SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE STARBURST FUNDS
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective on March 16,
1995 pursuant to Rule 488.
(Approximate Date of Proposed Public Offering)
An indefinite amount of the Registrant's securities has been
registered under the Securities Act of 1933 pursuant to Rule 24f-2 under The
Investment Company Act of 1940. In reliance upon such Rule, no filing fee is
being paid at this time. A Rule 24f-2 notice for the Registrant for the year
ended October 31, 1994 was filed on December 15, 1994.
Copy to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P
2101 L Street, N.W.
Washington, D.C. 20037
CROSS REFERENCE SHEET
Pursuant to Item 1(a) of Form N-14 Showing Location in
Prospectus of Information Required by Form N-14
Item of Part A of Form N-14 and Caption Caption or Location in Prospectus
1. Beginning of Registration Statement
and Outside Front Cover Page
of Prospectus..........................Cross Reference Sheet; Cover Page
2. Beginning and Outside Back Cover
Page of Prospectus....................Table of Contents
3. Synopsis Information and Risk Factors.Summary; Risk Factors
4. Information About the Transaction.....Information About the
Reorganization
5. Information About the Registrant......Information About The Starburst Funds,
The Starburst Funds II, Government Income
Fund, and Quality Income Fund
6. Information About the Company
Being Acquired........................Information About The Starburst Funds,
The Starburst Funds II, Government Income
Fund, and Quality Income Fund
7. Voting Information....................Voting Information
8. Interest of Certain Persons
and Experts...........................Not Applicable
9. Additional Information Required
for Reoffering by Persons Deemed
to be Underwriters....................Not Applicable
The Starburst Quality Income Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Shareholder:
The Board of Trustees and management of The Starburst Quality Income
Fund ("Quality Income Fund"), a portfolio of The Starburst Funds II (the
"Trust"), are pleased to submit for your vote a proposal to transfer all of
the assets of Quality Income Fund to The Starburst Government Income Fund
("Government Income Fund"), a portfolio of The Starburst Funds. Quality
Income Fund and Government Income Fund are referred to collectively as the
"Funds". As part of the transaction, shareholders in Quality Income Fund
would receive shares of Government Income Fund equal in value to their shares
of Quality Income Fund. Quality Income Fund would then be liquidated and the
Trust would be dissolved.
The Funds are open-end, management investment companies with similar
investment objectives. The Board of Trustees of Quality Income Fund, as well
as Compass Bank, the investment adviser of the Funds, believe the proposed
agreement and plan of reorganization offers the shareholders of Quality Income
Fund the opportunity to pursue similar investment objectives with a
potentially lower expense ratio due to improved economies of scale.
We believe the transfer of Quality Income Fund's assets in this
transaction will present an excellent investment opportunity for our
shareholders. Your vote on the transaction is critical to its success. The
transfer will be effected only if approved by a majority of Quality Income
Fund's outstanding shares on the record date. We hope you share our
enthusiasm and will participate by casting your vote in person, or by proxy if
you are unable to attend the meeting. Please read the enclosed
prospectus/proxy statement carefully before you vote. If you have any
questions, please feel free to call us at 1-800-239-1930
Thank you for your prompt attention and participation.
Sincerely,
The Starburst Quality Income Fund
J. Christopher Donahue
President
THE STARBURST FUNDS II
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF THE STARBURST QUALITY INCOME FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The Starburst
Quality Income Fund ("Quality Income Fund"), a portfolio of The Starburst
Funds II, will be held at 2:00 p.m. on May 12, 1995 at Federated Investors
Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following
purposes:
1.To approve or disapprove a proposed Agreement and Plan of
Reorganization between Quality Income Fund and The Starburst
Government Income Fund ("Government Income Fund"), a portfolio
of The Starburst Funds, whereby Government Income Fund would
acquire all of the assets of Quality Income Fund in exchange
for Government Income Fund shares to be distributed pro rata
by Quality Income Fund to its shareholders in complete
liquidation and termination of Quality Income Fund; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: March 20, 1995 John W. McGonigle
Secretary
Shareholders of record at the close of business March 16, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
To secure the largest possible representation and to save the
expense of further mailings, please mark your proxy card, sign it, and return
it in the enclosed envelope, which requires no postage if mailed in the United
States. You may revoke your proxy at any time at or before the meeting or
vote in person if you attend the meeting.
PROSPECTUS/PROXY STATEMENT
March 20, 1995
Acquisition of the Assets of
THE STARBURST QUALITY INCOME FUND,
a Portfolio of THE STARBURST FUNDS II
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
THE STARBURST GOVERNMENT INCOME FUND,
a Portfolio of THE STARBURST FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Prospectus/Proxy Statement describes the proposed Agreement and
Plan of Reorganization (the "Plan") whereby The Starburst Government Income
Fund ("Government Income Fund"), a portfolio of The Starburst Funds, would
acquire all of the assets of The Starburst Quality Income Fund ("Quality
Income Fund"), a portfolio of The Starburst Funds II, in exchange for
Government Income Fund shares to be distributed pro rata by Quality Income
Fund to its shareholders in complete liquidation and dissolution of Quality
Income Fund. As a result of the Plan, each shareholder of Quality Income Fund
will become the owner of Government Income Fund shares having a total net
asset value equal to the total net asset value of his or her holdings in
Quality Income Fund. Quality Income Fund and Government Income Fund are
referred to, collectively, as the "Funds."
The Starburst Funds is an open-end management investment company
which currently includes five portfolios, each of which has a distinct
investment objective. The investment objective of The Starburst Funds'
portfolio, Government Income Fund, is current income. Government Income Fund
pursues its objective by investing in a portfolio consisting primarily of
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government or its instrumentalities. The Starburst Funds II is an open-
end management investment company which currently includes one portfolio:
Quality Income Fund, whose investment objective is to provide current income.
Quality Income Fund pursues this investment objective by investing in a
portfolio of corporate debt securities and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities. An investment in the
Funds is neither insured nor guaranteed by the United States government. For
a comparison of the investment policies of the Funds, see "Summary-Investment
Objectives and Policies".
This Prospectus/Proxy Statement should be retained for future
reference. It sets forth concisely the information about The Starburst Funds
and Government Income Fund that a prospective investor should know before
investing in Government Income Fund. This Prospectus/Proxy Statement is
accompanied by the Prospectus of Government Income Fund dated December 31,
1994, which is incorporated herein by reference. The Prospectus of Quality
Income Fund dated December 31, 1994, and the Statements of Additional
Information for Government Income Fund and Quality Income Fund, each dated
December 31, 1994 (relating to the Prospectus of Government Income Fund and
Quality Income Fund, respectively, of the same date) and March 20,1995
(relating to this Prospectus/Proxy Statement) containing additional
information have been filed with the Securities and Exchange Commission and
are incorporated herein by reference. Copies of the Statements of Additional
Information may be obtained without charge by writing or calling the Funds at
the address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF COMPASS BANK, COMPASS BANCSHARES, INC. OR ANY OF ITS
AFFILIATES, OR OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY COMPASS BANK,
COMPASS BANCSHARES, INC., OR ANY OF ITS AFFILIATES, OR 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 OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary................................................................ 11
Risk Factors........................................................... 17
Information About the
Reorganization......................................................... 18
Information About The Starburst Funds, The Starburst Funds II,
Government Income Fund, and Quality Income Fund........................ 25
Voting Information..................................................... 27
SUMMARY
About the Proposed Reorganization
The Board of Trustees of The Starburst Funds II has voted to
recommend to shareholders of Quality Income Fund, a portfolio of The Starburst
Funds II, the approval of a Plan whereby Government Income Fund, a portfolio
of The Starburst Funds, would acquire all of the assets of Quality Income Fund
in exchange for shares of Government Income Fund to be distributed pro rata by
Quality Income Fund to its shareholders in complete liquidation and
termination of Quality Income Fund (the "Reorganization"). As a result of the
Reorganization, each shareholder of Quality Income Fund will become the owner
of Government Income Fund shares having a total net asset value equal to the
total net asset value of his or her holdings in Quality Income Fund on the
date of the Reorganization, i.e., the Closing Date.
As a condition to the Reorganization transactions, The Starburst
Funds and The Starburst Funds II will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code so that no gain or loss will be
recognized by either the Government Income Fund or Quality Income Fund or
their shareholders. The tax cost basis of the Government Income Fund shares
received by Quality Income Fund shareholders will be the same as the tax cost
basis of their shares in Quality Income Fund.
After the acquisition is completed, Quality Income Fund will be
liquidated and The Starburst Funds II will be dissolved and deregistered.
The following discussion compares certain key aspects of the Funds.
<TABLE>
Summary of Portfolio Expenses
<CAPTION>
Quality Government Combined
Income Income Quality/Government
Shareholder Transaction Expenses Fund Fund Income Fund
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases 2.50% 2.50% 2.50%
(as a percentage of offering price)..................................
Maximum Sales Load Imposed on Reinvested Dividends None None None
(as a percentage of offering price)..................................
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)....................... None None None
Redemption Fees (as a percentage of amount redeemed, if applicable)... None None None
Exchange Fee.......................................................... None None None
Annual Fund Operating Expenses Quality Government Combined
(as a percentage of average net assets) Income Income Quality/Government
Fund Fund Income Fund
Management Fee (after waiver) (1) .................................... 0.00% 0.45% 0.46%
12b-1 Fee (after waiver) (2).......................................... 0.00% 0.25% 0.07%
Total Other Expenses (after waiver) (3)............................... 0.82% 0.50% 0.48%
Total Fund Operating Expenses (4)................................. 0.82% 1.20% 1.01%
(1) The management fee has been reduced to reflect the voluntary waiver
of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management
fee is 0.75% for both the Quality Income Fund and the Government
Income Fund.
(2) Under each Fund's Rule 12b-1 Distribution Plan, each Fund can pay
up to 0.25% as a 12b-1 fee. The 12b-1 fees for the Quality Income
Fund and the Combined Quality/Government Income Fund have been
reduced to reflect the voluntary waiver of compenstaion by the
distributor. The distributor intends to waive all 12b-1 fees
from the Combined Quality/Government Income Fund. The distributor
can terminate this waiver at any time at its sole discretion.
