THE STARBURST
GOVERNMENT MONEY
MARKET FUND
A PORTFOLIO OF THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0060102 (6/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Starburst
Government Money Market Fund (the "Fund"). This report covers activity within
the Fund over the six-month period ended April 30, 1994.
In the Investment Review, the Investment Adviser provides a brief commentary on
various economic and market conditions that influenced the Fund's strategies
during the six-month period ended April 30, 1994. Following the Investment
Review are a complete list of the Fund's investments and the Fund's Financial
Statements.
The Fund pursues competitive income and a stable net asset value of $1.00 per
share* by maintaining a diversified portfolio of short-term instruments that are
either issued or guaranteed by the U.S. government, its agencies or
instrumentalities and repurchase agreements collateralized by U.S. government or
agency securities. By the end of the report period, investors like you had
invested a total of $199 million in the Fund.
Thank you for using The Starburst Government Money Market Fund as a convenient
way to put your cash to work. We welcome your comments and suggestions as we
strive to provide your account with the highest level of personal service
possible.
Sincerely,
J. Christopher Donahue
President
June 15, 1994
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Government Money Market Fund (the
"Fund") is to provide current income consistent with stability of principal. The
Fund pursues this investment objective by investing in a portfolio of short-term
U.S. government securities, including certain obligations of or guaranteed by
U.S. government agencies and instrumentalities. The average maturity in the
Fund's portfolio will be 90 days or less.
At the beginning of the six-month period beginning October 31, 1993, the Fund's
portfolio was moderately barbelled between securities with one-year maturities
and securities maturing in one-month or less, and the Fund's weighted average
maturity was positioned at 67 days. Short-term interest rates increased
moderately during the fourth quarter of 1993. During the first quarter of 1994,
short-term interest rates increased sharply as a result of strong economic
growth and corresponding increases in the Federal Funds ("Fed Funds") rate
target by the Federal Reserve Board (the "Fed"). In response to the rising
interest rate market and the Fed's actions, the Fund implemented actions
throughout this six-month period to reduce the Fund's weighted average maturity.
In order to take advantage of the very steep one-year yield curve, proceeds of
maturing securities were invested primarily in either overnight repurchase
agreements or securities with one-year maturities, thus further emphasizing a
barbell strategy. At the end of the six-month period, the Fund's weighted
average maturity had been reduced to 52 days, and the Fund remained defensively
positioned in response to the possibility of further action by the Fed to
increase the Fed Funds rate.
THE STARBURST GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
UNITED STATES TREASURY NOTES--35.0%
- ---------------------------------------------------------------------------------
$63,000,000 4.25%-9.50%, 5/15/94-2/15/95 $ 58,761,282
------------------------------------------------------------------
11,000,000 STRIP, 3.425%-3.59%, 11/15/94 10,795,725
------------------------------------------------------------------ ------------
TOTAL U.S. TREASURY NOTES 69,557,007
------------------------------------------------------------------ ------------
GOVERNMENT AGENCY OBLIGATIONS--4.4%
- ---------------------------------------------------------------------------------
8,804,006 Housing Urban Development, 4.125%++, 1/1/2000 8,804,006
------------------------------------------------------------------ ------------
*REPURCHASE AGREEMENTS--57.5%
- ---------------------------------------------------------------------------------
9,000,000 Carroll McEntee & McGinley, Inc., 3.48%, dated 4/29/94, due,
5/2/94 9,000,000
------------------------------------------------------------------
41,375,000 First Chicago Capital Markets, Inc., 3.55%, dated 4/29/94, due
5/2/94 41,375,000
------------------------------------------------------------------
46,000,000 Fuji Securities, Inc., 3.58%, dated 4/29/94, due 5/2/94 46,000,000
------------------------------------------------------------------
9,000,000 Greenwich Capital Markets, Inc., 3.50%, dated 4/29/94, due 5/2/94 9,000,000
------------------------------------------------------------------
9,000,000 Harris Government Securities, Inc., 3.52%, dated 4/29/94, due
5/2/94 9,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 114,375,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $192,736,013+
------------------------------------------------------------------ ------------
</TABLE>
+ Also represents cost for federal tax purposes.
++ Variable rate note.
* The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($198,962,596) at April 30, 1994.
The following abbreviation is used in this portfolio:
STRIP--Separate Trading of Registered Interest and Principal of Securities
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $114,375,000
- -----------------------------------------------------------------
Investments in other securities 78,361,013
- ----------------------------------------------------------------- ------------
Total investments, at value (Notes 2A and 2B) $192,736,013
- --------------------------------------------------------------------------------
Cash 135,282
- --------------------------------------------------------------------------------
Receivable for investments sold 5,000,000
- --------------------------------------------------------------------------------
Interest receivable 1,645,080
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 3,211
- -------------------------------------------------------------------------------- ------------
Total assets 199,519,586
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable $ 483,547
- -----------------------------------------------------------------
Payable to Transfer and Dividend Disbursing Agent (Note 4) 16,782
- -----------------------------------------------------------------
Accrued expenses 56,661
- ----------------------------------------------------------------- ------------
Total liabilities 556,990
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 198,962,596 shares of beneficial interest outstanding $198,962,596
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Price Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($190,504,932 / 190,504,932 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($8,457,664 / 8,457,664 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $3,423,434
- ---------------------------------------------------------------------------------
EXPENSES--
- ----------------------------------------------------------------------
Investment advisory fee (Note 4) $407,470
- ----------------------------------------------------------------------
Trustees' fees 2,560
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 138,353
- ----------------------------------------------------------------------
Custodian expenses (Note 4) 25,887
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 29,575
- ----------------------------------------------------------------------
Recordkeeping fees (Note 4) 31,254
- ----------------------------------------------------------------------
Fund share registration fees 21,819
- ----------------------------------------------------------------------
Auditing fees 16,634
- ----------------------------------------------------------------------
Legal fees 7,585
- ----------------------------------------------------------------------
Printing and postage 13,555
- ----------------------------------------------------------------------
Insurance premiums 5,368
- ----------------------------------------------------------------------
Miscellaneous 2,826
- ----------------------------------------------------------------------
Distribution services fees (Note 4) 9,612
- ---------------------------------------------------------------------- --------
Total expenses 712,498
- ----------------------------------------------------------------------
Deduct--Waiver of distribution services fees (Note 4) 5,493
- ---------------------------------------------------------------------- --------
Net expenses 707,005
- --------------------------------------------------------------------------------- ----------
Net investment income $2,716,429
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994* 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 2,716,429 $ 5,591,596
- ------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------
Trust Shares (2,646,304) (5,421,910)
- -------------------------------------------------------------
Investment Shares (70,125) (169,686)
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (2,716,429) (5,591,596)
- ------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------
Proceeds from sales of shares 340,882,868 287,612,661
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 57,713 157,054
- -------------------------------------------------------------
Cost of shares redeemed (323,249,961) (336,156,710)
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from Fund share
transactions 17,690,620 (48,386,995)
- ------------------------------------------------------------- ------------- -------------
Change in net assets 17,960,620 (48,386,995)
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 181,271,976 229,658,971
- ------------------------------------------------------------- ------------- -------------
End of period $ 198,962,596 $ 181,271,976
- ------------------------------------------------------------- ------------- -------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1994*** 1993 1992 1991 1990**
------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------
Net investment income 0.01 0.03 0.04 0.06 0.05
- ---------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.03) (0.04) (0.06) (0.05 )
- --------------------------------------- ------ ----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------- ------ ----- ----- ----- ------
TOTAL RETURN* 1.33% 2.65% 3.72% 6.05% 5.74 %
- ---------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------
Expenses 0.69%(a) 0.67% 0.65% 0.64% 0.62 %(a)
- ---------------------------------------
Net investment income 2.67%(a) 2.63% 3.64% 5.76% 7.61 %(a)
- ---------------------------------------
Expense waiver/reimbursement(b) 0.00%(a) 0.00% 0.01% 0.05% 0.10 %(a)
- ---------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------
Net assets, end of period (000
omitted) $190,505 $175,601 $221,785 $174,158 $82,346
- ---------------------------------------
</TABLE>
* Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
** Reflects operations for the period from February 5, 1990 (date of initial
public investment) to October 31, 1990. Prior to February 5, 1990, net
investment income aggregating $0.02 per share ($2.27) was distributed to
Federated Administrative Services.
