1933 Act File No. 33-30950
1940 Act File No. 811-5900
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 22 ......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20 ......................... X
THE STARBURST FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
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:
immediately upon filing pursuant to paragraph (b)
X on December 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:
X filed the Notice required by that Rule on December 15, 1995; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of THE STARBURST FUNDS,
which is comprised of 4 portfolios, (1) The Starburst Government Money Market
Fund (a) Trust Shares and (b) Investment Shares, (2) The Starburst Money
Market Fund (a) Trust Shares and (b) Investment Shares (3) The Starburst
Municipal Income Fund, and (4) The Starburst Government Income Fund, and is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-4) Cover Page.
Item 2. Synopsis.................(1-4) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..............(1-4) Financial Highlights; (1-4)
Performance Information (1-4) Financial
Statements.
Item 4. General Description of
Registrant...............(1-4) General Information; (1-4)
Investment Information; (1-4) Investment
Objective; (1-4) Investment Policies; (1-
4) Investment Limitations; (3) Acceptable
Investments; (2,3) Investment Risks; (3)
Municipal Bond Insurance; (1,2) Other
Classes of Shares.
Item 5. Management of the Fund...(1-4) Fund Information; (1-4) Management
of the Fund; (1-4) Distribution of
(Investment, Trust or Fund) Shares; (1-4)
Administration of the Fund; (1b, 2b,
3,4) Distribution Plan; (1a,2a)
Administrative Arrangements; (1b,2b,3,4)
Shareholder Servicing Arrangements.
Item 6. Capital Stock and Other
Securities...............(1-4) Dividends; (1-4) Capital Gains; (1-
4) Shareholder Information; (1-4) Voting
Rights; (1-4) Effect of Banking Laws; (1-
4) Tax Information; (1-4) Federal Income
Tax; (1-4) State and Local Taxes.
Item 7. Purchase of Securities Being
Offered..................(1-4) Net Asset Value; (1-4) Investing in
(Investment Shares, Trust Shares or the
Fund); (1-4) Share Purchases; (1-4)
Minimum Investment Required; (1-4) What
Shares Cost; (1b,2b,3,4) Systematic
Investment Program; (1a,2a) Shareholder
Accounts; (1b,2b,3,4) Certificates and
Confirmations; (3,4) Purchases at Net
Asset Value; (3,4) Sales Load Reallowance;
(3,4) Reducing the Sales Load; (1,2,4)
Retirement Plans.
Item 8. Redemption or Repurchase.(1-4) Exchange Privilege; (1-4) Redeeming
(Investment or Trust) Shares; (1b,2b,3,4)
Systematic Withdrawal Program; (1-4)
Accounts with Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-4) Cover Page.
Item 11. Table of Contents........(1-4) Table of Contents.
Item 12. General Information and
History..................(1-4) General Information About the Fund.
Item 13. Investment Objectives and
Policies.................(1-4) Investment Objectives and Policies.
Item 14. Management of the Fund...(1-4) The Starburst Funds Management; (1-
4) Trustees Compensation; (1-4) Trustee
Liability.
Item 15. Control Persons and Principal
Holders of Securities....(1-4) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-4) Investment Advisory Services; (1-4)
Other Services; (1-4) Fund
Administration; (1-4) Custodian; (1-4)
Transfer Agent and Dividend Disbursing
Agent; (1-4) Independent Auditors.
Item 17. Brokerage Allocation.....(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................(1-4) Purchasing (Investment or Trust)
Shares; (1-4) Determining Net Asset Value;
(3,4) Exchange Privilege; (1-4) Redeeming
(Investment or Trust) Shares (1-4)
Redemption in Kind (1-4) Massachusetts
Partnership Law.
Item 20. Tax Status...............(1-4) Tax Status.
Item 21. Underwriters.............Not Applicable.
Item 22. Calculation of Performance
Data.....................(1-4) Yield; (1, 2) Effective Yield; (1-4)
Total Return; (3) Tax-Equivalent Yield;
(1-4) Performance Comparisons.
]THE STARBURST GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
TRUST SHARES
PROSPECTUS
The Trust Shares ("Shares") offered by this prospectus represent interests in
the diversified portfolio known as The Starburst Government Money Market Fund
(the "Fund"). The Fund is one of a series of investment portfolios in The
Starburst Funds (the "Trust"), an open-end, management investment company (a
mutual fund).