(3) Total Other Expenses for the Quality Income Fund would have been
1.04% absent the voluntary waiver by the administrator and
custodian. The administrator and custodian can terminate these
voluntary waivers at any time at their sole discretion.
(4) Total Fund Operating Expenses for the Quality Income Fund,
Government Income Fund, and Combined Qaulity/Government Income
Fund would have been 2.04%, 1.50%, and 1.48%, respectively, absent
the voluntary waivers described in notes (1), (2), and (3) above.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Funds will bear,
either directly or indirectly. For more complete descriptions of the
various costs and expenses, see the Prospectuses for the Quality Income
Fund and the Government Income Fund dated December 31, 1994, which are
incorporated by reference herein. Wire-transferred redmeptions
of less than $5,000 may be subject to additional fees.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming Quality Government Combined
(1) 5% annualreturn and (2) redemption at the end of each time period. Income Income Quality/Government
The Funds charge no redemption fees. Fund Fund Income Fund
1 Year.............................................................. $33 $37 $35
3 Years............................................................. $51 $62 $56
5 Years............................................................. $69 $89 $79
10 Years............................................................ $124 $167 $146
The above example should not be considered a representation
of past or future expenses. Actual expenses may be greater
or less than those shown.
</TABLE>
Investment Objectives, Policies, and Limitations
The investment objective of both Government Income Fund and Quality
Income Fund is current income.
Government Income Fund pursues its investment objective by investing
primarily in a portfolio of securities which are issued or guaranteed as to
payment of principal and interest by the U.S. government or U.S. government
agencies or instrumentalities. The Government Income Fund may also invest in
privately issued mortgage-related securities. Quality Income Fund pursues its
investment objective by investing primarily in a portfolio of high grade
securities, including (i) medium and long-term instruments rated A or better
by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Group ("S&P"), Fitch Investors Service, Inc. ("Fitch"), or Duff & Phelps,
Inc.; and (ii) short-term instruments having at least two high quality ratings
by nationally recognized rating services, which ratings would include A-1 or A-
2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch. Such
instruments include, but are not limited to, domestic issues of corporate debt
obligations, asset-backed securities, obligations of the United States, notes,
bonds, and discount notes, of U.S. government agencies or instrumentalities,
commercial paper, preferred stocks, bankers' acceptances, and American
Depository Receipts. Both Funds may enter into repurchase agreements, reverse
repurchase agreements and may purchase securities on a when-issued or delayed
delivery basis. Both Funds may purchase put and call options on their
portfolio securities and may purchase put options and write call options on
financial futures contracts.
Government Income Fund and Quality Income Fund are subject to
certain investment limitations. The investment limitations of the two funds
are substantially identical. These limitations include provisions that, in
effect, prohibit either fund from: selling any securities short or purchasing
any securities on margin; issuing senior securities, except that each fund may
borrow up to one-third of the value of its total assets; mortgaging, pledging,
or hypothecating any assets except to secure permitted borrowings; and lending
any of their respective assets, except portfolio securities up to one-third of
the value of their total assets or investing more than 15% of the value of
their respective net assets in illiquid securities.
Reference is hereby made to the Prospectuses and the Statements of
Additional Information of Government Income Fund and Quality Income Fund, all
dated December 31, 1994, which set forth in full the investment objectives,
policies and investment limitations of both funds and which are incorporated
by reference herein.
Distribution Arrangements
Federated Securities Corp. is the principal distributor for shares
of The Starburst Funds and The Starburst Funds II. Under distribution plans
adopted in accordance with Investment Company Act Rule 12b-1 (the "12b-1
Plan"), Government Income Fund and Quality Income Fund may each pay to
Federated Securities Corp. an amount computed at an annual rate of 0.25 of 1%
of each respective Fund's average daily net assets to finance any activity
which is principally intended to result in the sale of shares subject to the
12b-1 Plan. Currently, Quality Income Fund is not paying or accruing fees
under the 12b-1 Plan.
Advisory and Other Fees
Compass Bank, an Alabama banking corporation and a wholly-owned
subsidiary of Compass Bancshares, Inc., a Delaware corporation ("Bancshares"),
is the investment adviser (the "Adviser") to Government Income Fund and
Quality Income Fund. The Adviser is entitled to receive an annual investment
advisory fee equal to 0.75 of 1% of each Fund's average daily net assets. See
also the "Summary of Portfolio Expenses." The Adviser has undertaken to
reimburse each Fund, up to the amount of its advisory fee, for operating
expenses in excess of limitations established by certain states. The Adviser
may further voluntarily waive a portion of its fee or reimburse either Fund
for certain operating expenses. This agreement to waive fees or reimburse
expenses may be terminated by the Adviser at any time in its discretion.
Federated Administrative Services, a subsidiary of Federated
Investors, provides the Funds with certain administrative personnel and
services necessary to operate the Funds. The rate charged for such
administrative services is 0.15 of 1% of the first $250 million of average
aggregate daily net assets of The Starburst Funds or The Starburst Funds II,
0.125 of 1% on the next $250 million, 0.10 of 1% on the next $250 million and
0.075 of 1% of average aggregate daily net assets of The Starburst Funds or
The Starburst Funds II in excess of $750 million. The administrative fee
received during any fiscal year shall be at least $50,000 per fund. The
administrative fee expense for Government Income Fund's most recent fiscal
year was .14 of 1% of its average aggregate daily net assets. Government
Income Fund estimates that its administrative fee expense for the current
fiscal year will be .14 of 1% of its average aggregate daily net assets. The
administrative fee expense for Quality Income Fund's most recent fiscal year
was 0.0 of 1% of its average aggregate daily net assets and would have been
.14 of 1% of average daily net assets absent the voluntary waiver by the
administrator. Quality Income Fund estimates that its administrative fee
expense for the current fiscal year will be 0.0 of 1% of its average aggregate
daily net assets and would be .14 of 1% of average daily net assets absent the
voluntary waiver by the administrator.
The total annual operating expenses for Government Income Fund are expected to
be 1.04% of average daily net assets and would be 1.51% of average daily net
assets absent the voluntary waivers of the 12b-1 fee by the distributor and
the advisory fee. The total annual operating expenses for Quality Income Fund
are expected to be .85 of 1% of average daily net assets and would be 2.07% of
average daily net assets absent the voluntary waivers of the 12b-1 fee by the
distributor, the advisory fee, the administrative fee, and the custodial fee.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Funds sometimes
are referred to herein as "Compass".
Purchase, Redemption and Exchange Procedures
Procedures for the purchase and redemption of shares of Government
Income Fund are identical to procedures applicable to the purchase and
redemption of Quality Income Fund shares. For a complete description of the
purchase and redemption procedures applicable to purchases and redemptions of
shares, refer to the Prospectuses of the Funds dated December 31, 1994, which
are incorporated herein by reference. Any questions about such procedures may
be directed to, and assistance in effecting purchases, redemptions, or
exchanges of shares may be obtained from Compass Brokerage, Inc. at (205) 558-
5620 or 1-800-239-1930.
Shares of Government Income Fund and Quality Income Fund are sold on
all business days except on days on which the New York Stock Exchange is
closed and federal or state holidays restricting wire transfers. Shares are
sold at their net asset value next determined after an order is received, plus
a sales load. The net asset value is calculated at 4:00 p.m. (Eastern time)
on days shares are sold. Purchases of shares of either Fund may be made by
wire, by check, or direct debit from a Compass Bank account. Orders are
considered received after payment is converted into federal funds. The
minimum initial investment in each of the Funds is $1,000, except for an IRA
account, which requires a minimum initial investment of $500.
Redemption requests cannot be executed on days which the New York
Stock Exchange is closed and federal or state holidays restricting wire
transfers. Shares are redeemed at their net asset value next determined after
the redemption request is received. Proceeds will be distributed by wire or
check. Requests for redemption can be made by telephone or by mail through an
appropriate Compass representative as more particularly described in the above-
referenced Prospectuses.
Exchange Privileges
Shareholders of the Government Income Fund may exchange shares of Government
Income Fund for shares in The Starburst Municipal Income Fund, The Starburst
Government Money Market Fund, The Starburst Money Market Fund, The Starburst
Quality Income Fund, and any other portfolio of The Starburst Funds or The
Starburst Funds II. Shareholders of the Quality Income Fund may exchange
shares of Quality Income Fund for shares in The Starburst Government Income
Fund, The Starburst Government Money Market Fund, The Starburst Money Market
Fund, The Starburst Municipal Income Fund and any other portfolio of The
Starburst Funds or The Starburst Funds II. Shares of funds with a sales load
may be exchanged at net asset value for shares of other funds with an equal
sales load or no sales load. Shares of funds with no sales load acquired by
direct purchase or reinvestment of dividends on such shares may be exchanged
for shares of funds with a sales load at net asset value, plus the applicable
sales load imposed by the fund shares being purchased. Shareholders who
exercise this exchange privilege must exchange shares having a net asset value
of at least $1,000.
Tax Consequences
As a condition to the Reorganization transactions, The Starburst
Funds and The Starburst Funds II will receive an opinion of counsel that the
Reorganization will be considered a tax-free "reorganization" under applicable
provisions of the Internal Revenue Code so that no gain or loss will be
recognized by either the Government Income Fund or the Quality Income Fund or
their respective shareholders. The tax cost basis of Government Income Fund
shares received by Quality Income Fund shareholders will be the same as the
tax cost basis of their shares in Quality Income Fund.
RISK FACTORS
Investment in Government Income Fund is subject to certain risks
which are set forth in its Prospectus dated December 31, 1994, and its
Statement of Additional Information dated December 31, 1994 and incorporated
herein by reference thereto. Briefly, these risks include, but are not
limited to, fluctuation of the value of shares of Government Income Fund, the
ability of the issuers of securities owned by Government Income Fund to meet
their obligations for the payment of principal and interest when due,
unanticipated pre-payment of mortgages, uncertainty that a secondary market
for options or for positions in futures contracts will exist at all times, and
imperfect correlation between financial futures and options on financial
futures with the prices of the securities subject to the futures contracts
which could cause a futures contract and any related options to react
differently than the portfolio securities to market changes. Investment in
Quality Income Fund carries risks of a substantially similar nature, as more
fully described in its Prospectus dated December 31, 1994 and in its Statement
of Additional Information dated December 31, 1994.