*** Six months ended April 30, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------
1994*** 1993 1992 1991**
------- ----- ----- -----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.01 0.02 0.04 0.03
- --------------------------------------------- ------ ----- ----- -----
LESS DISTRIBUTIONS
- ---------------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.02) (0.04) (0.03)
- --------------------------------------------- ------ ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- --------------------------------------------- ------ ----- ----- -----
TOTAL RETURN* 1.25% 2.05% 3.61% 2.74%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 0.84%(a) 0.82% 0.76% 0.64%(a)
- ---------------------------------------------
Net investment income 2.55%(a) 2.48% 3.64% 5.04%(a)
- ---------------------------------------------
Expense waiver/reimbursement(b) 0.20%(a) 0.20% 0.16% 0.05%(a)
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $8,458 $5,671 $7,874 $8,947
- ---------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period from April 29, 1991 (date of initial
public investment) to October 31, 1991.
*** Six months ended April 30, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Trust
consists of four diversified portfolios. The financial statements included
herein are only those of The Starburst Government Money Market Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund provides two classes of shares (Trust Shares and Investment Shares).
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares will be sold pursuant to a distribution plan ("Plan") adopted
in accordance with Investment Company Act Rule 12b-1.
(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. The
policies are in conformity with generally accepted accounting principles (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of each repurchase
agreement's underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code,
as amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax are
necessary.
</TABLE>
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(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) for each
class of shares. At April 30, 1994, capital paid-in aggregated $198,962,596.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1994* 1993
TRUST SHARES SHARES SHARES
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 310,951,444 244,526,473
- ---------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1 1
- ---------------------------------------------------------------
Shares redeemed (296,047,330) (290,710,498)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust shares transactions 14,904,115 (46,184,024)
- --------------------------------------------------------------- ------------ ------------
INVESTMENT SHARES
- ---------------------------------------------------------------
Shares sold 29,931,424 43,086,188
- ---------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 57,712 157,053
- ---------------------------------------------------------------
Shares redeemed (27,202,631) (45,446,212)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment shares transactions 2,786,505 (2,202,971)
- --------------------------------------------------------------- ------------ ------------
Total net change resulting from Fund share transactions 17,690,620 (48,386,995)
- --------------------------------------------------------------- ------------ ------------
* Six months ended April 30, 1994.
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.40 of 1% of the Fund's average daily net assets.
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
Compass Bank may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 with respect to
Investment Shares. 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 Investment Shares. The Plan provides that the Fund may incur distribution
expenses up to 0.35 of 1% of the average daily net assets of the Investment
Shares, annually, to compensate FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES.--Federated
Services Company ("FServ") serves as transfer agent and dividend disbursing
agent for the Fund. The fee is based on the size, type and number of accounts
and transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Compass Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- -----------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
John T. Conroy, Jr. President
William J. Copeland Jeffrey W. Sterling
James E. Dowd Vice President and Assistant Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
</TABLE>
THE SHARES OFFERED BY THE STARBURST GOVERNMENT MONEY MARKET FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK,
AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THIS 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.
THE STARBURST
GOVERNMENT
INCOME FUND
A PORTFOLIO OF THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2060308 (6/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Starburst
Government Income Fund (the "Fund"). This report covers activity in the Fund
over the six-month period ended April 30, 1994.
In the Investment Review, the investment adviser provides a brief commentary on
various economic and market conditions that influenced the Fund's strategies
during the six-month period ended April 30, 1994. Following the Investment
Review are a complete list of the Fund's investments and the Fund's Financial
Statements.
In order to help you pursue competitive monthly income with a high degree of
relative safety, the Fund has invested primarily in a diversified portfolio of
U.S. government and government agency securities and in repurchase agreements
backed by U.S. government securities.
By the end of the reporting period, investors had placed a total of $78.1
million in the Fund. Reflecting the fact that, when interest rates rise, bond
prices fall, the Fund's net asset value decreased over the period as rates rose
during the first quarter of 1994. On the first day of the period, the net asset
value was $10.40 per share as compared to $9.73 per share on the last day.
However, over the entire six months, the Fund produced an income stream of $0.27
per share.
Thank you for your continued confidence in The Starburst Government Income Fund.
We welcome your comments and suggestions as we strive to provide your account
with the highest level of personal service possible.
Sincerely,
J. Christopher Donahue
President
June 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Government Income Fund (the "Fund") is
to provide current income. The Fund pursues this investment objective by
investing in a professionally managed, diversified portfolio limited primarily
to securities issued or guaranteed by the U.S. government or its
instrumentalities, including obligations of U.S. government agencies and,
subject to certain limitations, privately issued mortgage-backed securities.
Short-term interest rates increased moderately during the fourth quarter of
1993. During the first quarter of 1994, yields on U.S. Treasury securities
increased significantly across all maturities. This sharp rise in Treasury
yields was caused, in large part, by very strong economic growth which increased
market fear of rising inflation. During February, March, and April of 1994, the
Federal Reserve Board (the "Fed") implemented several increases in the Federal
Funds ("Fed Funds") rate in order to combat potential inflation. Historically,
Fed action to increase the Fed Funds rate has resulted in increases in
short-term rates as well as proportionately smaller increases in long-term
rates. The increases in the Fed Funds rate during the early part of 1994
apparently were interpreted as an indication that the Fed expected inflationary
pressures to increase. As a consequence of this market perspective, the Fed's
actions served to accelerate rate increases throughout the yield curve. In
anticipation of the potential increases in interest rates and in response to the
Fed's actions, the Fund implemented actions throughout the six-month period to
reduce the Fund's duration to an extent consistent with the Fund's investment
objective to produce current income. Actions to reduce the Fund's duration
intensified as the severity of the bear bond market became more apparent.
In order to take advantage of the potential flattening of the very steep yield
curve, at the end of the six-month period the Fund's portfolio was heavily
barbelled between 12-year Treasury obligations and two-year or shorter Treasury
and U.S. government agency securities. The Fund remained defensively positioned
in light of expectations of continued increases in interest rates throughout the
yield curve.