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income consistent
with stability of principal. The Fund pursues this investment objective by
investing in a portfolio of short-term U.S. government securities.
Shareholders can invest in or redeem Shares at any time without charge or
penalty imposed by the Fund.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Trust Shares
dated December 31, 1995, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to the Fund or calling toll-free
1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--TRUST SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 5
FUND INFORMATION 5
- ------------------------------------------------------
Management of the Fund 5
Distribution of Trust Shares 6
Administration of the Fund 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN TRUST SHARES 7
- ------------------------------------------------------
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Shareholder Accounts 8
Dividends 8
Capital Gains 8
Retirement Plans 8
EXCHANGE PRIVILEGE 9
- ------------------------------------------------------
REDEEMING TRUST SHARES 10
- ------------------------------------------------------
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
EFFECT OF BANKING LAWS 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 23
- ------------------------------------------------------
ADDRESSES 24
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).............................. None
Exchange Fee.................................................................................... None
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................. 0.40%
12b-1 Fee....................................................................................... None
Total Other Expenses............................................................................ 0.29%
Total Trust Shares Operating Expenses................................................. 0.69%
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF TRUST SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN TRUST
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
--------- --------- --------- ----------
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The fund charges no contingent deferred sales charge. ........ $7 $22 $38 $86
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Trust Shares of the Fund. The Fund also offers another class of shares called
Investment Shares. Trust Shares and Investment Shares are subject to certain of
the same expenses; however, Trust Shares are not subject to a 12b-1 fee. See
"Other Classes of Shares."
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.06 0.05
- ----------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.06) (0.05)
- ---------------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.29% 3.18% 2.65% 3.72% 6.05% 5.74%
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------
Expenses 0.69% 0.68% 0.67% 0.65% 0.64% 0.62%(a)
- ----------------------------------------------------
Net investment income 5.15% 3.09% 2.63% 3.64% 5.76% 7.61%(a)
- ----------------------------------------------------
Expense waiver (c) 0.00% 0.00% 0.00% 0.01% 0.05% 0.10%(a)
- ----------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------
Net assets, end of period
(000 omitted) $121,074 $150,507 $175,601 $221,785 $174,158 $82,346
- ----------------------------------------------------
</TABLE>
* Reflects operations for the period from February 5, 1990 (date of initial
public investment) to October 31, 1990.
(a) Computed on an annualized basis.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. As of the date of this prospectus,
the Board of Trustees (the "Trustees") has established two classes of shares,
Investment Shares and Trust Shares. This prospectus relates only to Trust Shares
of the Fund.
The Fund is designed as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio consisting primarily of short-term
government securities. A minimum initial investment of $1,000 is required.
Subsequent investments must be in amounts of at least $100.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by complying with the various
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. government securities. The average maturity of the U.S.
government securities in the Fund's portfolio, computed on a dollar-weighted
basis will be 90 days or less. Unless indicated otherwise, the investment
policies set forth below may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. government
securities. These instruments are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include, but
are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Farm Credit Banks, National Bank for
Cooperatives, Federal Home Loan Banks, Farmers Home Administration, and
Federal National Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full
faith and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These instrumentalities
are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
The securities in which the Fund invests mature in thirteen months or less from
the date of acquisition unless they are purchased under a repurchase agreement
that provides for repurchase by the seller within one year from the date of
acquisition.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term basis up to one-third of the
value of its total assets to broker/dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan arrangements with
broker/dealers, bank, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trustees, where
loaned securities are marked to market daily and where the Fund receives
collateral equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank, as the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund, up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain states.
The Adviser may voluntarily choose to reimburse a portion of its fee and
certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994,
offers a full range of financial services to the public including
commercial lending, depository services, cash management, brokerage
services, retail banking, credit card services, investment advisory
services and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990, and as of December 31, 1994, the Trust Division of Compass Bank had
approximately $4.1 billion under administration of which it had investment
discretion over approximately $1.95 billion. The Trust Division of Compass
Bank provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations.