INFORMATION ABOUT THE REORGANIZATION_
Background and Reasons for the Proposed Reorganization
Quality Income Fund was organized in 1990 in order to provide an
investment vehicle that pursues current income. Although the Board is
satisfied with Quality Income Fund's performance, both the Board and the
Adviser are concerned about the relatively small amount of total assets
invested in Quality Income Fund and the relatively high level of operating
expenses sustained by Quality Income Fund. In this setting, the Adviser and
the distributor proposed to representatives of Quality Income Fund that the
Board consider a sale of all of the Quality Income Fund's assets to Government
Income Fund. In connection with this proposal, the Adviser and the
distributor emphasized that the comparatively larger asset projections of
Government Income Fund, combined with Quality Income Fund, would enable
shareholders of Quality Income Fund to benefit from increased diversification
of investments and other economies of scale. The Board of Trustees of The
Starburst Funds II and the Adviser have concluded that economies of scale, and
potentially lower expense ratios, could be realized by transferring the assets
of Quality Income Fund into Government Income Fund. The Trustees also noted
that shareholders of Quality Income Fund would continue to receive the same
quality investment management services from the Adviser as shareholders of
Government Income Fund.
The Trustees of The Starburst Funds and The Starburst Funds II,
including the independent Trustees, have unanimously concluded that
consummation of the Reorganization is in the best interests of The Starburst
Funds and The Starburst Funds II and the shareholders of Government Income
Fund and Quality Income Fund and that the interests of Government Income Fund
and Quality Income Fund shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Plan.
Description of the Plan of Reorganization
The Plan provides that on or about May 12, 1995 (the "Closing Date")
Government Income Fund will acquire all of the assets of Quality Income Fund
in exchange for Government Income Fund shares to be distributed pro rata by
Quality Income Fund to its shareholders in complete liquidation and
termination of Quality Income Fund. Shareholders of Quality Income Fund will
become shareholders of Government Income Fund as of 4:00 p.m. (Eastern time)
on the Closing Date and will begin accruing dividends on the next day. Shares
of Government Income Fund received by Quality Income Fund shareholders in
connection with the acquisition of the assets of Quality Income Fund will not
be subject to a sales load. Shareholders of Quality Income Fund will earn
their last dividend from Quality Income Fund on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to The Starburst Funds and The Starburst Funds II, as described
under the caption "Federal Income Tax Consequences" below. The Plan may be
terminated and the Reorganization may be abandoned at any time before or after
approval by shareholders of Quality Income Fund prior to the Closing Date by
either The Starburst Funds or The Starburst Funds II if either believes that
consummation of the Reorganization would not be in the best interests of its
shareholders.
The Adviser is responsible for the payment of all expenses of the
Reorganization incurred by either Fund, whether or not the Reorganization is
consummated. Such expenses include, but are not limited to, legal fees,
registration fees, transfer taxes (if any), the fees of banks and transfer
agents and the costs of preparing, printing, copying and mailing proxy
solicitation materials to shareholders of Quality Income Fund and the costs of
holding the Special Meeting of Shareholders.
The foregoing brief summary of the Plan entered into between Quality
Income Fund and Government Income Fund is qualified in its entirety by the
terms and provisions of the Plan, a copy of which is attached hereto as
Exhibit A and incorporated herein by reference.
Description of Government Income Fund Shares
Shares of Government Income Fund to be issued to shareholders of
Quality Income Fund under the Plan will be fully paid and nonassessable when
issued and transferable without restriction and will have no preemptive or
conversion rights. Reference is hereby made to the Prospectus of the
Government Income Fund dated December 31, 1994 provided herewith for
additional information about Government Income Fund shares.
Federal Income Tax Consequences
As a condition to the Reorganization transactions, The Starburst
Funds and The Starburst Funds II will receive an opinion from Dickstein,
Shapiro & Morin, L.L.P., counsel to The Starburst Funds and The Starburst
Funds II, to the effect that, on the basis of the existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), current administrative
rules and court decisions, for federal income tax purposes: (1) the
Reorganization as set forth in the Plan will constitute a tax-free
reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss
will be recognized by Government Income Fund upon its receipt of Quality
Income Fund's assets solely in exchange for Government Income Fund shares; (3)
no gain or loss will be recognized by Quality Income Fund upon the transfer of
its assets to Government Income Fund in exchange for Government Income Fund
shares or upon the distribution (whether actual or constructive) of Government
Income Fund shares to Quality Income Fund shareholders in exchange for their
shares of Quality Income Fund; (4) no gain or loss will be recognized by
shareholders of Quality Income Fund upon the exchange of their Quality Income
Fund shares for Government Income Fund shares; (5) the tax basis of Quality
Income Fund's assets acquired by Government Income Fund will be the same as
the tax basis of such assets to Quality Income Fund immediately prior to the
Reorganization; (6) the tax basis of Government Income Fund shares received by
each shareholder of Quality Income Fund pursuant to the Plan will be the same
as the tax basis of Quality Income Fund shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the assets
of Quality Income Fund in the hands of Government Income Fund will include the
period during which those assets were held by Quality Income Fund; and (8) the
holding period of Government Income Fund shares received by each shareholder
of Quality Income Fund pursuant to the Plan will include the period during
which the Quality Income Fund shares exchanged therefor were held by such
shareholder, provided the Quality Income Fund shares were held as capital
assets on the date of the Reorganization.
Comparative Information on Shareholder Rights and Obligations
The Starburst Funds and The Starburst Funds II are organized as
business trusts pursuant to Declarations of Trust under the laws of the
Commonwealth of Massachusetts. The rights of shareholders of Quality Income
Fund and Government Income Fund as set forth in their respective Declarations
of Trust are substantially identical. Set forth below is a brief summary of
the significant rights of shareholders of Quality Income Fund and Government
Income Fund.
Neither Fund is required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or
the election of trustees under certain circumstances. A special meeting of
shareholders of either fund for any permissible purpose is required to be
called by the Trustees upon the written request of the holders of at least 10%
of the outstanding shares of the relevant Fund.
Under certain circumstances, shareholders of Quality Income Fund,
Government Income Fund, or any other portfolio of The Starburst Funds may be
held personally liable as partners under Massachusetts law for obligations of
The Starburst Funds or The Starburst Funds II, as the case may be. To protect
shareholders of all portfolios of The Starburst Funds and The Starburst Funds
II, The Starburst Funds and The Starburst Funds II have filed legal documents
with the Commonwealth of Massachusetts that expressly disclaim the liability
of shareholders of portfolios of The Starburst Funds and The Starburst Funds
II for such acts or obligations of the The Starburst Funds and The Starburst
Funds II. These documents require that notice of this disclaimer be given in
each agreement, obligation or instrument that The Starburst Funds and The
Starburst Funds II or their trustees enter into or sign on behalf of the The
Starburst Funds and The Starburst Funds II.
In the unlikely event a shareholder of a portfolio of The Starburst
Funds or The Starburst Funds II is held personally liable for obligations of
The Starburst Funds or The Starburst Funds II, The Starburst Funds and The
Starburst Funds II are required to use their property to protect or compensate
the shareholder. On request, The Starburst Funds and The Starburst Funds II
will defend any claims made and pay any judgment against a shareholder of a
portfolio of The Starburst Funds and The Starburst Funds II for any act or
obligation of The Starburst Funds and The Starburst Funds II. Therefore,
financial loss resulting from liability as a shareholder of a portfolio of The
Starburst Funds and The Starburst Funds II will occur only if The Starburst
Funds or The Starburst Funds II cannot meet their obligations to indemnify
shareholders and pay judgments against them from the assets of The Starburst
Funds or The Starburst Funds II.
Capitalization
The following table sets forth the capitalization of Quality Income Fund and
Government Income Fund as of October 31, 1994, and on a pro forma basis as of
that date:
Quality
Government Income Income Pro Forma
Fund Fund Combined
Net Assets $58,827,415 $19,513,284 $78,340,699
Price Per Share $9.54 $9.29 $9.54
INFORMATION ABOUT THE STARBURST FUNDS, THE STARBURST FUNDS II, GOVERNMENT
INCOME FUND, AND QUALITY INCOME FUND
Information about The Starburst Funds, The Starburst Funds II,
Government Income Fund, and Quality Income Fund is contained in their
respective Prospectuses dated December 31, 1994, which are incorporated by
reference herein. A copy of the Prospectus for Government Income Fund is
included herewith. Additional information about The Starburst Funds and
Government Income Fund is included in the Statements of Additional Information
of Government Income Fund dated December 31, 1994 (relating to the Prospectus
of Government Income Fund of the same date), and March 20, 1995 (relating to
this Prospectus/Proxy Statement) which are incorporated herein by reference.
Additional information about The Starburst Funds II and Quality Income Fund is
included in the Statement of Additional Information of Quality Income Fund
dated December 31, 1994, which is incorporated herein by reference. Copies of
the Statements of Additional Information, which have been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without charge
by contacting either The Starburst Funds or The Starburst Funds II at 1-800-
239-1930 or by writing to either The Starburst Funds or The Starburst Funds II
at Federated Investors Tower, Pittsburgh, PA 15222-3779.