THE STARBURST GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--91.6%
- ------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANKS--6.3%
-----------------------------------------------------------------
$5,000,000 5.16%, 5/1/95 $ 4,953,700
----------------------------------------------------------------- -----------
FEDERAL HOME LOAN MORTGAGE CORP.--REMIC--8.0%
-----------------------------------------------------------------
1,092,068 8.40%, 1/15/2005 1,098,053
-----------------------------------------------------------------
471,970 8.00%, 7/15/2013 472,428
-----------------------------------------------------------------
3,000,000 7.00%, 2/15/2018 2,932,770
-----------------------------------------------------------------
240,777 10.00%, 12/15/2018 240,803
-----------------------------------------------------------------
1,477,784 9.20%, 4/15/2019 1,493,345
----------------------------------------------------------------- -----------
Total 6,237,399
----------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION--REMIC--16.0%
-----------------------------------------------------------------
487,620 8.90%, 6/25/96 493,667
-----------------------------------------------------------------
2,732,984 8.25%, 10/25/96 2,774,689
-----------------------------------------------------------------
2,619,934 8.00%, 3/25/98 2,640,763
-----------------------------------------------------------------
860,318 8.75%, 6/25/2004 864,551
-----------------------------------------------------------------
1,444,663 8.75%, 12/25/2004 1,452,017
-----------------------------------------------------------------
198,384 9.00%, 1/25/2016 198,586
-----------------------------------------------------------------
3,000,000 9.10%, 7/25/2018 3,070,380
-----------------------------------------------------------------
1,000,000 9.40%, 8/25/2018 1,023,640
----------------------------------------------------------------- -----------
Total 12,518,293
----------------------------------------------------------------- -----------
STUDENT LOAN MARKETING ASSOCIATION--13.8%
-----------------------------------------------------------------
5,695,000 4.34% +, 1/23/97 5,719,887
-----------------------------------------------------------------
4,000,000 4.29% +, 11/20/97 4,023,680
-----------------------------------------------------------------
1,000,000 6.525% +, 5/22/2002 1,010,250
----------------------------------------------------------------- -----------
Total 10,753,817
----------------------------------------------------------------- -----------
</TABLE>
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------
* SMALL BUSINESS ADMINISTRATION POOL--7.0%
-----------------------------------------------------------------
$5,500,000 4.50% +, 2/25/2019 $ 5,482,290
----------------------------------------------------------------- -----------
U.S. TREASURY BONDS--30.0%
-----------------------------------------------------------------
20,000,000 9.375%, 2/15/2006 23,436,800
----------------------------------------------------------------- -----------
U.S. TREASURY NOTES--9.2%
-----------------------------------------------------------------
7,000,000 7.750%, 2/15/95 7,148,400
----------------------------------------------------------------- -----------
MERRILL LYNCH CMO TRUST--1.3%
-----------------------------------------------------------------
1,000,000 9.50%, 11/20/2000 1,029,620
----------------------------------------------------------------- -----------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $74,594,146) 71,560,319
----------------------------------------------------------------- -----------
** REPURCHASE AGREEMENT--13.7%
- ------------------------------------------------------------------------------------
10,720,000 Fuji Securities, Inc., 3.56%, dated 4/29/94, due 5/2/94 (Note 2B) 10,720,000
----------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $85,314,146) (NOTE 2A) $82,280,319++
----------------------------------------------------------------- -----------
</TABLE>
* Current rate and next demand date shown.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ Variable rate note.
++ The cost of investments for federal tax purposes amounts to $85,314,146. The
net unrealized depreciation on a federal tax basis amounts to $3,033,827,
which is comprised of $11,346 appreciation and $3,045,173 depreciation at
April 30, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
CMO -- Collateralized Mortgage Obligation
REMIC -- Real Estate Mortgage Investment Conduit
</TABLE>
Note: The categories of investments are shown as a percentage of net assets
($78,146,528) at April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $10,720,000
- ----------------------------------------------------------------------------
Investments in other securities 71,560,319
- ---------------------------------------------------------------------------- -----------
Total investments, at value (identified and tax cost; $85,314,146)
(Notes 2A and 2B) $82,280,319
- ------------------------------------------------------------------------------------------
Cash 257
- ------------------------------------------------------------------------------------------
Interest receivable 1,125,047
- ------------------------------------------------------------------------------------------
Receivable for Fund shares sold 778
- ------------------------------------------------------------------------------------------
Prepaid/deferred expenses (Note 2F) 16,131
- ------------------------------------------------------------------------------------------ -----------
Total assets 83,422,532
- ------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Payable for investments purchased $ 5,000,000
- ----------------------------------------------------------------------------
Dividends payable 111,562
- ----------------------------------------------------------------------------
Payable for Fund shares repurchased 71,493
- ----------------------------------------------------------------------------
Payable to Transfer and Dividend Disbursing Agent (Note 4) 32,736
- ----------------------------------------------------------------------------
Payable to Recordkeeper (Note 4) 18,960
- ----------------------------------------------------------------------------
Payable to Custodian (Note 4) 12,293
- ----------------------------------------------------------------------------
Accrued expenses 28,960
- ---------------------------------------------------------------------------- -----------
Total liabilities 5,276,004
- ------------------------------------------------------------------------------------------ -----------
NET ASSETS for 8,035,367 shares of beneficial interest outstanding $78,146,528
- ------------------------------------------------------------------------------------------ -----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------
Paid-in capital $82,658,634
- ------------------------------------------------------------------------------------------
Unrealized depreciation of investments (3,033,827)
- ------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,478,279)
- ------------------------------------------------------------------------------------------ -----------
Total Net Assets $78,146,528
- ------------------------------------------------------------------------------------------ -----------
NET ASSET VALUE and Redemption Price Per Share:
($78,146,528 / 8,035,367 shares of beneficial interest outstanding) $9.73
- ------------------------------------------------------------------------------------------ -----------
Computation of Offering Price:
Offering Price Per Share (100/97.5 of $9.73)* $9.98
- ------------------------------------------------------------------------------------------ -----------
</TABLE>
* See "What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2C) $ 2,996,748
- --------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------
Investment advisory fee (Note 4) $338,692
- ---------------------------------------------------------------------
Trustees' fees 7,057
- ---------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 61,380
- ---------------------------------------------------------------------
Custodian expenses (Note 4) 14,187
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 60,154
- ---------------------------------------------------------------------
Recordkeeping fees (Note 4) 29,139
- ---------------------------------------------------------------------
Legal fees 4,513
- ---------------------------------------------------------------------
Printing and postage 13,778
- ---------------------------------------------------------------------
Insurance premiums 4,240
- ---------------------------------------------------------------------
Fund share registration fees 14,337
- ---------------------------------------------------------------------
Distribution services fees (Note 4) 112,897
- ---------------------------------------------------------------------
Auditing fees 10,328
- ---------------------------------------------------------------------
Miscellaneous 6,682
- --------------------------------------------------------------------- --------
Total expenses 677,384
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 135,477
- --------------------------------------------------------------------- --------
Net expenses 541,907
- -------------------------------------------------------------------------------- -----------
Net investment income 2,454,841
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) (1,087,906)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (4,940,670)
- -------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Net realized and unrealized gain (loss) on investments (6,028,576)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $(3,573,735)
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1994* 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 2,454,841 $ 5,109,185
- ---------------------------------------------------------------
Net realized gain (loss) on investments ($1,087,906 net loss
and
$391,292 net loss, respectively, as computed for federal tax
purposes) (Note 2D) (1,087,906) (391,292)
- ---------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (4,940,670) 2,074,140
- --------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations (3,573,735) 6,792,033
- --------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (2,454,814) (5,108,302)
- ---------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- (398,896)
- --------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to
shareholders (2,454,814) (5,507,198)
- --------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------
Proceeds from sales of shares 8,848,534 46,685,476
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 1,604,194 3,559,838
- ---------------------------------------------------------------
Cost of shares redeemed (23,523,913) (20,267,696)
- --------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Fund share
transactions (13,071,185) 29,977,618
- --------------------------------------------------------------- ------------ ------------
Change in net assets (19,099,734) 31,262,453
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 97,246,262 65,983,809
- --------------------------------------------------------------- ------------ ------------
End of period (including accumulated undistributed net
investment income of $0 and $787, respectively) $ 78,146,528 $ 97,246,262
- --------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1994* 1993 1992**
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.40 $10.25 $10.00
- ----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------
Net investment income 0.27 0.63 0.36
- ----------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.67) 0.21 0.25
- ---------------------------------------------------------------- ------ ------ -----
Total from investment operations (0.40) 0.84 0.61
- ----------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (0.27) (0.63) (0.36 )
- ----------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- (0.06) --
- ---------------------------------------------------------------- ------ ------ -----
Total distributions (0.27) (0.69) (0.36 )
- ---------------------------------------------------------------- ------ ------ -----
NET ASSET VALUE, END OF PERIOD $9.73 $10.40 $10.25
- ---------------------------------------------------------------- ------ ------ -----
TOTAL RETURN*** (3.87)% 8.42% 6.24 %
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------
Expenses 1.20%(a) 1.11% 0.79 %(a)
- ----------------------------------------------------------------
Net investment income 5.44%(a) 6.11% 6.79 %(a)
- ----------------------------------------------------------------
Expense waiver/reimbursement(b) 0.30%(a) 0.29% 0.60 %(a)
- ----------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------
Net assets, end of period (000 omitted) $78,147 $97,246 $65,984
- ----------------------------------------------------------------
Portfolio turnover rate 59% 69% 88 %
- ----------------------------------------------------------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
** Reflects operations for the period from April 21, 1992 (date of initial
public investment) to October 31, 1992.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the financial statements)
THE STARBURST GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Trust
consists of four diversified portfolios. The financial statements included
herein present only those of The Starburst Government Income Fund (the "Fund").