Since 1972, the Trust Division has managed pools of commingled funds which
now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
Shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may pay financial institutions a
fee based upon the average net asset value of Shares of their customers invested
in the Fund for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through the Trust Division of Compass Bank,
Birmingham, Alabama or through other affiliates of Bancshares providing trust
and similar services. Investors may purchase Shares of the Fund on all business
days except on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. In connection with the sale of
Shares, the Distributor may, from time to time, offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
To purchase Shares, a customer may contact their local Compass trust
administrator or contact a Compass Bank trust officer by telephoning Compass
Bank. Payment may be made either by check or wire transfer of federal funds or
by debiting a customer's account at Compass.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Government Money Market Fund--Trust Shares." Orders are
considered received after payment by check is converted into federal funds.
When payment is made through wire transfer of federal funds, the order is
considered received immediately upon receipt of the wire by Compass. Payment by
wire must be received at Compass before 11:00 a.m. (Eastern time) on the same
day as the order to earn dividends for that day. Prior to purchasing by wire,
investors should call their Compass representative prior to 11:00 a.m. (Eastern
time). Federal funds should be wired as follows: Compass Bank; ABA Number
06001186; Credit: Federated Services Company Deposit Account--A/C Number
70124645; Further credit to: The Starburst Government Money Market Fund--Trust
Shares; Re: (Shareholder name and account number).
Under limited circumstances, arrangements may be made with Compass for same day
receipt of purchase orders, to earn dividends that day, if such orders are
received prior to 2:00 p.m. (Eastern time). Investors interested in establishing
such arrangements are requested to call their Compass representative, and are
reminded that the Fund does reserve the right to refuse any purchase request.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed and on federal or state holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000, except for an IRA account,
which requires a minimum initial investment of $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time) and as
of the close of trading (normally 4:00 p.m., Eastern time), on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
SHAREHOLDER ACCOUNTS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting the Fund in writing. Shares sold to Compass acting in a
fiduciary, advisory, custodial, agency, or similar capacity on behalf of
customers may be held of record by Compass. Beneficial ownership of the Shares
will be recorded by Compass and reflected in the account statements provided by
Compass to customers, and reports of purchases and redemptions of Shares by
Compass on behalf of customers will be provided periodically by Compass to such
customers.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by shareholders in writing to the Fund or Compass, as appropriate.
Share purchase orders received by the Fund before 12:00 noon (Eastern time) earn
dividends that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange Shares of the Fund for shares in The Starburst
Government Income Fund, The Starburst Money Market Fund, The Starburst Municipal
Income Fund, and any other portfolios of The Starburst Funds. 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. Neither the
Trust nor any of the funds imposes any additional fees on exchanges. Exchange
requests cannot be recorded on days on which the New York Stock Exchange is
closed or on applicable banking holidays for affiliates of Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholders. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass trust representative.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange Shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass trust representative.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass and transmitted to
Federated Services Company before 4:00 p.m. (Eastern time) for Shares to be
exchanged the same day. Shareholders who exchange into Shares of the Fund will
not receive a dividend from the Fund on the date of the exchange.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: The Starburst Government Money Market Fund--Trust
Shares, 701 S. 32nd Street, Birmingham, Alabama 35233.
Shareholders of the Fund may have difficulty in making exchanges by telephone
during times of drastic economic or market changes. If shareholders cannot
contact their Compass trust representative by telephone, it is recommended that
an exchange request be made in writing and sent by mail for next day delivery.
Send mail requests to: The Starburst Government Money Market Fund-- Trust
Shares, 701 S. 32nd Street, Birmingham, Alabama 35233.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, and deposited to
the shareholder's account before being exchanged.
REDEEMING TRUST SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through their
Compass trust representative.
BY TELEPHONE. Shareholders may redeem Shares of the Fund by telephoning their
Compass trust representative. Shareholders may call toll-free 800-239-2265 Ext.
6701. Redemption requests through Compass must be received before 11:00 a.m.
(Eastern time). It is the responsibility of Compass to transmit orders to the
Fund by 12:00 noon (Eastern time). If at any time, the Fund shall determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.
Redemption requests must be received by and transmitted to Federated Services
Company before 12:00 noon (Eastern time) in order for the proceeds to be wired
that same day. Compass is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to Federated
Services Company.