The Starburst Funds and The Starburst Funds II, on behalf of the
Funds, are subject to the informational requirements of the Securities Act of
1933 (the "1933 Act"), the Securities Exchange Act of 1934 (the "1934 Act")
and the Investment Company Act of 1940 (the "1940 Act") and in accordance
therewith file reports and other information with the SEC. Reports, proxy and
information statements and other information filed by the The Starburst Funds
or The Starburst Funds II, on behalf of the Funds, can be obtained by calling
or writing to the The Starburst Funds or The Starburst Funds II and can also
be inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at certain of its regional offices
located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, IL 60621 and 13th Floor, Seven World Trade Center, New York, NY
10048. Copies of such material also may be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus/Proxy Statement and the related Statement of
Additional Information do not contain all of the information set forth in the
registration statement that The Starburst Funds have filed with the SEC under
the 1933 Act to which reference is hereby made. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference
to the copy of the applicable documents filed with the SEC. The SEC file
number for The Starburst Funds' prospectuses and related Statements of
Additional Information which are incorporated by reference herein is
Registration No. 33-30950. The SEC file number for Prospectuses and related
Statements of Additional Information for The Starburst Funds II which are
incorporated by reference herein is Registration No. 33-35473.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of Quality Income Fund of proxies for
use at the Special Meeting of Shareholders (the "Meeting") to be held on May
12, 1995 and at any adjournment thereof. The proxy confers discretionary
authority on the persons designated therein to vote on other business not
currently contemplated which may properly come before the Meeting. A proxy,
if properly executed, duly returned and not revoked, will be voted in
accordance with the specifications thereon; if no instructions are given, such
proxy will be voted in favor of the Plan. A shareholder may revoke a proxy at
any time prior to use by filing with the Secretary of The Starburst Funds II
an instrument revoking the proxy, by submitting a proxy bearing a later date
or by attending and voting at the Meeting.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Adviser. In addition to solicitations
through the mails, proxies may be solicited by officers, employees and agents
of The Starburst Funds II and the Adviser at no additional cost to The
Starburst Funds II. Such solicitations may be made by telephone. The Adviser
will reimburse custodians, nominees and fiduciaries for the reasonable costs
incurred by them in connection with forwarding solicitation materials to the
beneficial owners of shares held of record by such persons.
Outstanding Shares and Voting Requirements
The Board of Trustees has fixed the close of business on March 16,
1995 as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting of Shareholders and any
adjournment thereof. As of the record date, there were ____ shares of Quality
Income Fund outstanding. Each Quality Income Fund share is entitled to one
vote and fractional shares have proportionate voting rights. On the record
date, ___ owned of record ___ shares, or ___% of The Quality Income Fund's
outstanding shares. On such date, no other person owned of record, or to the
knowledge of the Adviser, beneficially owned, 5% or more of Quality Income
Fund's outstanding shares. On the record date, the trustees and officers of
The Starburst Funds II as a group owned less than 1% of the outstanding shares
of Quality Income Fund.
The votes of the shareholders of Government Income Fund are not
being solicited, since their approval or consent is not necessary for approval
of the Reorganization. As of the record date, there were ____ shares of
Government Income Fund outstanding. On the record date, ___ owned of record
___ shares, or ___% of the Government Income Fund's outstanding shares. On
such date, no other person owned of record, or to the knowledge of the
Adviser, beneficially owned, 5% or more of Government Income Fund's
outstanding shares.
Approval of the Plan requires the affirmative vote of the majority
of Quality Income Fund's outstanding shares. The votes of shareholders of
Government Income Fund are not being solicited since their approval is not
required in order to effect the Reorganization.
A majority of the outstanding shares of Quality Income Fund,
represented in person or by proxy, will be required to constitute a quorum at
the Special Meeting for the purpose of voting on the proposed Reorganization.
For purposes of determining the presence of a quorum, shares represented by
abstentions and "broker non-votes" will be counted as present, but not as
votes cast, at the Special Meeting. Under the Declaration of Trust, the
approval of any action submitted to shareholders is determined on the basis of
a majority of votes entitled to be cast at the Special Meeting.
Dissenter's Right of Appraisal
Shareholders of Quality Income Fund objecting to the Reorganization
have no appraisal or dissenter's rights under the Declaration of Trust or
Massachusetts law. Under the Plan, if approved by Quality Income Fund
shareholders, each Quality Income Fund shareholder will become the owner of
Government Income Fund shares having a total net asset value equal to the
total net asset value of his or her holdings in Quality Income Fund at the
Closing Date.
Other Matters
Management of Quality Income Fund knows of no other matters that may
properly be, or which are likely to be, brought before the meeting. However,
if any other business shall properly come before the meeting, the persons
named in the proxy intend to vote thereon in accordance with their best
judgment.
So far as management is presently informed, there is no litigation
pending or threatened against The Starburst Funds II.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated February 3, 1995 (the
"Agreement"), between THE STARBURST FUNDS, a Massachusetts business trust, on
behalf of The Starburst Government Income Fund (hereinafter called the
"Acquiring Fund"), and THE STARBURST FUNDS II, a Massachusetts business trust,
on behalf of The Starburst Quality Income Fund (hereinafter called the
"Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of
the assets of the Acquired Fund in exchange solely for shares of beneficial
interest of the Acquiring Fund (the "Acquiring Fund Shares") and the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered
open-end management investment companies and the Acquired Fund owns securities
in which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue their shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined under the Investment Company Act
of 1940, as amended (the "1940 Act")), of the Acquiring Fund has determined
that the exchange of all of the assets of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquiring Fund shareholders and that
the interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the Trustees
who are not "interested persons" (as defined under the 1940 Act), of the
Acquired Fund has determined that the exchange of all of the assets of the
Acquired Fund for Acquiring Fund Shares is in the best interests of the
Acquired Fund shareholders and that the interests of the existing shareholders
of the Acquired Fund would not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund all
of the assets of the Acquired Fund, including all securities and cash, and the
Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired Fund
the number of Acquiring Fund Shares, including fractional Acquiring Fund
Shares, determined as set forth in paragraph 2.3. Such transaction shall take
place at the closing (the "Closing") on the closing date (the "Closing Date")
provided for in paragraph 3.1 In lieu of delivering certificates for the
Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund
Shares to the Acquired Fund's account on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to Compass Bank,
Birmingham, Alabama, the Acquiring Fund's custodian (the "Custodian"), for the
account of the Acquiring Fund, together with proper instructions and all
necessary documents to transfer to the account of the Acquiring Fund, free and
clear of all liens, encumbrances, rights, restrictions and claims. All cash
delivered shall be in the form of currency and immediately available funds
payable to the order of the Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund hereunder. The Acquired
Fund will transfer to the Acquiring Fund any distributions, rights or other
assets received by the Acquired Fund after the Closing Date as distributions
on or with respect to the securities transferred. Such assets shall be deemed
included in assets transferred to the Acquiring Fund on the Closing Date and
shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to the Acquired Fund's shareholders of record, determined as of the close
of business on the Closing Date (the "Acquired Fund Shareholders"), the
Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph 1.1.
Such liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
books of the Acquiring Fund to open accounts on the share record books of the
Acquiring Fund in the names of the Acquired Fund Shareholders and representing
the respective pro rata number of the Acquiring Fund Shares due such
shareholders. All issued and outstanding shares of the Acquired Fund will
simultaneously be canceled on the books of the Acquired Fund. Share
certificates representing interests in the Acquired Fund will represent a
number of Acquiring Fund Shares after the Closing Date as determined in
accordance with Section 2.3. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates, with respect to liquidation and termination of the
Acquired Fund, on which the Acquired Fund is liquidated and terminated.
2. VALUATION
2.1 The value of the Acquired Fund's net assets to be acquired by
the Acquiring Fund hereunder shall be the value of such assets computed as of
4:00 p.m. (Eastern time) on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Acquiring Fund's then-current prospectus or statement of
additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of 4:00 p.m. (Eastern time) on the
Valuation Date, using the valuation procedures set forth in the Acquiring
Fund's then-current prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in paragraph
2.1 by the net asset value of one Acquiring Fund Share determined in
accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be May 12, 1995 or such later date as
the parties may mutually agree. All acts taking place at the Closing Date
shall be deemed to take place simultaneously as of the close of business on
the Closing Date unless otherwise provided. The Closing shall be held at 4:00
p.m. (Eastern time) at the offices of the Acquiring Fund, Federated Investors
Tower, Pittsburgh, PA 15222-3779, or such other time and/or place as the
parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading or
the reporting of trading shall be disrupted so that accurate appraisal of the
value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 Federated Services Company, as transfer agent for each of the
Acquired Fund and Acquiring Fund, shall deliver at the Closing a certificate
of an authorized officer stating that its records contain the names and
addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding shares owned by each such shareholder immediately
prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the
Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, assumption agreements, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Starburst Funds II represents and warrants to The Starburst
Funds as follows:
(a) The Starburst Funds II is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has power to own all of its properties and
assets and to carry out this Agreement.
(b) The Starburst Funds II is registered under the 1940 Act,
as an open-end, management investment company, and such registration has not
been revoked or rescinded and is in full force and effect.
(c) The Starburst Funds II is not, and the execution,
delivery and performance of this Agreement will not result, in material
violation of its Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently pending
or to its knowledge threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Acquired Fund knows of no facts which might form the basis for the institution
of such proceedings, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the
transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein as necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the Acquired
Fund at October 31, 1993 and 1994 have been audited by Deloitte & Touche LLP,
independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such dates not
disclosed therein.
(h) Since October 31, 1994, there has not been any material
adverse change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund.
(i) At the Closing Date, all Federal and other tax returns
and reports of the Acquired Fund required by law to have been filed by such
date shall have been filed, and all Federal and other taxes shall have been
paid so far as due, or provision shall have been made for the payment thereof,
and to the best of the Acquired Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Acquired Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. All of the issued and outstanding shares of
the Acquired Fund will, at the time of the Closing, be held by the persons and
in the amounts set forth in the records of the transfer agent as provided in
paragraph 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired Fund
shares, nor is there outstanding any security convertible into any of the
Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full
right, power and authority to sell, assign, transfer and deliver the assets to
be transferred by it hereunder.
(m) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action on the part of the Trustees of The Starburst Funds II and, subject to
the approval of the Acquired Fund Shareholders, this Agreement will constitute
the valid and legally binding obligation of the Acquired Fund enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration Statement
referred to in paragraph 5.5 (other than information therein that relates to
the Acquiring Fund) will, on the effective date of the Registration Statement
and on the Closing Date, not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements were made, not misleading.