The financial statements of the other portfolios in the Trust are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at the mean
between the over-the-counter bid and asked prices as furnished by an independent pricing
service. Short-term securities with remaining maturities of sixty days or less may be
stated at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the value of each repurchase
agreement's underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTION--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code,
as amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax are
necessary.
</TABLE>
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first year, excluding the initial expense of registering the shares, have
been deferred and are being amortized using the straight-line method over a period of
five years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1994* 1993
- ----------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Shares sold 864,506 4,539,375
- -----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 159,615 345,956
- -----------------------------------------------------------------
Shares redeemed (2,340,043) (1,969,495)
- ----------------------------------------------------------------- ---------- ----------
Net change resulting from Fund share transactions (1,315,922) 2,915,836
- ----------------------------------------------------------------- ---------- ----------
</TABLE>
* Six months ended April 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.75 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the terms
of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the
principal distributor, from the 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
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
distribution expenses up to 0.25 of 1% of the average daily net assets of the
shares, annually, to compensate FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The fee is based on the size, type and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Compass Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $22,617 were borne initially
by FAS. The Fund has agreed to reimburse FAS at an annual rate of 0.005 of 1% of
average daily net assets for organizational expenses, until expenses initially
borne by FAS are fully reimbursed or the expiration of five years after April
17, 1992, (date the Trust's portfolio became effective), whichever occurs
earlier. For the six months ended April 30, 1994, the Fund paid $2,258 pursuant
to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Purchases $50,164,297
- ------------------------------------------------------------------------------- -----------
Sales $65,026,672
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
John T. Conroy, Jr. President
William J. Copeland Jeffrey W. Sterling
James E. Dowd Vice President and Assistant Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
</TABLE>
THE SHARES OFFERED BY THE STARBURST GOVERNMENT INCOME FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S. GOVERNMENT, 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.
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.
THE
STARBURST
MUNICIPAL
INCOME
FUND
A PORTFOLIO OF
THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3052008 (6/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Starburst
Municipal Income Fund (the "Fund"). This report covers the Fund's activity
during the six-month period ended April 30, 1994.
In the Investment Review, the investment adviser provides a brief commentary on
various economic and market conditions that influenced the Fund's strategies
during the six-month period ended April 30, 1994. Following the Investment
Review are a complete list of the Fund's investments and the Fund's Financial
Statements.
The Fund continues to help you keep more of what you earn by investing primarily
in a diversified portfolio of municipal securities. As you can see from the list
of the Fund's holdings, your investment was diversified among securities issued
by various governmental issuers from a broad geographical spectrum.
By the end of the reporting period, tax-sensitive investors like you had placed
a total of $34.4 million in the Fund. They were rewarded with more than $0.23
per share of income exempt from federal regular income taxes during the period.*
Thank you for using The Starburst Municipal Income Fund to ease your tax burden.
We welcome your comments or questions as we strive to provide your account with
the highest level of service possible.
Sincerely,
J. Christopher Donahue
President
June 15, 1994
* Income may be subject to the federal alternative minimum tax and may be
subject to state and local taxes.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Municipal Income Fund (the "Fund") is
to provide current income exempt from federal regular income tax.* The Fund
pursues this investment objective by investing in a professionally managed,
diversified portfolio of municipal securities. Currently, the Fund invests at
least 80% of its portfolio in municipal securities whose weighted maturity is 15
years or less. Historically, the Fund also has attempted to diversify its
portfolio geographically.
Short-term interest rates increased moderately during the fourth quarter of
1993. During the first quarter of 1994, yields on tax-free municipal securities
increased significantly across all maturities. The rise in yields on tax-free
municipal securities was less sharp than the rise in Treasury yields because the
supply of municipal securities began to quickly decrease at the beginning of
1994 while demand for municipal securities remained high. The rise in bond
yields was caused, in large part, by very strong economic growth which increased
market fear of rising inflation. During February, March, and April of 1994, the
Federal Reserve Board (the "Fed") implemented several increases in the Federal
Funds ("Fed Funds") rate in order to combat potential inflation. Historically,
Fed action to increase the Fed Funds rate has resulted in increases in
short-term rates as well as proportionately smaller increases in long-term
rates. However, the increases in the Fed Funds rate during the early part of
1994 apparently were interpreted as an indication that the Fed expected
inflationary pressures to increase. As a consequence of this market perspective,
the Fed's actions served to accelerate rate increases throughout the yield
curve. In anticipation of the potential increases in interest rates and in
response to the Fed's actions, the Fund implemented actions throughout the
six-month period ended April 30, 1994 to reduce the Fund's duration to the
extent consistent with the Fund's investment objective to produce current
income. Actions to reduce the Fund's duration intensified as the severity of the
bear bond market became more apparent; however, such actions were tempered by
the desire to maintain a relatively high level of income.
At the end of the six-month period, the Fund remained defensively positioned in
light of expectations of continued increases in interest rates throughout the
yield curve.
* Income may be subject to federal alternative minimum tax and state and local
taxes also may apply.