For calls received by Compass before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to Compass. For calls received after 11:00 a.m.
(Eastern time) proceeds will normally be
wired the following business day. In no event will proceeds be wired more than
seven days after a proper request for redemption has been received.
Under limited circumstances, arrangements may be made with Compass for same day
receipt of redemption proceeds, if such redemption requests are received prior
to 2:00 p.m. (Eastern time). Investors interested in establishing such
arrangements are requested to call their Compass representative.
A daily dividend will be paid on Shares redeemed if the redemption request is
received by Compass after 11:00 a.m. (Eastern time). However, the proceeds are
normally not wired until the following business day. Redemption requests
received before 11:00 a.m. (Eastern time) will normally be paid the same day but
will not be entitled to that day's dividend.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a shareholder's Compass trust representative. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem Shares of the Fund by sending a written
request to the Fund through their Compass trust representative. The written
request should include the shareholder's name, the Fund name, the class name,
the account number, and the Share or dollar amount requested. Investors
redeeming through Compass should mail written requests to: The Starburst
Government Money Market Fund--Trust Shares, 701 S. 32nd Street, Birmingham,
Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Fund and its
transfer agent reserve the right to amend these standards at any time without
notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters
submitted to shareholders for vote. All shares of each portfolio in the Trust
have equal voting rights, except that in matters affecting only a particular
fund or class, only shares of that fund or class are entitled to vote. As of
December 5, 1995, Compass Bank, Birmingham, Alabama, acting in various
capacities for numerous accounts, was the owner of record of approximately
111,757,159 shares (97.05%) of the Trust Shares of the Fund, and therefore, may,
for certain purposes, be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund intends to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax advisers
-
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return, yield and effective
yield for Shares.
The yield of Shares represents the annualized rate of income earned on an
investment in Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Total return, yield and effective yield will be calculated separately for Trust
Shares and Investment Shares. Because Investment Shares are subject to 12b-1
fees, the total return, yield, and effective yield for Trust Shares, for the
same period, will exceed that of Investment Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Investment Shares.
Investment Shares are sold primarily to retail customers of Compass. Investment
Shares are sold at net asset value. Investments in Investment Shares are subject
to a minimum initial investment of $1,000.
Investment Shares are distributed pursuant to a 12b-1 Plan. Financial
institutions and brokers providing sales and/or administrative services may
receive different compensation from one class of shares of the Fund than from
another class of shares. While the Distributor may in addition to fees paid
pursuant to the Rule 12b-1 Plan, pay an administrative fee to a financial
institution or broker for administrative services provided to a class, such a
fee will not be an expense of the class, but will be reimbursed to the
Distributor by the Adviser. Expense differences between Investment Shares and
Trust Shares may affect the performance of each class.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Investment Shares, investors may
call 1-800-239-1930.
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 23.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.05 0.03 0.02 0.04 0.03
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.02) (0.04) (0.03)
- ------------------------------------------------------------ --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------ --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.14% 3.03% 2.50% 3.61% 2.74%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.84% 0.83% 0.82% 0.76% 0.64%(c)
- ------------------------------------------------------------
Net investment income 5.00% 2.92% 2.48% 3.64% 5.04%(c)
- ------------------------------------------------------------
Expense waiver (d) 0.10% 0.19% 0.20% 0.16% 0.05%(c)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $5,284 $5,759 $5,671 $7,874 $8,947
- ------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 29, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
UNITED STATES TREASURY BILL--5.5%
- -------------------------------------------------------------------------------------------------
$ 7,000,000 11/02/1995 $ 6,999,003
---------------------------------------------------------------------------------- --------------
UNITED STATES TREASURY NOTES--26.8%
- -------------------------------------------------------------------------------------------------
34,000,000 4.25%-8.50%, 11/15/1995-8/15/1996 33,928,429
---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--67.7%
- -------------------------------------------------------------------------------------------------
6,000,000 Barclay's Dezeot Securities Corp., 5.83%, dated 10/31/1995, due
11/1/1995 6,000,000
----------------------------------------------------------------------------------
25,472,000 First Chicago Capital Markets, Inc., 5.83%, dated 10/31/1995, due
11/1/1995 25,472,000
----------------------------------------------------------------------------------
30,000,000 Fuji Securities, Inc., 5.875%, dated 10/31/1995, due 11/1/1995 30,000,000
----------------------------------------------------------------------------------
6,000,000 HSBC Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Nesbitt Burns Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Merrill Lynch Government Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Sanwa Securities Co., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
---------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 85,472,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 126,399,432+
---------------------------------------------------------------------------------- --------------
</TABLE>
+Also represents cost for federal tax purposes.