(o) Compass Bank has agreed to assume the expense of the
reorganization including accountants' fees, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the costs
of preparing, printing, copying and mailing proxy solicitation materials to
the Acquiring Fund's shareholders and the costs of holding the Special Meeting
of Shareholders.
4.2 The Starburst Funds represents and warrants to The Starburst
Funds II as follows:
(a) The Starburst Funds is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and the Acquiring Fund has the power to carry on its business as
it is now being conducted and to carry out this Agreement.
(b) The Starburst Funds is registered under the 1940 Act as
an open-end, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Starburst Funds is not, and the execution, delivery
and performance of this Agreement will not result, in material violation of
its Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring Fund
is a party or by which it is bound.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently pending
or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business. The
Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings, and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to
consummate the transactions contemplated herein.
(f) The Statement of Assets and Liabilities of the Acquiring
Fund at October 31, 1994, have been audited by Deloitte & Touche LLP,
independent auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such date.
(g) Since October 31, 1994, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness, except
as otherwise disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax returns
and reports of the Acquiring Fund required by law then to be filed shall have
been filed, and all Federal and other taxes shown as due on said returns and
reports shall have been paid or provision shall have been made for the payment
thereof.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(j) All issued and outstanding shares of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have outstanding
any options, warrants or other right to subscribe for or purchase any of the
Acquiring Fund Shares, nor is there outstanding any security convertible into
any Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of The Starburst Funds' Trustees, and this
Agreement will constitute the valid and legally binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other similar laws relating to or affecting creditors' rights generally
and court decisions with respect thereto, and to general principles of equity
and the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
(m) The Acquiring Fund has entered into an agreement under
which Compass Bank will assume the expenses of the reorganization including
accountants' fees, legal fees, registration fees, transfer taxes (if any), the
fees of banks and transfer agents and the costs of preparing, printing,
copying and mailing proxy solicitation materials to the Acquired Fund's
shareholders and the costs of holding the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include
customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement of
the earnings and profits of the Acquired Fund for Federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code and which will be certified by the Acquired Fund's President and its
Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in paragraph
4.1(n), all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in
connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state Blue Sky or securities laws as it may deem appropriate
in order to continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of The Starburst Funds II
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the Acquired
Fund's portfolio securities showing the tax costs of such securities by lot
and the holding periods of such securities, as of the Closing Date, certified
by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on
the Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund, to the effect that the representations and
warranties of the Acquired Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquiring
Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of The Starburst Funds
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on
the Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Acquired Fund, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquired Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the Acquired
Fund's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities)
deemed necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Acquired Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 The Starburst Funds and The Starburst Funds II shall have
received an opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the
effect that for Federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets in
exchange for the Acquiring Fund Shares and the distribution of the Acquiring
Fund Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code; (b) No gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Acquired Fund solely in
exchange for the Acquiring Fund Shares; (c) No gain or loss will be recognized
by the Acquired Fund upon the transfer of the Acquired Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
Acquired Fund Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund Shares;
(e) The tax basis of the Acquired Fund assets acquired by the Acquiring Fund
will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization; (f) The tax basis of the Acquiring
Fund Shares received by each of the Acquired Fund Shareholders pursuant to the
Reorganization will be the same as the tax basis of the Acquired Fund shares
held by such shareholder immediately prior to the Reorganization; (g) The
holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held by
the Acquired Fund; and (h) The holding period of the Acquiring Fund Shares to
be received by each Acquired Fund Shareholder will include the period during
which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided the Acquired Fund shares were held as capital assets on
the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the
Acquired Fund or the Acquiring Fund at any time prior to the Closing Date (and
notwithstanding any vote of the Board of Trustees of the Acquired Fund) if
circumstances should develop that, in the opinion of either of the parties'
Board of Trustees, make proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on the
part of any party hereto or the trustees, officers or shareholders of the
Acquiring Fund or of the Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Board of Trustees of the Acquiring Fund or of
the Acquired Fund, if, in the judgment of either, such waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the Acquiring Fund or of the Acquired Fund, as the case may
be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and understandings of
every kind and nature between them relating to the subject matter hereof.
Neither party shall be bound by any condition, definition, warranty or
representation, other than as set forth or provided in this Agreement or as
may be set forth in a later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of Trust
of the Acquiring Fund and agrees that the obligations assumed by the Acquiring
Fund pursuant to this Agreement shall be limited in any case to the Acquiring
Fund and its assets and the Acquired Fund shall not seek satisfaction of any
such obligation from the shareholders of the Acquiring Fund, the trustees,
officers, employees or agents of the Acquiring Fund or any of them.
11.7 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of Trust
of the Acquired Fund and agrees that the obligations assumed by the Acquired
Fund pursuant to this Agreement shall be limited in any case to the Acquired
Fund and its assets and the Acquiring Fund shall not seek satisfaction of any
such obligation from the shareholders of the Acquired Fund, the trustees,
officers, employees or agents of the Acquired Fund or any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have
caused this Agreement and Plan of Reorganization to be executed and attested
on its behalf by its duly authorized representatives as of the date first
above written.
Acquired Fund:
THE STARBURST FUNDS II, on behalf of
its
Portfolio,
THE STARBURST QUALITY INCOME FUND
Attest:
By:/s/Jeffrey W. Sterling
/s/C. Grant Anderson
Assistant Secretary Name:Jeffrey W. Sterling
Title:Vice President
Acquiring Fund:
THE STARBURST FUNDS, on behalf of its
Portfolio,
THE STARBURST GOVERNMENT INCOME FUND
Attest:
By: /s/Jeffrey W. Sterling
/s/C. Grant Anderson
Assistant Secretary Name:Jeffrey W. Sterling
Title: Vice President
STATEMENT OF ADDITIONAL INFORMATION
March 20, 1995
Acquisition of the assets of
THE STARBURST QUALITY INCOME FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
By and in exchange for shares of
THE STARBURST GOVERNMENT INCOME FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-245-5000
This Statement of Additional Information dated March 20, 1995 is not a
prospectus. A Prospectus/Proxy Statement dated March 20, 1995 related to the
above-referenced matter may be obtained from The Starburst Funds on behalf of
its portfolio, The Starburst Government Income Fund, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional
Information should be read in conjunction with such Prospectus/Proxy
Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of The Starburst Government Income
Fund, dated December 31, 1994
2. Statement of Additional Information of The Starburst Quality Income
Fund, dated December 31, 1994
3. Financial Statements of The Starburst Government Income Fund, dated
October 31, 1994
4. Financial Statements of The Starburst Quality Income Fund dated October
31, 1994
5. Pro Forma Financial Statements
The Statement of Additional Information of The Starburst Government
Income Fund dated December 31, 1994, is incorporated herein by reference to
Post-Effective Amendment No. 20 to The Starburst Funds' Registration Statement
on Form N-1A (File No. 33-30950) which was filed with the Securities and
Exchange Commission on or about December 27, 1994.
The Statement of Additional Information of The Starburst Quality
Income Fund dated December 31, 1994, is incorporated herein by reference to
Post-Effective Amendment No.8 to the Registration Statement of The Starburst
Funds II on Form N-1A (File No. 33-35473) which was filed with the Securities
and Exchange Commission on or about December 28, 1994. A copy may be obtained
from The Starburst Funds II at Federated Investors Tower, Pittsburgh, PA 15222-
3779. Telephone Number: 1-800-239-1930.
The financial statements of The Starburst Government Income Fund and
The Starburst Quality Income Fund dated October 31, 1994 are incorporated
herein by reference to their respective Prospectuses dated October 31, 1994,
and filed with the Securities and Exchange Commission on or about December 31,
1995.
THE STARBURST GOVERNMENT INCOME FUND
THE STARBURST QUALITY INCOME FUND
Introduction to Proposed Fund Merger
October 31, 1994 (unaudited)
The accompanying unaudited Pro Forma Combining Portfolio of Investments,
Statement of Assets and Liabilities and the Statement of Operations reflect
the accounts of The Starburst Quality Income Fund and The Starburst Government
Income Fund (the "Funds") at and for the year ended October 31, 1994. These
statements have been derived from the Funds' books and records utilized in
calculating daily net asset value at October 31, 1994.