THE STARBURST MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
SHARES OR RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--1.4%
- -----------------------------------------------------------------------
SHORT-TERM TAX-FREE MONEY MARKET ISSUES
---------------------------------------------------------
486,038 First Boston Corp. Inst. Tax Exempt Money Market Fund
(at net asset value) (Note 2A) NR $ 486,038
--------------------------------------------------------- -----------
LONG-TERM MUNICIPAL SECURITIES--95.8%
- -----------------------------------------------------------------------
ALABAMA--20.5%
---------------------------------------------------------
$ 895,000 Alabama State Industrial Access Road & Bridge Corp.,
4.10% Revenue Bonds, 6/1/97 A-1 878,684
---------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
1,885,000 Alabama Municipal Electric Authority Power Supply System,
6.50%, (Prerefunded 9/1/2001 @ 101), 9/1/2005 AAA 2,042,077
---------------------------------------------------------
1,125,000 Auburn University Housing & Dining, 5.20% Revenue
Refunding Bonds, (MBIA Insured), 6/1/2004 AAA 1,095,671
---------------------------------------------------------
1,400,000 Birmingham, AL, 7.75% GO Bonds, 10/1/2007 AA 1,524,334
---------------------------------------------------------
1,000,000 Birmingham, AL, Specialty Care Facilities, 5.00% Revenue
Bonds, Series B, (MBIA Insured), 6/1/2003 AAA 961,790
---------------------------------------------------------
500,000 Mobile County, AL, 6.35% GO Bonds, 2/1/2004 A-1 537,230
--------------------------------------------------------- -----------
Total 7,039,786
--------------------------------------------------------- -----------
ALASKA--3.0%
---------------------------------------------------------
1,000,000 Anchorage, AK, 5.95% GO Bonds, (MBIA Insured), 8/1/2002 AAA 1,043,590
--------------------------------------------------------- -----------
ARIZONA--1.5%
---------------------------------------------------------
500,000 Phoenix, AR, Water System, 7.40% Revenue Bonds, 7/1/2003 A-1 513,795
--------------------------------------------------------- -----------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
SHARES OR RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
COLORADO--3.9%
---------------------------------------------------------
1,300,000 Stonegate Village Metropolitan District, 6.30% GO Bonds,
Series A, 12/1/2004 AA 1,344,278
--------------------------------------------------------- -----------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
FLORIDA--5.3%
---------------------------------------------------------
$1,000,000 Homestead, FL, Special Insurance Assessment, 4.90%
Revenue Bonds, 9/1/2000 AAA $ 993,480
---------------------------------------------------------
775,000 Jacksonville, FL, Electric Authority, 6.20% Revenue
Bonds, 10/1/97 AA-1 818,082
--------------------------------------------------------- -----------
Total 1,811,562
--------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
HAWAII--1.7%
---------------------------------------------------------
600,000 Hawaii County, HI, 6.30% GO Bonds, 5/15/98 A-2 599,922
--------------------------------------------------------- -----------
ILLINOIS--6.4%
---------------------------------------------------------
1,200,000 Chicago, IL, School Financing Authority, 5.20% Refunding
Bonds, Series A, (FGIC Insured), 6/1/2006 AAA 1,140,984
---------------------------------------------------------
1,000,000 Illinois State, 6.70% GO Refunding Bonds, 4/1/2004 AA 1,063,230
--------------------------------------------------------- -----------
Total 2,204,214
--------------------------------------------------------- -----------
MASSACHUSETTS--0.6%
---------------------------------------------------------
200,000 Massachusetts Housing Finance Agency Residence Develop-
ment, 6.15% Revenue Bonds, 5/15/2001 AAA 208,210
--------------------------------------------------------- -----------
MINNESOTA--6.2%
---------------------------------------------------------
600,000 Minnesota State, 6.70% GO Bonds, 8/1/2006 AA-2 644,598
---------------------------------------------------------
1,400,000 Ramsey & Washington Counties, MN, Source Recovery, 6.75%
Revenue Bonds (Pollution Control), 12/1/2006 AA 1,496,460
--------------------------------------------------------- -----------
Total 2,141,058
--------------------------------------------------------- -----------
MISSOURI--3.0%
---------------------------------------------------------
1,000,000 St. Louis County, MO, Public Facilities Corp. Lease
Revenue Bonds, 6.00%, Series A, (AMBAC Insured),
2/15/2008 AAA 1,013,520
--------------------------------------------------------- -----------
NEBRASKA--1.5%
---------------------------------------------------------
500,000 Nebraska Public Power District Electric System Revenue
Bonds, 5.70%, Series A, 1/1/2002 A-1 512,115
--------------------------------------------------------- -----------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
NEVADA--4.0%
---------------------------------------------------------
1,500,000 Las Vegas, NV, 5.00% GO Bonds, (MBIA Insured), 1/1/2008 AAA 1,373,070
--------------------------------------------------------- -----------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
NEW JERSEY--3.8%
---------------------------------------------------------
$1,250,000 Ocean County, NJ, Utilities Authority Wastewater, 6.70%
Revenue Bonds, (FGIC Insured), 1/1/2007 AAA $ 1,302,275
--------------------------------------------------------- -----------
NORTH CAROLINA--2.7%
---------------------------------------------------------
850,000 Charlotte, NC, 6.90% GO Bonds, 10/1/2006 AAA 941,197
--------------------------------------------------------- -----------
SOUTH CAROLINA--0.9%
---------------------------------------------------------
300,000 Columbia, SC, Waterworks & Sewer System, 6.30%, 2/1/2000 AA 318,960
--------------------------------------------------------- -----------
TEXAS--16.7%
---------------------------------------------------------
1,000,000 Alief, TX, Independent School District, 5.875% Refunding
Bonds, 2/15/2005 AAA 1,012,450
---------------------------------------------------------
600,000 Carrollton, TX, Farmers Branch/Independent School
District, 6.75% GO Bonds, 2/15/2007 AA- 650,454
---------------------------------------------------------
500,000 Cypress, TX, Fairbanks Independent School District, 5.30%
GO Bonds, Series 1991-C, 2/1/96 AAA 509,435
---------------------------------------------------------
500,000 Dallas, TX, 6.20% GO Bonds, 1/1/2003 AA 530,605
---------------------------------------------------------
1,000,000 Fort Worth, TX, 6.00% GO Bonds, 3/1/2007 AA 1,036,510
---------------------------------------------------------
500,000 Plano, TX, 5.60% GO Bonds, (AMBAC Insured), 9/1/2005 AAA 500,285
---------------------------------------------------------
600,000 San Antonio, TX, Electric & Gas, 6.875% Revenue Bonds,
2/1/2003 AA 624,336
---------------------------------------------------------
800,000 Texas Water Supply Sabine River Authority, 6.50% Revenue
Bonds, 12/1/2002 AA 859,000
--------------------------------------------------------- -----------
Total 5,723,075
--------------------------------------------------------- -----------
VIRGINIA--3.3%
---------------------------------------------------------
1,200,000 Virginia State Housing Development Authority, 5.45% Re-
funding Bonds, (Multi-Family Housing), Series E,
11/1/2007 AA 1,139,496
--------------------------------------------------------- -----------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
WASHINGTON--10.8%
---------------------------------------------------------
1,165,000 Kent, WA, 6.35% GO Bonds, 12/1/2004 A+ 1,228,726
---------------------------------------------------------
500,000 Washington State Public Power Supply, 7.00% Revenue
Bonds, (Nuclear Project No. 2), Series C, (FGIC Insured),
7/1/2001 AAA 549,180
---------------------------------------------------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT ISSUE OR S&P* VALUE
- ---------- --------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -----------------------------------------------------------------------
WASHINGTON--CONTINUED
---------------------------------------------------------
$1,000,000 Washington State Public Power Supply, 7.25% Revenue
Bonds, Series B, (Prerefunded - U.S. Government
Collateral), 7/1/2015 AA $ 1,117,500
---------------------------------------------------------
800,000 Washington State, 6.45% GO Bonds, 4/1/2000 AA 830,176
--------------------------------------------------------- -----------
Total 3,725,582
--------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST: $33,543,451) 32,955,705
--------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST: $34,029,489) (NOTE
2A) $33,441,743+
--------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
+ The cost of investments for federal tax purposes amounts to $34,029,489. The
net unrealized depreciation of investments on a federal tax basis amounts to
$587,746 which is comprised of $166,968 appreciation and $754,714 depreciation
at April 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($34,393,362) at
April 30, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Co.