*Repurchase agreements are fully collateralized by U.S. Government and/or agency
obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($126,357,466) at October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 85,472,000
- ----------------------------------------------------------------------------------
Investments in securities 40,927,432
- ---------------------------------------------------------------------------------- -------------
Total investments in securities, at amortized cost and value $ 126,399,432
- -------------------------------------------------------------------------------------------------
Cash 945
- -------------------------------------------------------------------------------------------------
Income receivable 533,965
- ------------------------------------------------------------------------------------------------- --------------
Total assets 126,934,342
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable $ 517,091
- ----------------------------------------------------------------------------------
Accrued expenses 59,785
- ---------------------------------------------------------------------------------- -------------
Total liabilities 576,876
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 126,357,466 shares outstanding $ 126,357,466
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
- -------------------------------------------------------------------------------------------------
$121,073,863 / 121,073,863 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
- -------------------------------------------------------------------------------------------------
$5,283,603 / 5,283,603 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 8,639,506
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 591,636
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 206,194
- --------------------------------------------------------------------------------------
Custodian fees 35,437
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 67,874
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,294
- --------------------------------------------------------------------------------------
Auditing fees 22,571
- --------------------------------------------------------------------------------------
Legal fees 3,883
- --------------------------------------------------------------------------------------
Portfolio accounting fees 49,345
- --------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 15,305
- --------------------------------------------------------------------------------------
Share registration costs 17,028
- --------------------------------------------------------------------------------------
Printing and postage 11,865
- --------------------------------------------------------------------------------------
Insurance premiums 9,888
- --------------------------------------------------------------------------------------
Miscellaneous 1,368
- -------------------------------------------------------------------------------------- ------------
Total expenses 1,036,688
- --------------------------------------------------------------------------------------
Waiver--
- --------------------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (6,122)
- -------------------------------------------------------------------------------------- ------------
Net expenses 1,030,566
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 7,608,940
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 7,608,940 $ 5,876,916
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income:
- -------------------------------------------------------------------------------
Trust Shares (7,302,938) (5,721,662)
- -------------------------------------------------------------------------------
Investment Shares (306,002) (155,254)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (7,608,940) (5,876,916)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 294,773,565 477,308,758
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 259,517 134,615
- -------------------------------------------------------------------------------
Cost of shares redeemed (324,941,168) (502,449,797)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions (29,908,086) (25,006,424)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (29,908,086) (25,006,424)
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 156,265,552 181,271,976
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 126,357,466 $ 156,265,552
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of four diversified portfolios. The financial statements
included herein are only those of The Starburst Government Money Market Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares; Trust and Investment.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized if required by the Internal Revenue Code, as amended (the
"Code").