<TABLE>
<CAPTION>
The Starburst Government Income Fund
The Starburst Quality Income Fund
Pro Forma Combining Schedule of Portfolio of Investments
October 31, 1994 (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Value
The The The Starburst The Starburst
Starburst Starburst Pro Forma Quality Government Pro Forma
Quality Government
Income Fund Income Fund Combined Income Fund Income Fund Combined
Long-Term Investments - 93.1%
Corporate Bonds - 10.1%
Banking - 1.3%
$1,000,000 $1,000,000 Republic New York Corp., 8.875%, 2/15/2001 $1,039,170 $1,039,170
Financial - 2.9%
800,000 800,000 Associates Corp. North America, 5.25%, 9/1/98 736,424 736,424
800,000 800,000 Ford Capital BV, 9.375%, 1/1/98 835,160 835,160
800,000 800,000 International Lease Finance Co., 5.75%, 7/1/98 748,112 748,112
Total 2,319,696 2,319,696
Industrial - 5.9%
1,000,000 1,000,000 American Brands, Inc., 7.50%, 5/15/99 986,560 986,560
900,000 900,000 Atlantic Richfield Co., 10.375%, 7/15/95 925,173 925,173
800,000 800,000 IBM Corp., 6.375%, 6/15/2000 738,072 738,072
900,000 900,000 Kimberly-Clark Corp., 9.75%, 6/15/95 915,469 915,469
1,000,000 1,000,000 Phillip Morris Cos., Inc., 8.90%, 7/15/98 1,033,220 1,033,220
Total 4,598,494 4,598,494
Total Corporate Bonds (identified cost
$8,091,439) 7,957,360 7,957,360
U.S. Government Agency Obligations - 81.4%
Federal Farm Credit Bank - 6.4%
$5,000,000 5,000,000 5.16%, 5/1/95 $4,987,350 4,987,350
Federal Home Loan Mortgage Corp. - 2.4%
1,014,174 1,014,174 8.25%, 10/1/2001, Pool #220015 1,021,760 1,021,760
288,018 288,018 8.50%, 1/1/2009, Pool #183201 287,744 287,744
220,186 220,186 9.25%, 9/1/2008, Pool #251941 225,068 225,068
140,079 140,079 9.50%, 2/1/2002, Pool #215829 144,148 144,148
163,312 163,312 9.50%, 7/1/2002, Pool #218152 168,056 168,056
Total 1,846,776 1,846,776
Federal Home Loan Mortgage Corp.-REMIC - 1.4%
214,949 214,949 8.00%, 7/15/2013 214,754 214,754
732,334 732,334 8.40%, 1/15/2005 739,028 739,028
129,972 129,972 9.30%, 10/15/2019, Series 65, Class D 132,027 132,027
Total 132,027 953,782 1,085,809
Federal National Mortgage Association - 13.9%
$5,000,000 $5,000,000 5.25%, 6/30/95 $4,975,000 $4,975,000
$6,000,000 6,000,000* 5.35%, 1/20/95, Discount Note $5,935,560 5,935,560
Total 5,935,560 4,975,000 10,910,560
Federal National Mortgage Association-
REMIC - 7.9%
250,000 250,000 6.00%, 6/25/2014, Series 1992-125, Class D 246,303 246,303
139,432 139,432 8.75%, 6/25/2004 139,244 139,244
1,044,103 1,044,103 8.75%, 12/25/2004 1,056,924 1,056,924
383,066 383,066 8.90%, 6/25/96 383,767 383,767
3,000,000 3,000,000 9.10%, 7/25/2018 3,058,890 3,058,890
240,746 240,746 9.15%, 9/25/2018, Series 1989-33, Class D 245,949 245,949
1,000,000 1,000,000 9.40%, 8/25/2018 1,025,570 1,025,570
Total 492,252 5,664,395 6,156,647
Government National Mortgage Association - 0.2%
161,820 161,820 9.00%, 5/15/2001, Pool #145649 168,239 168,239
Student Loan Marketing Association - 13.7%
4,000,000 4,000,000+ 5.56%, 11/1/94 4,018,440 4,018,440
5,695,000 5,695,000+ 5.61%, 11/1/94 5,720,798 5,720,798
1,000,000 1,000,000+ 6.525%, 5/23/95 999,530 999,530
Total 10,738,768 10,738,768
U.S. Treasury Bond - 21.3%
15,000,000 15,000,000 9.375%, 2/15/2006 16,694,850 16,694,850
U.S. Treasury Note - 14.2%
11,000,000 11,000,000 8.50%, 5/15/95 11,161,150 11,161,150
Total U.S. Government Agency Obligations
(identified cost $66,739,677) 8,574,854 55,175,295 63,750,149
Collateralized Mortgage Obligations - 1.6%
221,796 221,796 Collateralized Mortgage Obligation Trust, Series 51,
Class A, 9.10%, 11/20/2019 221,936 221,936
1,000,000 1,000,000 Merrill Lynch Collateralized Mortgage Obligation,
9.50%, 11/20/2000 1,026,200 1,026,200
Total Collateralized Mortgage Obligations
(identified cost $1,306,852) 221,936 1,026,200 1,248,136
Total Long-Term Investments
(identified cost $76,137,968) 16,754,150 56,201,495 72,955,645
Short-Term Investments - 13.2%
* Commercial Paper - 1.3%
Finance Services - 1.3%
$1,000,000 $1,000,000 Xerox Credit Corp., 4.81%, 11/7/94 $999,198 $999,198
** Repurchase Agreements - 11.9%
800,000 800,000 First Chicago Capital Markets, Inc.,
4.77%, dated 10/31/94, due 11/1/94 800,000 800,000
4,333,000 $1,777,000 6,110,000 Fuji Securities, Inc., 4.77%, dated
10/31/94, due 11/1/94 4,333,000 $1,777,000 6,110,000
800,000 800,000 Harris Government Securities, Inc., 4.45%,
dated 10/31/94, due 11/1/94 800,000 800,000
800,000 800,000 HSBC Securities, Inc., 4.25%, dated
10/31/94, due 11/1/94 800,000 800,000
800,000 800,000 Merrill Lynch & Co., Inc., 4.55%, dated
10/31/94, due 11/1/94 800,000 800,000
Total Repurchase Agreements 7,533,000 1,777,000 9,310,000
Total Short-Term Investments,
at amortized cost 8,532,198 1,777,000 10,309,198
Total Investments (identified cost
$86,447,166) $25,286,348 $57,978,495 $83,264,843++
* Each issue shows the rate of discount at the time of purchase.
** Repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the
date of the portfolio.
+ Denotes variable rate and floating rate obligations for which the
current rate and next reset date are shown.
++ The cost of investments for federal tax purposes amounts to $86,447,166.
The net unrealized depreciation of investments on a federal tax basis
amounts to $3,182,323, which is comprised
of $6,893 appreciation and $3,189,216 depreciation, at October 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($78,340,699) at October 31, 1994.
The following abbreviation is used in this portfolio:
REMIC - Real Estate Mortgage Investment Conduit
</TABLE>
<TABLE>
<CAPTION>
The Starburst Government Income Fund
The Starburst Quality Income Fund
Pro Forma Combining Statement of
Assets and Liabilities
October 31, 1994 (unaudited)
<S> <C> <C> <C> <C>
The Starburst The Starburst
Quality Government Pro Forma Pro Forma
Income Fund Income Fund Adjustments Combined
Assets:
Investments in other securities $17,753,348 $56,201,495 $73,954,843
Investments in repurchase agreements 7,533,000 1,777,000 9,310,000
Total investments, at amortized cost 25,286,348 57,978,495 83,264,843
Cash 837 525 1,362
Interest receivable 253,224 1,082,747 1,335,971
Receivable for principal paydown 31,139 28,923 60,062
Receivable for Fund shares sold ---- 738 738
Deferred expenses ---- 13,366 13,366
Total assets 25,571,548 59,104,794 84,676,342
Liabilities:
Payable for investments purchased 5,928,667 ---- 5,928,667
Payable for Fund shares redeemed 42,700 105,543 148,243
Dividends payable 20,147 92,643 112,790
Accrued expenses 66,750 79,193 ----
Total liabilities 6,058,264 277,379 6,335,643
Net Assets $19,513,284 $58,827,415 $78,340,699
Net Assets Consist of:
Paid-in capital $21,484,056 $64,605,307 $86,089,363
Net unrealized appreciation (depreciation)
of investments (217,003) (2,965,320) (3,182,323
Accumulated net realized gain (loss)
on investments (1,753,769) (2,812,572) (4,566,341
Total Net Assets $19,513,284 $58,827,415 $78,340,699
Shares Outstanding 2,100,882 6,164,088 (53,157) A 8,211,813
Net Asset Value, and Redemption Proceeds
Per Share: $9.29 $9.54 $9.54
Computation of Offering Price:
Offering Price Per Share (100/97.5 of NAV) $9.53 * $9.78 * $9.78 *
A) Adjustment to reflect share balance as a
result of the combination.
* See "What Shares Cost" in the prospectus.
(See Notes to Pro Forma Financial Statements)
</TABLE>
<TABLE>
<CAPTION>
The Starburst Government Income Fund
The Starburst Quality Income Fund
Pro Forma Combining Statement of Operations
Year Ended October 31, 1994 (unaudited)
<S> <C> <C> <C> <C>
The Starburst The Starburst
Quality Government Pro Forma Pro Forma
Income Fund Income Fund Adjustments Combined
Investment Income:
Interest income $1,222,656 $5,311,452 $ ---- $6,534,108
Dividend income 103,623 ---- ---- 103,623
Total investment income 1,326,279 5,311,452 ---- 6,637,731
Expenses:
Investment advisory fee 144,639 600,031 3,663 A 748,333
Trustees' fees 1,779 3,232 (1,011) B 4,000
Administrative personnel and services fees 26,406 109,358 622 C 136,386
Custodian fees 15,000 26,110 (11,045) D 30,065
Transfer and dividend disbursing agent
fees and expenses 44,305 112,233 (38,618) E 117,920
Fund share registration costs 27,805 27,622 (19,334) F 36,093
Auditing fees 4,132 19,401 (3,132) G 20,401
Legal fees 5,136 8,954 (5,136) H 8,954
Printing and postage 17,491 18,719 (15,491) I 20,719
Portfolio accounting fees 49,549 59,765 (40,304) J 69,010
Insurance premiums 7,534 8,161 (7,534) K 8,161
Distribution services fee 48,215 200,011 1,218 L 249,444
Miscellaneous 1,250 6,333 (1,250) M 6,333
Total expenses 393,241 1,199,930 (137,352) 1,455,819
Deduct-
Waiver of investment advisory fee 144,639 240,012 (135,207) A 249,444
Waiver of administrative and personnel
services fees 26,406 ---- (26,406) C ----
Waiver of custodian fee 15,000 ---- (15,000) D ----
Waiver of distribution services fee 48,215 ---- 201,229 L 249,444
Total waivers 234,260 240,012 24,616 498,888
Net expenses 158,981 959,918 (161,968) 956,931
Net investment income 1,167,298 4,351,534 161,968 5,680,800
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) on investments
(identified cost basis) (1,753,769) (2,421,386) ---- (4,175,155)
Net change in unrealized appreciation
(depreciation) on investments (217,003) (4,872,163) ---- (5,089,166)
Net realized and unrealized gain
(loss) on investments (1,970,772) (7,293,549) ---- (9,264,321)
Change in net assets resulting
from operations ($803,474) ($2,942,015) $161,968 ($3,583,521)
(See Legend on following page)
(See Notes to Pro Forma Financial Statements)
</TABLE>
THE STARBURST GOVERNMENT INCOME FUND
THE STARBURST QUALITY INCOME FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED OCTOBER 31, 1994 (UNAUDITED)
A) Compass Bank, The Starburst Funds' investment adviser (the "Adviser"), is
entitled to receive for its services an annual investment advisory fee equal
to .75 of 1% of the The Starburst Government Income Fund's average daily net
assets. The Adviser may voluntarily choose to waive a portion of its fee.
The Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
B) Adjustment to reflect Trustees fees for The Starburst Government Income
Fund only.
C) Administrative personnel and services fees for the combined fund would be
charged at an annual rate of .15 of 1% on the first $250 million of average
aggregate daily net assets of the Trust; .125 of 1% on the next $250 million;
.10 of 1% on the next $250 million; and .075 of 1% on the average aggregate
daily net assets of the Trust in excess of $750 million, subject to a $50,000
per year minimum. There would have been no voluntary waiver of administrative
personnel and services fees by the Administrator.
D) Compass Bank, is the Trust's custodian. The pro forma combined custodian
fee is based on 0.02 of 1% of each Fund's average net assets, plus out-of-
pocket expenses. There would have been no voluntary waiver of custodian fees
by the custodian.
E) Federated Services Company ("FServ") serves as transfer and dividend
disbursing agent for the Funds. The FServ fee is based on the size, type, and
number of accounts and transactions made by shareholders. This adjustment
reflects the $2,000 minimum per month for The Starburst Government Income Fund
only, plus
out-of-pocket expenses.
F) Adjustment to reflect state registration costs for The Starburst Government
Income Fund only.
G) Adjustment to reflect audit charge for one portfolio only.
H) Pro forma combined legal fees are adjusted to include legal retainers, plus
estimated out-of-pocket charges, for one portfolio only. This adjustment
reflects the legal costs associated with The Starburst Government Income Fund.
I) Printing and postage expenses are adjusted to reflect estimated savings to
be realized by combining two portfolios into a single portfolio.
J) FServ also maintains the Funds' accounting records. The FServ fee is based
on the level of each Fund's average net assets for the period, plus out-of-
pocket expenses. This adjustment reflects additional asset based charges
associated with The Starburst Government Income Fund and to reflect the
decrease of the minimum charge associated with The Starburst Quality Income
Fund.
K) Insurance premiums are allocated from a group coverage, the allocation is
comprised of a base amount, plus a portion based on average net assets. The
pro forma combined insurance premium equals the base premium of the surviving
fund.
L) The Starburst Government Income Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
The Starburst Government Income Fund will compensate Federated Securities
Corp. ("FSC"), the principal distributor, from its net assets to finance
activities intended to result in the sales of its shares. The Plan provides
that The Starburst Government Income Fund may incur distribution expenses up
to .25 of 1% of the Fund's average daily net assets, annually, to compensate
FSC. The distributor may voluntarily choose to waive, from time to time, all
or a portion of the amounts otherwise payable under the Plan. The distributor
may modify or terminate any such voluntary waiver at any time at its sole
discretion.
M) Pro forma combined miscellaneous expenses are adjusted to reflect estimated
savings to be realized by combining two portfolios into a single portfolio.
(See Notes to Pro Forma Financial Statements)
The Starburst Government Income Fund
The Starburst Quality Income Fund
Notes to Pro Forma Financial Statements (Unaudited)
1. Basis of Combination
The unaudited Pro Forma Combining Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations reflect the accounts of The
Starburst Government Income Fund ("Government Income Fund"), one of five
portfolios offered by The Starburst Funds (the "Trust") and The Starburst
Quality Income Fund ("Quality Income Fund"), one portfolio offered by The
Starburst Funds II (the "Trust") for the year ended October 31, 1994. These
statements have been derived from the books and records utilized in
calculating daily net asset value at October 31, 1994.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction with the
historical financial statements of the Funds incorporated by reference in the
Statement of Additional Information. The Funds follow generally accepted
accounting principles applicable to management investment companies which are
disclosed in the historical financial statements for the year ended October
31, 1994.
The Pro Forma statements give effect to the proposed transfer of the assets of
The Starburst Quality Income Fund in exchange for shares of The Starburst
Government Income Fund. The Starburst Government Income Fund will be the
surviving entity for accounting purposes with its historical cost of
investment securities and results of operations being carried forward.
The Pro Forma Statement of Operations have been adjusted to reflect the
anticipated advisory,administration, custodial, and distribution fee
arrangements for the surviving entity, including anticipated voluntary fee
waivers. Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change as
a result of the reorganization are currently undeterminable.
For the fiscal year ended October 31, 1994, The Starburst Quality Income
Fund and The Starburst Government Income Fund accrued investment advisory fees
computed at the annual rate of 0.75% of average daily net assets for both
Funds. In the case of The Starburst Quality Income Fund, all of the
investment advisory fee was waived by the Adviser. In the case of The
Starburst Government Income Fund, a portion of the investment advisory fee was
waived by the Adviser.
The advisor, administrator, custodian and distributor may voluntarily choose
to waive a portion of their fees and reimburse certain operating expenses of
The Starburst Quality Income Fund and The Starburst Government Income Fund.
2. Shares of Beneficial Interest
The Pro Forma net asset value per share assumes the issuance of 8,211,813
shares of TheStarburst Government Income Fund (2,047,725 shares from The
Starburst Quality Income Fund) which would have been issued at October 31,
1994, in connection with the proposed reorganization.
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to officers and trustees of the Registrant
pursuant to the Registrant's Declaration of Trust, except where such
indemnification is not permitted by law. However, the Declaration of Trust
does not protect the trustees from liabilities based on willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of their office.
Trustees and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933
(the "Act").
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers, or controlling
persons of the Registrant in connection with the successful defense of any
act, suit, or proceeding) is asserted by such trustees, officers, or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for trustees, officers, and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware of the position of
the Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330. Therefore, the Registrant undertakes that in addition
to complying with the applicable provisions of the Declaration of Trust or
otherwise, in the absence of a final decision on the merits by a court or
other body before which the proceeding was brought, that an indemnification
payment will not be made unless in the absence of such a decision, a
reasonable determination based upon factual review has been made (i) by a
majority vote of a quorum of non-party trustees who are not interested persons
of the Registrant or (ii) by independent legal counsel in a written opinion
that the indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties. The Registrant
further undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately determined
that indemnification is appropriate) against an officer, trustee, or
controlling person of the Registrant will not be made absent the fulfillment
of at least one of the following conditions: (i) the indemnitee provides
security for his undertaking; (ii) the Registrant is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a quorum of
disinterested non-party trustees or independent legal counsel in a written
opinion makes a factual determination that there is reason to believe the
indemnitee will be entitled to indemnification.
Item 16. Exhibits
1.1 Conformed copy of Declaration of Trust of the Registrant(1)
1.2 Conformed copies of Amendment Nos. 1 through 5 to the Declaration of
Trust of the Registrant(2, 3, 4)
1.3 Conformed copy of Amendment No. 6 to the Declaration of Trust of the
Registrant(5)
1.4 Conformed copy of Amendment No. 7 to the Declaration of Trust of the
Registrant(6)
2. Copy of Bylaws of the Registrant(1)
3. Not Applicable
4. Agreement and Plan of Reorganization dated February 3, 1995 between The
Starburst Funds, a Massachusetts business trust, on behalf of The
Starburst Government Income Fund, and The Starburst Funds II, a
Massachusetts business trust on behalf of The Starburst Quality Income
Fund*
5. Not Applicable
6.1 Conformed copy of Investment Advisory Contract of the Registrant(4)
6.2 Conformed copy of Exhibit C to the Investment Advisory Contract of the
Registrant(5)
6.3 Conformed copy of Exhibit A to the Investment Advisory Contract of the
Registrant(8)
6.3 Conformed copy of Exhibit D to the Investment Advisory Contract of the
Registrant(10)
7.1 Conformed copy of Distributor's Contract of the Registrant(4)
7.2 Conformed copy of Exhibits C and D to the Distributor's Contract of the
Registrant(5)
7.3 Conformed copy of Exhibit E to the Distributor's Contract of the
Registrant(8)
7.4 Conformed copy of Exhibit F to the Distributor's Contract of the
Registrant(9)
8. Not Applicable
9. Copy of Custodian Agreement of the Registrant(5)
10.1 Conformed copy of Distribution Plan(4)
10.2 Copy of Rule 12b-1 Agreement(4)
10.3 Conformed copy of Exhibits C and D to the Distribution Plan(5)
10.4 Copy of Amendment No. 2 to the Rule 12b-1 Agreement(5)
10.5 Conformed copy of Exhibit E to the Distribution Plan(8)
10.6 Conformed copy of Exhibit G to the Distribution Plan(9)
11. Opinion regarding legality of shares being issued*
12. Opinion of Dickstein, Shapiro & Morin regarding tax consequences of
Reorganization*
13.1 Conformed copy of Agreement for Fund Accounting, Shareholder
Recordkeeping and Custody Services Procurement(10)
13.2 Conformed copy of Sales Agreement with Federated Securities Corp.(9)
13.3 Conformed copy of Electronic Communications and Recordkeeping
Agreement(9)
14. Conformed copy of Consent of Independent Auditors*
15. Not Applicable
16. Conformed Copy of Power of Attorney(7)
17.1 Declaration under Rule 24f-2*
17.2 Form of Proxy*
__________________
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on September 7, 1989 (File Nos. 33-
30950 and 811-5900).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on November 16, 1989 (File Nos. 33-30950
and 811-5900).
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on May 21, 1990 (File Nos. 33-30950 and 811-
5900).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed on September 11, 1991 (File Nos. 33-30950
and 811-5900).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed on February 14, 1992 (File Nos. 33-30950
and 811-5900).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed on May 27, 1992 (File Nos. 33-30950 and 811-
5900).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed on April 8, 1994 (File Nos. 33-30950 and
811-5900).
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on June 6, 1994 (File Nos. 33-30950 and
811-5900).
(9) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on June 6, 1994 (File Nos. 33-30950 and
811-5900).
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed on December 28, 1994 (File Nos. 33-30950
and 811-5900).
Item 17. Undertakings
The undersigned Registrant agrees that prior to any public reofferring
of the securities registered through the use of a prospectus which is a part
of this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reofferring prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement
for the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, The Starburst Funds, has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Pittsburgh, Commonwealth of Pennsylvania, on February 14, 1995.