GO -- General Obligation
MBIA -- Municipal Bond Investors Assurance
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at value (identified and tax cost, $34,029,489) (Note 2A) $33,441,743
- --------------------------------------------------------------------------------
Interest receivable 555,377
- --------------------------------------------------------------------------------
Receivable for investments sold 470,457
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 4,505
- -------------------------------------------------------------------------------- -----------
Total assets 34,472,082
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable $37,734
- ----------------------------------------------------------------------
Payable for Fund shares redeemed 10,598
- ----------------------------------------------------------------------
Payable to Distributor (Note 4) 4,955
- ----------------------------------------------------------------------
Payable to Transfer and Dividend Disbursing Agent (Note 4) 4,218
- ----------------------------------------------------------------------
Accrued expenses 21,215
- ---------------------------------------------------------------------- -------
Total liabilities 78,720
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 3,354,745 shares of beneficial interest outstanding $34,393,362
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $34,794,611
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (587,746)
- --------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments 186,497
- -------------------------------------------------------------------------------- -----------
Total Net Assets $34,393,362
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Redemption Price Per Share:
($34,393,362 / 3,354,745 shares of beneficial interest outstanding) $10.25
- -------------------------------------------------------------------------------- -----------
Computation of Offering Price:
Offering Price Per Share (100/99 of 10.25)* $10.35
- -------------------------------------------------------------------------------- -----------
</TABLE>
* On sales of $100,000 or more, the offering price is reduced as stated under
"What Shares Cost" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------
Interest income (Note 2B) $ 977,320
- ---------------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------
Investment advisory fee (Note 4) $148,687
- ---------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 26,948
- ---------------------------------------------------------------------------
Custodian expenses (Note 4) 7,676
- ---------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 18,439
- ---------------------------------------------------------------------------
Printing and postage 7,038
- ---------------------------------------------------------------------------
Recordkeeping fees (Note 4) 17,632
- ---------------------------------------------------------------------------
Legal fees 4,134
- ---------------------------------------------------------------------------
Fund share registration fees 7,624
- ---------------------------------------------------------------------------
Trustees' fees 3,008
- ---------------------------------------------------------------------------
Insurance premiums 2,274
- ---------------------------------------------------------------------------
Auditing fees 4,560
- ---------------------------------------------------------------------------
Miscellaneous 1,639
- ---------------------------------------------------------------------------
Distribution services fees (Note 4) 49,562
- --------------------------------------------------------------------------- --------
Total expenses 299,221
- ---------------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $148,687
- ----------------------------------------------------------------
Waiver of distribution services fees (Note 4) 19,825 168,512
- ---------------------------------------------------------------- --------
Net expenses 130,709
- --------------------------------------------------------------------------------------- -----------
Net investment income 846,611
- --------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) 187,165
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (2,011,335)
- --------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (1,824,170)
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (977,559)
- --------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1994* 1993
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------
Net investment income $ 846,611 $ 1,136,484
- ------------------------------------------------------------------
Net realized gain (loss) on investments ($187,165 net gain and
$291,506 net gain, respectively, as computed for federal tax
purposes) (Note 2C) 187,165 291,506
- ------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments (2,011,335) 1,392,076
- ------------------------------------------------------------------ ----------- -----------
Change in net assets resulting from operations (977,559) 2,820,066
- ------------------------------------------------------------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ------------------------------------------------------------------
Dividends to shareholders from net investment income (846,239) (1,136,484)
- ------------------------------------------------------------------
Distributions in excess of net investment income -- (372)
- ------------------------------------------------------------------ ----------- -----------
Distributions to shareholders from net realized capital gains (278,082) --
- ------------------------------------------------------------------ -----------
Change in net assets resulting from distributions to
shareholders (1,124,321) (1,136,856)
- ------------------------------------------------------------------ ----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ------------------------------------------------------------------
Proceeds from sale of shares 4,871,351 30,391,627
- ------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 772,513 764,664
- ------------------------------------------------------------------
Cost of shares redeemed (12,114,370) (4,360,357)
- ------------------------------------------------------------------ ----------- -----------
Change in net assets resulting from Fund share transactions (6,470,506) 26,795,934
- ------------------------------------------------------------------ ----------- -----------
Change in net assets (8,572,386) 28,479,144
- ------------------------------------------------------------------ ----------- -----------
NET ASSETS:
- ------------------------------------------------------------------
Beginning of period 42,965,748 14,486,604
- ------------------------------------------------------------------ ----------- -----------
End of period $34,393,362 $42,965,748
- ------------------------------------------------------------------ ----------- -----------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1994**** 1993 1992**
-------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.82 $10.08 $9.90
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.23 0.47 0.46
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.50 ) 0.74 0.18
- ------------------------------------------------------------ ------- ------ -------
Total from investment operations (0.27 ) 1.21 0.64
- ------------------------------------------------------------ ------- ------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.23 ) (0.47) (0.46 )
- ------------------------------------------------------------
Distributions in excess of net investment income*** -- -- --
- ------------------------------------------------------------
Distributions to shareholders from net realized capital
gain (0.07 ) -- --
- ------------------------------------------------------------ ------- ------ -------
TOTAL DISTRIBUTIONS (0.30 ) (0.47) (0.46 )
- ------------------------------------------------------------ ------- ------ -------
NET ASSET VALUE, END OF PERIOD $10.25 $10.82 $10.08
- ------------------------------------------------------------ ------- ------ -------
TOTAL RETURN* (2.57 )% 12.22% 6.60 %
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.66 %(a) 0.52% 0.77 %(a)
- ------------------------------------------------------------
Net investment income 4.27 %(a) 4.41% 4.89 %(a)
- ------------------------------------------------------------
Expense waiver/reimbursement(b) 0.85 %(a) 1.26% 1.25 %(a)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $34,393 $42,966 $14,487
- ------------------------------------------------------------
Portfolio turnover rate 6 % 27% 48 %
- ------------------------------------------------------------
</TABLE>
* Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
** Reflects operations for the period from November 20, 1991 (date of initial
public investment), to October 31, 1992.
*** Distributions in excess of net investment income in 1993 ($372) were a
result of certain book and tax timing differences. Management does not
believe such distributions will result in a return of capital for federal
income tax purposes.
**** Six months ended April 30, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") are registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company. The
Trust consists of four diversified portfolios. The financial statements included
herein present only those of The Starburst Municipal Income Fund (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
A. 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 it
deems relevant in determining valuations for normal institutional size
trading units of debt securities. The independent pricing service does not
rely exclusively on quoted prices. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value. Investments in other regulated investment companies are
valued at net asset value.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by the
Internal Revenue Code, as amended ("Code"). Distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These distributions do not represent a return of
capital for federal income tax purposes.
C. 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 taxable income. Accordingly,
no provisions for federal tax are necessary.
D. 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.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being amortized
using the straight-line method over a period of five years from the Fund's
commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1994* 1993
- ------------------------------------------------------------------ ---------- ---------
<S> <C> <C>
Shares sold 458,198 2,873,914
- ------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 72,713 72,263
- ------------------------------------------------------------------
Shares redeemed (1,146,162) (413,471)
- ------------------------------------------------------------------ ---------- ---------
Net change resulting from Fund share transactions (615,251) 2,532,706
- ------------------------------------------------------------------ ---------- ---------
</TABLE>
* Six months ended April 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.75 of 1% of the Fund's average daily net assets. Compass Bank may
voluntarily choose to waive all of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. 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 1% of the average daily net
assets of the shares, annually, to compensate FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer agent and dividend disbursing
agent for the Fund. The fee is based on the size, type and number of accounts
and transactions made by shareholders.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Compass Bank is the Fund's custodian. The fee is based on the level of average
net assets for the period plus out-of-pocket expenses.
Organizational expenses of $22,000 were borne initially by Federated
Administrative Services ("FAS"). The Fund has agreed to reimburse FAS at an
annual rate of .005 of 1% of average daily net assets for organizational
expenses until expenses initially borne by FAS are fully reimbursed or the
expiration of five years after November 7, 1991, (date the Fund's portfolio
first became effective), whichever occurs earlier. For the six months ended
April 30, 1994, the Fund paid $1,024 pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
PURCHASES $2,353,337
- -------------------------------------------------------------------------------- ----------
SALES $8,954,101
- -------------------------------------------------------------------------------- ----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
John T. Conroy, Jr. President
William J. Copeland Jeffrey W. Sterling
James E. Dowd Vice President and Assistant Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
</TABLE>
THE SHARES OFFERED BY THE STARBURST MUNICIPAL INCOME FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S. GOVERNMENT, 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.
