to do business in various states.  AMBAC
         is a wholly-owned subsidiary of AMBAC, Inc., a financial holding




         company which is owned by the public.  Copies of certain
         statutorily required filings of AMBAC can be obtained from AMBAC.
          The address of AMBAC's administrative offices is One State
         Street Plaza, 17th Floor, New York, New York 10004, and its
         telephone number is (212) 668-0340.

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




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

INVESTMENT LIMITATIONS

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

     CONCENTRATION OF INVESTMENTS
         The Fund will not purchase securities if, as a result of such
         purchase, 25% or more of the value of the Fund's total assets
         would be invested in any one industry, or in industrial




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


     BORROWING MONEY
         The Fund will not borrow money or engage in reverse repurchase
         agreements for investment leverage, except as described in the
         prospectus, and as a temporary, extraordinary, or emergency
         measure or to facilitate management of the portfolio by enabling
         the Fund to meet redemption requests when the liquidation of
         portfolio securities is deemed to be inconvenient or
         disadvantageous. Interest paid on borrowed funds will serve to
         reduce the Fund's income.  The Fund will not purchase any
         securities while borrowings in excess of 5% of its total assets
         are outstanding.





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

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

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

     UNDERWRITING




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

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

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

     DEALING IN PUTS AND CALLS
         The Fund will not purchase or sell puts, calls, spreads or any
         combination of them, except that the Fund may purchase put
         options on municipal securities in an amount up to 5% of its




         total assets and may purchase municipal securities accompanied by
         agreements of sellers to repurchase them at the Fund's option.

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

     INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
         The Fund will limit its investment in other investment companies
         to no more than 3% of the total outstanding voting stock of any
         investment company, invest no more than 5% of its total assets in
         any one investment company, and invest no more than 10% of its
         total assets in investment companies in general. The Fund will
         limit its investments in the securities of other investment
         companies to those having investment objectives and policies




         similar to its own. The Fund will not purchase or acquire any
         security issued by a registered closed-end investment company if,
         immediately after the purchase or acquisition, 10% or more of the
         voting securities of the closed-end investment company would be
         owned by the Fund and other investment companies having the same
         adviser and companies controlled by these investment companies.
         The Fund will purchase securities of closed-end investment
         companies only in open-market transactions involving only
         customary broker's commissions. However, these limitations are
         not applicable if the securities are acquired in a merger,
         consolidation, reorganization, or acquisition of assets. It
         should be noted that investment companies may incur certain
         expenses which may be duplicative of certain fees incurred by the
         Fund. The Fund's investment adviser will waive its investment
         advisory fee on assets of the Fund invested in securities of
         open-end investment companies.

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.


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

Secretary

Corporate Counsel, Federated Investors.




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

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

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; 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.

OFFICERS AND TRUSTEES COMPENSATION
   NAME, POSITION             AGGREGATE
    WITH TRUST*#       COMPENSATION FROM TRUST
Ralph R. Burchenal +
Trustee                           $6,000
Thomas L. Conlan, Jr.             $     0
Trustee

Alfred Gottschalk, Ph.D           $6,000
Trustee

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

Robert J. Hill, D.O.              $6,500
Trustee

William H. Zimmer III             $6,500
Trustee




* Information is for the fiscal year ending November 30, 1996. On February
9, 1996, the Trust elected a new Board of Trustees.
# The aggregate compensation is provided for the Trust, which is comprised
of nine portfolios.
+ Mr. Burchenal resigned as a Trustee of the Trust as of November 19, 1996.

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:



       o  the availability of higher relative yields;

       o  differentials in market values;

       o  new investment opportunities;

       o  changes in creditworthiness of an issuer; or

       o  an attempt to preserve gains or limit losses.

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

TOTAL RETURN




The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment.  The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period.  The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.
Cumulative total return reflects the Fund's total performance over a
specific period of time.  This total return assumes and is reduced by the
payment of the maximum sales charge.  Any applicable redemption fee is
deducted from the ending value of the investment based on the lesser of the
original purchase price or the net asset value of the shares redeemed.




YIELD

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

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

TAX-EQUIVALENT YIELD

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








TAX-EQUIVALENCY TABLE

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

                TAXABLE YIELD EQUIVALENT FOR 1996
                   MULTISTATE MUNICIPAL FUNDS
                   FEDERAL INCOME TAX BRACKET:

                15.00%     28.00%   31.00%     36.00%    39.60%
JOINT             $1-     $40,101- $96,901-  $147,701-    OVER
RETURN:         40,100     96,900   147,700   263,750   $263,750

SINGLE            $1      $24,001  $58,151-  $121,301-    OVER
RETURN:         24,000     58,150   121,300   263,750   $263,750
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 relfects 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.


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.








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