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Funds policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1995, capital paid-in aggregated $126,357,466.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
TRUST SHARES 1995 1994
<S> <C> <C>
Shares sold 218,014,505 405,150,009
- ----------------------------------------------------------------------------------
Shares redeemed (247,446,938) (430,244,529)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Trust share transactions (29,432,433) (25,094,520)
- ---------------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
INVESTMENT SHARES 1995 1994
<S> <C> <C>
Shares sold 76,759,064 72,158,749
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 259,513 134,615
- ----------------------------------------------------------------------------------
Shares redeemed (77,494,230) (72,205,268)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Investment share
transactions (475,653) 88,096
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (29,908,086) (25,006,424)
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
daily net assets. The Adviser may voluntarily choose to waive a portion of its
fee. The Adviser can modify or terminate any voluntary waiver any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund. This fee is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST GOVERNMENT MONEY MARKET FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Government Money Market Fund (a
portfolio of The Starburst Funds) as of October 31, 1995, and the related
statement of operations for the year then ended, and the statement of changes in
net assets for the years ended October 31, 1995 and 1994, and the financial
highlights (see pages 2 and 15) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst
Government Money Market Fund as of October 31, 1995, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Government Money Market Fund
Trust Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
GOVERNMENT
MONEY MARKET FUND
TRUST SHARES
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
an Open-End, Management
Investment Company
December 31, 1995
-------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245403
2040607A (12/95)
THE STARBURST GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
TRUST SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of Trust Shares of The Starburst Government Money Market Fund (the "Fund")
dated December 31, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write the Fund or call toll-free 1-800-
239-1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
Independent Auditors 21
GENERAL INFORMATION ABOUT THE FUND1
INVESTMENT OBJECTIVE AND POLICIES1
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Lending of Portfolio Securities 3
Investment Limitations 4
Regulatory Compliance 5
THE STARBURST FUNDS MANAGEMENT 6
Fund Ownership 15
Trustees Compensation 15
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 17
Adviser to the Fund 17
Advisory Fees 18
BROKERAGE TRANSACTIONS 19
OTHER SERVICES 20
Fund Administration 20
Custodian 20
Transfer Agent and Dividend
Disbursing Agent 21
PURCHASING TRUST SHARES 21
Conversion to Federal Funds 21
DETERMINING NET ASSET VALUE 21
Use of the Amortized Cost Method22
REDEEMING TRUST SHARES 24
Redemption in Kind 24
MASSACHUSETTS PARTNERSHIP LAW 25
TAX STATUS 25
The Fund's Tax Status 25
Shareholders' Tax Status 26
TOTAL RETURN 26
YIELD 27
EFFECTIVE YIELD 28
PERFORMANCE COMPARISONS 28
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
August 7, 1989.
Shares of the Fund are offered in two classes, known as Investment Shares and
Trust Shares. This Statement of Additional Information relates to the Trust
Shares ("Shares") of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders. The investment policies described below may be changed
by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
The Fund invests in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of such
securities from their original purchase prices. Accordingly, the potential
for capital appreciation or capital depreciation should not be greater than
the potential for capital appreciation or capital depreciation of fixed
interest rate U.S. government securities having maturities equal to the
interest rate adjustment dates of the variable rate U.S. government
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreement.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, the Fund will restrict the purchase
of portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
value not exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets of the Fund at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, limitations, or its
Declaration of Trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies except
as part of a merger, consolidation, reorganization, or other acquisition.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, and certain restricted securities
not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. For example, with limited exceptions, Rule 2a-7 prohibits the investment
of more than 5% of the Fund's total assets in the securities of any one issuer,
although the Fund's investment limitation only requires such 5% diversification
with respect to 75% of its assets. The Fund will invest more than 5% of its
assets in any one issuer only under the circumstances permitted by Rule 2a-7.
The Fund will also determine the effective maturity of its investments, as well
as its ability to consider a security as having received the requisite short-
term ratings by NRSROs (nationally recognized statistical rating organizations),
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
THE STARBURST FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with The Starburst Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of the
Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, the following shareholder of record owned 5% or more of
the outstanding Trust shares of the Fund: Compass Bank, Birmingham, Alabama,
acting in various capacities for numerous accounts, owned approximately
111,757,159 shares (97.05%)
As of December 5, 1995, the following shareholders of record owned 5% or more of
the outstanding Investment shares of the Fund: Barzoria Valve and Fitting Co.,
Lake Jackson, Texas owned approximately 660,492 shares (11.54%); Lawson State
Community College, Birmingham, Alabama owned approximately 482,631 shares
(8.43%); Compass Bank, as Trustee for IDB Mobile County, Axis, Alabama owned
approximately 467,065 shares (8.16%); Mary Ann Davis, Birmingham, Alabama owned
approximately 408,175 shares (7.13%); Fred Burgos Construction Co., Inc.,
Montgomery, Alabama owned approximately 401,216 shares (7.01%); Mobile Heart
Center, PC, Mobile, Alabama owned approximately 349,458 shares (6.11%); and the
Estate of Rosetta T. Yarbrough, Lucretia Y. Gay and Beverly Yarbrough Chancey,
Co-Executors, Birmingham, Alabama owned approximately 287,219 shares (5.02%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc. ("Bancshares"),
formerly known as Central Bancshares of the South, Inc., as bank holding company
organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Compass Bank to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of Compass Bank's or its affiliates' lending relationships with an
issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser earned
$591,636, $761,164, and $851,820, respectively, which were reduced by $0, $0,
and $0, respectively, because of undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the
Fund paid administrative services fees of $206,194, $260,034, and $287,970,
respectively.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, serves as transfer agent and dividend disbursing agent for the Fund.