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.
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Starburst
Money Market Fund (the "Fund"). This report covers activity in the Fund over the
six-month period ended April 30, 1994.
In the Investment Review, the investment adviser provides a brief commentary on
various economic and market conditions that influenced the Fund's strategies
during the six-month period ended April 30, 1994. Following the Investment
Review are a complete list of the Fund's investments and the Fund's Financial
Statements.
The Fund maintains a diversified portfolio of high-quality money market
instruments issued by banks, corporations, insurance companies, and the U.S.
government and its agencies. This combination of securities is managed to
provide you with competitive income while pursuing a stable net asset value of
$1.00 per share.* By the end of the report period, investors like you had
invested a total of $169.2 million in the Fund.
Thank you for using The Starburst Money Market Fund as a convenient way to put
your cash to work. We welcome your comments and suggestions as we strive to
provide your account with the highest level of personal service possible.
Sincerely,
J. Christopher Donahue
President
June 15, 1994
* Money market funds seek to maintain a stable asset value of $1.00 per share.
There is no assurance that they will be able to do so.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Money Market Fund (the "Fund") is to
provide current income consistent with stability of principal. The Fund pursues
this investment objective by investing in a variety of high-quality money market
instruments maturing in thirteen months or less. The average maturity of the
Fund's portfolio will be 90 days or less.
At the beginning of the six-month period beginning October 31, 1993 the Fund's
portfolio was moderately barbelled between securities with one-year to
thirteen-month maturities and securities maturing in one-month or less, and the
Fund's weighted average maturity was positioned at 61 days. Short-term interest
rates increased moderately during the fourth quarter of 1993. During the first
quarter of 1994, short-term interest rates increased sharply as a result of
strong economic growth and corresponding increases in the Federal Funds ("Fed
Funds") rate target by the Federal Reserve Board (the "Fed"). In response to the
rising interest rate market and the Fed's actions, the Fund implemented actions
throughout the six-month period to reduce the Fund's weighted average maturity.
Holdings of corporate commercial paper and corporate notes were decreased in
order to protect against the widening of the spread between yields on corporate
securities and the yields on Treasury securities.
At the end of the six-month period, the weighted average maturity of the Fund
had been reduced to 56 days, and the Fund remained defensively positioned in
response to the possibility of further action by the Fed to increase the Fed
Funds rate.
THE STARBURST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
BANKERS ACCEPTANCE--4.1%
- ---------------------------------------------------------------------------------
$ 7,000,000 Credit Lyonnais, 3.61%, 5/13/94 $ 6,991,577
------------------------------------------------------------------ ------------
*COMMERCIAL PAPER--29.2%
- ---------------------------------------------------------------------------------
FINANCE-AUTOMOTIVE--4.1%
------------------------------------------------------------------
7,000,000 Vehicle Services of America, Ltd., 3.85%, (Nations Bank L.O.C.)
6/2/94 6,976,044
------------------------------------------------------------------ ------------
</TABLE>
<TABLE>
<C> <S> <C>
FINANCIAL SERVICES--7.1%
------------------------------------------------------------------
7,000,000 Merrill Lynch & Co., Inc., 3.97%, 6/24/94 6,958,315
------------------------------------------------------------------
5,000,000 Pasminco Finance Ltd., 3.88%, 6/7/94 4,980,061
------------------------------------------------------------------ ------------
Total 11,938,376
------------------------------------------------------------------ ------------
FUNDING CORPORATION--18.0%
------------------------------------------------------------------
7,000,000 Black & Decker Recop Trust, 3.71%, 5/16/94 7,000,000
------------------------------------------------------------------
7,000,000 Circuit City Recop Trust, 3.86%, 5/31/94 7,000,000
------------------------------------------------------------------
7,000,000 Receivables Capital Corp., 3.65%, 5/2/94 6,999,290
------------------------------------------------------------------
2,500,000 Safeco Credit Discount, 3.75%, 6/1/94 2,491,927
------------------------------------------------------------------
7,000,000 Sterling, Inc., Credit Card Trust, 3.85%, (Barclays Bank L.O.C.)
5/31/94 7,000,000
------------------------------------------------------------------ ------------
Total 30,491,217
------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 49,405,637
------------------------------------------------------------------ ------------
CORPORATE NOTES--17.1%
- ---------------------------------------------------------------------------------
FINANCE--AUTOMOTIVE--3.3%
------------------------------------------------------------------
5,500,000 Ford Motor Credit Co., 8.00%-10.50%, 6/1/94-10/21/94 5,613,925
------------------------------------------------------------------ ------------
FINANCE--COMMERCIAL--2.5%
------------------------------------------------------------------
4,200,000 Associates Corp. of North America, 6.625%, 12/1/94 4,263,622
------------------------------------------------------------------ ------------
FINANCIAL--RETAIL--0.6%
------------------------------------------------------------------
1,000,000 Avco Financial Services, Inc., 4.33%, 3/3/95 997,420
------------------------------------------------------------------ ------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
CORPORATE NOTES--CONTINUED
- ---------------------------------------------------------------------------------
INDUSTRIAL/MANUFACTURING--1.2%
------------------------------------------------------------------
2,000,000 General Electric Co., 5.875%, 12/1/94 2,016,741
------------------------------------------------------------------ ------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
CORPORATE NOTES--CONTINUED
- ---------------------------------------------------------------------------------
LEASING--3.6%
------------------------------------------------------------------
$ 6,000,000 International Lease Finance Corp., 6.00%-7.97%, 5/16/94-1/15/95 $ 6,073,065
------------------------------------------------------------------ ------------
PERSONAL CREDIT--1.5%
------------------------------------------------------------------
2,500,000 American General Finance Corp., 8.375%-8.75%, 1/15/95-3/15/95 2,569,246
------------------------------------------------------------------ ------------
TOBACCO--4.4%
------------------------------------------------------------------
7,300,000 Phillip Morris Cos., Inc., 8.70%-9.15%, 8/19/94-2/16/95 7,463,746
------------------------------------------------------------------ ------------
TOTAL CORPORATE NOTES 28,997,765
------------------------------------------------------------------ ------------
SHORT-TERM OBLIGATIONS--7.1%
- ---------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--3.0%
------------------------------------------------------------------
5,000,000 3.50%, 6/30/94 4,999,483
------------------------------------------------------------------ ------------
U.S. TREASURY NOTES--4.1%
------------------------------------------------------------------
3,000,000 4.25%, 7/31/94 3,005,015
------------------------------------------------------------------
4,000,000 STRIP, 3.307%, 11/15/94 3,927,255
------------------------------------------------------------------ ------------
Total 6,932,270
------------------------------------------------------------------ ------------
TOTAL SHORT-TERM OBLIGATIONS 11,931,753
------------------------------------------------------------------ ------------
**VARIABLE RATE INSTRUMENTS--15.4%
- ---------------------------------------------------------------------------------
8,000,000 Commonwealth Life Insurance Co., 3.90%, 7/1/94 8,000,000
------------------------------------------------------------------
8,000,000 National Home Life Assurance Co., 3.90%, 7/1/94 8,000,000
------------------------------------------------------------------
10,000,000 Student Loan Marketing Association, 4.315%, 5/6/94 10,017,723
------------------------------------------------------------------ ------------
TOTAL VARIABLE RATE INSTRUMENTS 26,017,723
------------------------------------------------------------------ ------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
***REPURCHASE AGREEMENTS--26.8%
- ---------------------------------------------------------------------------------
$ 7,000,000 First Chicago Capital Markets Inc., 3.55%, dated 4/29/94, due
5/2/94 $ 7,000,000
------------------------------------------------------------------
31,315,000 Fuji Securities, Inc., 3.56%, dated 4/29/94, due 5/2/94 31,315,000
------------------------------------------------------------------
7,000,000 Harris Government Securities, Inc., 3.52%, dated 4/29/94, due
5/2/94 7,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 45,315,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $168,659,455+
------------------------------------------------------------------ ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Current rate and next demand date shown.