THE STARBURST FUNDS
(Registrant)
By:/s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
February 14, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
NAME TITLE DATE
By: /s/C. Grant Anderson
C. Grant Anderson Attorney In Fact February 14, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President
Edward C. Gonzales* Vice President, Treasurer
and Trustee
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
THE STARBURST FUNDS II
FEDERATED INVESTORS TOWER
PITTSBURGH PA 15222-3779
THE STARBURST FUNDS II
CUSIP NO. 855246104
FOR SPECIAL MEETING OF SHAREHOLDERS May 12, 1995
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of The
Starburst Quality Income Fund, a portfolio of The Starburst Funds II, hereby
appoint C. Grant Anderson, Karen M. Brownlee, Patricia Godlewski, and
Brigitte Lorin, or any of them true and lawful attorneys, with power of
substitution of each, to vote all shares of The Starburst Quality Income Fund,
which the undersigned is entitled to vote, at the Special Meeting of
Shareholders to be held on May 12, 1995, at Federated Investors Tower,
Pittsburgh, Pennsylvania, at 2:00 p.m. (Eastern Time) and at any adjournment
thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys
named will vote the shares represented by this proxy in accordance with the
choices made on this card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
PROPOSAL
1. TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
THE STARBURST QUALITY INCOME FUND PROXY VOTING MAIL-IN STUB
RECORD DATE SHARES
PROPOSAL 1: TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION
o FOR the Agreement and Plan of
Reorganization
o AGAINST the Agreement and Plan of
Reorganization
o ABSTAIN
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give your
full title as such. If a corporation or partnership, please sign the full
name by an authorized officer or partner. If stock is owned jointly, all
owners should sign.
_______________________________________________________
_______________________________________________________
Signature(s) of Shareholder(s)
Date:___________________________________________________
Exhibit 11
FEDERATED ADMINISTRATIVE SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
February 3, 1995
The Trustees of
The Starburst Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
The Starburst Funds ("Trust") proposes to issue shares of
beneficial interest representing interests in a separate portfolio of
securities known as The Starburst Government Income Fund (such shares of
beneficial interest being herein referred to as "Shares") in connection with
the acquisition of the assets of The Starburst Quality Income Fund, a
portfolio of The Starburst Funds II, a Massachusetts business trust, pursuant
to the Agreement and Plan of Reorganization dated February 3, 1995
("Agreement"), filed as an exhibit to the registration statement of the Trust
filed on Form N-14 (Securities Act of 1933 No. to be assigned) under the
Securities Act of 1933 as amended ("N-14 Registration").
As counsel I have participated in the organization of the Trust,
its registration under the Investment Company Act of 1940, the registration of
its securities on Form N-1A under the Securities Act of 1933 and its N-14
Registration. I have examined and am familiar with the written Declaration of
Trust dated June 1, 1990, ("Declaration of Trust"), the Bylaws of the Trust,
the Agreement and such other documents and records deemed relevant. I have
also reviewed questions of law and consulted with counsel thereon as deemed
necessary or appropriate for the purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to
the Declaration of Trust.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the
provisions of the Agreement and the Declaration of Trust upon receipt of
consideration sufficient to comply with the provisions of Article III, Section
3, of the Declaration of Trust and subject to compliance with the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and
applicable state laws regulating the sale of securities. Such Shares, when so
issued, will be fully paid and non-assessable.
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration
statement filed under the securities laws of any of the states of the United
States.
Very truly yours,
FEDERATED ADMINISTRATIVE SERVICES
By: /s/ C. Grant Anderson
Title:
DICKSTEIN, SHAPIRO & MORIN, L.L.P.
2101 L STREET, N.W.
WASHINGTON, D.C. 20037202-785-9700
February 3, 1995
The Starburst Funds II
on behalf of its portfolio,
The Starburst Quality Income Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
The Starburst Funds,
on behalf of its portfolio,
The Starburst Government Income Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Dear Ladies and Gentlemen:
We have acted as special counsel in connection with, and you
have requested our opinion concerning the federal income tax consequences of,
a transaction (the "Reorganization") in which all of the assets of The
Starburst Quality Income Fund (the "Acquired Fund"), a portfolio of The
Starburst Funds II, a Massachusetts business trust ("Starburst II"), will be
acquired by The Starburst Funds, a Massachusetts business trust ("Starburst"),
on behalf of its portfolio, The Starburst Government Income Fund (the
"Acquiring Fund"), in exchange solely for shares of beneficial interest of the
Acquiring Fund (the "Acquiring Fund Shares"). The terms and conditions of
this transaction are set forth in an Agreement and Plan of Reorganization
dated February 3, 1995 between Starburst and Starburst II (the "Reorganization
Agreement"). This opinion is rendered to you pursuant to paragraph 8.5 of the
Reorganization Agreement, and all terms used herein have the meanings assigned
to them in the Reorganization Agreement.
Both Starburst and Starburst II are open-end, management investment
companies which qualify as regulated investment companies described in Section
851(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Both
the Acquiring Fund and the Acquired Fund are engaged in the business of
investing in a professionally managed portfolio of debt securities.
On the Closing Date under the Reorganization Agreement, the Acquired
Fund will transfer its entire investment portfolio to the Acquiring Fund. In
exchange, the Acquiring Fund will transfer, to the Acquired Fund, Acquiring
Fund Shares in an amount equal in value to the assets transferred by the
Acquired Fund to the Acquiring Fund. The Acquired Fund will thereupon
liquidate and distribute its Acquiring Fund Shares pro rata to its
shareholders ("Acquired Fund Shareholders").
We have reviewed and relied upon the representations contained in
the Reorganization Agreement and in such other documents and instruments as we
have deemed necessary for the purposes of this opinion, and have reviewed the
applicable provisions of the Code, current regulations and administrative
rules thereunder and pertinent case law.
Based upon the foregoing, and assuming that the Reorganization and
related transactions will take place as described in the Reorganization
Agreement, we are of the opinion that, for federal income tax purposes:
The transfer of all of the Acquired Fund assets in exchange
for the Acquiring Fund Shares and the distribution of the
Acquiring Fund Shares to the Acquired Fund Shareholders in
liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C)
of the Code;
No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Acquired Fund solely
in exchange for the Acquiring Fund Shares;
No gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund assets to the Acquiring
Fund in exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the
Acquiring Fund Shares to Acquired Fund Shareholders in
exchange for their shares of the Acquired Fund;
No gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares
for the Acquiring Fund Shares;
The tax basis of the Acquired Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the
Reorganization;
The tax basis of the Acquiring Fund Shares received by each
of the Acquired Fund Shareholders pursuant to the
Reorganization will be the same as the tax basis of the
Acquired Fund shares held by such shareholder immediately
prior to the Reorganization;
The holding period of the assets of the Acquired Fund in the
hands of the Acquiring Fund will include the period during
which those assets were held by the Acquired Fund; and
The holding period of the Acquiring Fund Shares received by
each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor
were held by such shareholder (provided the Acquired Fund
shares were held as capital assets on the date of the
Reorganization).
We hereby consent to the filing of a copy of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement
on Form N-14 filed by Starburst in connection with the Reorganization, and to
the references to this firm and this opinion in the Prospectus/Proxy Statement
which is contained in such Registration Statement.
Very truly yours,
/s/ Dickstein, Shapiro & Morin, L.L.P.
Exhibit 14
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of The Starburst Funds of our reports dated December 16, 1994,
appearing in the Prospectuses of The Starburst Quality Income Fund and The
Starburst Government Income Fund for the year ended October 31, 1994. We also
consent to the reference to us in their respective Statements of Additional
Information dated December 31, 1994.
By: DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 14, 1995
Exhibit 17.1
Rule 24f-2 Notice
THE STARBURST FUNDS
(Fund Name)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1933 Act No. 33-30950
(i) fiscal period for which notice is filed October 31, 1994
(ii) The number or amount of securities of the
same class or series, if any, which had
been registered under the Securities Act
of 1933, other than pursuant to Rule 24f-2
but which remained unsold at November 1, 1993,
the beginning of the Registrant's fiscal
period
(iii) The number or amount of securities, if
any, registered during the fiscal period
of this notice other than pursuant to
Rule 24f-2 97,010,654 97,010,654
(iv) The number or amount of securities
sold during the fiscal period of this
notice 1,191,679,204
(v) The number or amount of securities sold
during the fiscal period of this notice
in reliance upon registration pursuant
to Rule 24f-2 (see attached Computation
of Fee) 1,094,668,550
WITNESS the due execution hereof this 15th day of December, 1994.
By: /s/ C. Grant Anderson
C. Grant Anderson
Assistant Secretary
COMPUTATION OF FEE
1. Actual aggregate sale price of Registrant's
securities sold pursuant to Rule 24f-2 during
the fiscal period for which the 24f-2 notice
is filed (see Section v) $1,108,060,680
2. Reduced by the difference between:
(a) actual aggregate redemption price
of such securities redeemed by the
issuer during the fiscal period for
which the 24f-2 notice is filed $1,253,800,008
(b) actual aggregate redemption price
of such redeemed securities
previously applied by the issuer
pursuant to Section 24e(2)(a) for
the fiscal period for which the
24f-2 notice is filed -0- 1,253,800,008
Total amount upon which the fee calculation specified
in Section 6(b) of the Securities Act of 1933 is
based $ (145,739,328)
FEE SUBMITTED (1/29 of 1% of Total amount) $
CONVERSION OF NET REDEMPTIONS ON
RULE 24f-2 NOTICE TO FILING
UNDER RULE 24e-2
When a negative amount appears on the line captioned "Total amount upon which
the fee calculated specified in Section 6(b) of the Securities Act of 1933 is
based", the following calculation should be made to determine the share
information needed to file under Rule 24e-2:
Total redemptions (per annual report) 1,195,962,392
Less: Line (v) - Rule 24f-2 Notice 1,094,668,550
Shares available to register under
Rule 24e-2 101,293,842 (a)
Fund's Current Net Asset Value $1.05 (b)
Multiply: Shares available to register
under Rule 24e-2 by the fund's current
net asset value (a x b) to obtain Proposed
Maximum Aggregate Offering Price $ 106,192,486