*** The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($169,222,442) at
April 30, 1994.
The following abbreviations were used in this portfolio:
<TABLE>
<S> <C>
L.O.C. -- Letter of Credit
STRIP -- Separate Trading of Registered Interest and Principal
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 45,315,000
- -----------------------------------------------------------------
Investments in other securities 123,344,455
- ----------------------------------------------------------------- ------------
Total investments, at value (Notes 2A and 2B) $168,659,455
- --------------------------------------------------------------------------------
Cash 1,475
- --------------------------------------------------------------------------------
Interest receivable 870,797
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 16,939
- -------------------------------------------------------------------------------- ------------
Total assets 169,548,666
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable $ 326,224
- ----------------------------------------------------------------- ------------
Total liabilities 326,224
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 169,224,088 shares of beneficial interest outstanding $169,222,442
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $169,224,088
- --------------------------------------------------------------------------------
Accummulated net realized loss on investments (1,646)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $169,222,442
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($128,878,436 / 128,880,262 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($40,344,006 / 40,343,826 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income (Note 2C) $2,915,056
- -----------------------------------------------------------------------------------
EXPENSES--
- -----------------------------------------------------------------------
Investment advisory fee (Note 4) $335,499
- -----------------------------------------------------------------------
Trustees' fees 3,140
- -----------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 114,022
- -----------------------------------------------------------------------
Custodian expenses (Note 4) 29,114
- -----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 31,826
- -----------------------------------------------------------------------
Recordkeeping fees (Note 4) 27,161
- -----------------------------------------------------------------------
Fund share registration fees 72,772
- -----------------------------------------------------------------------
Auditing fees 8,965
- -----------------------------------------------------------------------
Legal fees 6,277
- -----------------------------------------------------------------------
Printing and postage 10,037
- -----------------------------------------------------------------------
Insurance premiums 3,954
- -----------------------------------------------------------------------
Distribution services fees (Note 4) 63,678
- -----------------------------------------------------------------------
Miscellaneous 2,882
- ----------------------------------------------------------------------- --------
Total expenses 709,327
- -----------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 8,202
- -------------------------------------------------------------
Waiver of distribution services fees (Note 4) 36,387 44,589
- ------------------------------------------------------------- ------- --------
Net expenses 664,738
- ----------------------------------------------------------------------------------- ----------
Net investment income $2,250,318
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1994* 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 2,250,318 $ 5,766,612
- -------------------------------------------------------------
Net realized gain (loss) on investments ($1,646 and $0 net
loss, respectively as computed for federal tax purposes)
(Note 2D) (1,646) --
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 2,248,672 5,766,612
- ------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------
Trust Shares (1,784,815) (4,772,486)
- -------------------------------------------------------------
Investment Shares (465,503) (994,126)
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (2,250,318) (5,766,612)
- ------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------
Proceeds from sales of shares 379,315,254 789,672,482
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 442,689 959,136
- -------------------------------------------------------------
Cost of shares redeemed (381,822,025) (843,169,411)
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from Fund share
transactions (2,064,082) (52,537,793)
- ------------------------------------------------------------- ------------- -------------
Change in net assets (2,065,728) (52,537,793)
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 171,288,170 223,825,963
- ------------------------------------------------------------- ------------- -------------
End of period $ 169,222,442 $ 171,288,170
- ------------------------------------------------------------- ------------- -------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1994* 1993 1992 1991 1990**
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.01 0.03 0.04 0.06 0.06
- ----------------------------------------- ----- ----- ------ ------ -----
LESS DISTRIBUTIONS
- -----------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.03) (0.04) (0.06) (0.06 )
- ----------------------------------------- ----- ----- ------ ------ -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------- ----- ----- ------ ------ ------
TOTAL RETURN*** 1.36% 1.84% 4.07% 6.44% 5.89 %
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.76%(a) 0.70% 0.64% 0.62% 0.58 %(a)
- -----------------------------------------
Net investment income 2.72%(a) 2.83% 4.01% 6.13% 7.80 %(a)
- -----------------------------------------
Expense waiver/reimbursement(b) 0.01%(a) 0.00% 0.01% 0.05% 0.10 %(a)
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $128,878 $131,508 $187,394 $212,997 $117,716
- -----------------------------------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
** Reflects operations for the period from February 5, 1990 (date of initial
public offering) to October 31, 1990.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------
1994* 1993 1992 1991**
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------
Net investment income 0.01 0.03 0.04 0.03
- ------------------------------------------- ----- ----- ------ -----
LESS DISTRIBUTIONS
- -------------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.03) (0.04) (0.03 )
- ------------------------------------------- ----- ----- ------ -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- ------------------------------------------- ----- ----- ------ ------
TOTAL RETURN*** 1.28% 2.69% 3.95% 2.90 %
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 0.91%(a) 0.86% 0.78% 0.61 %(a)
- -------------------------------------------
Net investment income 2.56%(a) 2.66% 3.65% 5.51 %(a)
- -------------------------------------------
Expense waiver/reimbursement(b) 0.21%(a) 0.20% 0.19% 0.05 %(a)
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $40,344 $39,780 $36,432 $7,238
- -------------------------------------------
</TABLE>
* Six months ended April 30, 1994 (unaudited).
** Reflects operations for the period from April 29, 1991 (date of initial
public offering) to October 31, 1991.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Trust
consists of four diversified portfolios. The financial statements included
herein are only those of The Starburst Money Market Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
The Fund provides two classes of shares (Trust Shares and Investment Shares).
Investment Shares are identical in all respects to Trust Shares except that
Investment Shares will be sold pursuant to a distribution plan ("Plan") adopted
in accordance with Investment Company Act Rule 12b-1.
(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 (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of each repurchase
agreement's underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code,
as amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax is
necessary.
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(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) for each
class of shares. At April 30, 1994, capital paid-in aggregated $169,222,442.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
TRUST SHARES 1994* 1993
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 189,410,318 308,553,357
- ---------------------------------------------------------------
Shares issued to shareholders in payment of dividend declared -- 307
- ---------------------------------------------------------------
Shares redeemed (192,038,189) (364,439,641)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions (2,627,871) (55,885,977)
- --------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
INVESTMENT SHARES 1994* 1993
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 189,904,936 481,119,125
- ---------------------------------------------------------------
Shares issued to shareholders in payment of dividend declared 442,689 958,829
- ---------------------------------------------------------------
Shares redeemed (189,783,836) (478,729,770)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 563,789 3,348,184
- --------------------------------------------------------------- ------------ ------------
Total net change resulting from Fund share
transactions (2,064,082) (52,537,793)
- --------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended April 30, 1994.
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.40 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. Adviser can modify or terminate this voluntary waiver and
reimbursement any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION PLAN--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 with respect to
Investment Shares. 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 Investment Shares. The Plan provides that the Fund may incur distribution
expenses up to 0.35 of 1% of the average daily net assets of the Investment
Shares, annually, to compensate FSC.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The fee is based on the size, type and number of accounts and
transactions made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
Compass Bank is the Fund's custodian. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
John T. Conroy, Jr. President
William J. Copeland Jeffrey W. Sterling
James E. Dowd Vice President and Assistant Treasurer
Lawrence D. Ellis, M.D. Richard B. Fisher
Edward L. Flaherty, Jr. Vice President
Edward C. Gonzales Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
C. Grant Anderson
Assistant Secretary
</TABLE>
THE SHARES OFFERED BY THE STARBURST MONEY MARKET FUND ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
THIS 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.