The fee paid to the transfer agent is based upon the size, type and number of
accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING TRUST SHARES
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing Shares of the Fund is
explained in the prospectus under "Investing in Trust Shares."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than .5 of 1%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average portfolio
maturity) to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instrument with
a remaining maturity of more than thirteen months can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING TRUST SHARES
The Fund redeems Shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Trust Shares." Although Federated
Services Company does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument that the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional Shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total return for Trust Shares for the fiscal year
ended October 31, 1995, and for the period from February 5, 1990 (date of
initial public investment) to October 31, 1995, was 5.29% and 4.64%,
respectively.
The Fund's average annual total return for Investment Shares for the fiscal year
ended October 31, 1995, and for the period from April 29, 1991 (date of initial
public investment) to October 31, 1995, was 5.14% and 3.78%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
The yield for the Trust Shares for the seven-day period ended October 31, 1995
was 5.12%. The yield for the Investment Shares for the same period was 4.97%.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased Shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
The effective yield for the Trust Shares for the seven-day period ended October
31, 1995 was 5.25%. The effective yield for the Investment Shares for the same
period was 5.10%.
The Fund's effective yield for both classes of shares is computed by compounding
the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance of both classes of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Fund's or either class of shares expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all income dividends and capital gains distributions,
if any. From time to time, the Fund will quote its Lipper ranking in the
"short-term U.S. government funds" category in advertising and sales
literature.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S. Treasury,
maturing in 30 days.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Cusip 855245403
1010703B-I (12/95)
THE STARBURST GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
INVESTMENT SHARES
PROSPECTUS
The Investment Shares ("Shares") offered by this prospectus represent interests
in the diversified portfolio known as The Starburst Government Money Market Fund
(the "Fund"). The Fund is one of a series of investment portfolios in The
Starburst Funds (the "Trust"), an open-end, management investment company (a
mutual fund).
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income consistent
with stability of principal. The Fund pursues this investment objective by
investing in a portfolio of short-term U.S. government securities.
Shareholders can invest in or redeem Shares at any time without charge or
penalty imposed by the Fund.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Investment
Shares dated
December 31, 1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to the Fund or calling toll-free
1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 5
FUND INFORMATION 5
- ------------------------------------------------------
Management of the Fund 5
Distribution of Investment Shares 6
Administration of the Fund 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 8
- ------------------------------------------------------
Share Purchases 8
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
Retirement Plans 9
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 11
- ------------------------------------------------------
Systematic Withdrawal Program 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 15
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--TRUST SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 24
- ------------------------------------------------------
ADDRESSES 25
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................. None
Exchange Fee................................................................................... None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee................................................................................. 0.40%
12b-1 Fee (after waiver) (1)................................................................... 0.15%
Total Other Expenses........................................................................... 0.29%
Total Investment Shares Operating Expenses (2)....................................... 0.84%
</TABLE>
(1) Under the Fund's Rule 12b-1 Distribution Plan, the Fund can pay the
distributor up to 0.25% as a 12b-1 fee. The 12b-1 fee has been reduced to
reflect the voluntary waiver of compensation by the distributor. The
distributor can terminate this voluntary waiver at any time at its sole
discretion.
(2) Total Fund Operating Expenses would have been 0.94% absent the voluntary
waiver by the distributor.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN INVESTMENT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The Fund charges no contingent deferred sales charge. ........ $9 $27 $47 $104
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Investment Shares of the Fund. The Fund also offers another class of shares
called Trust Shares. Investment Shares and Trust Shares are subject to certain
of the same expenses; however, Trust Shares are not subject to a 12b-1 fee. See
"Other Classes of Shares."
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.05 0.03 0.02 0.04 0.03
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.02) (0.04) (0.03)
- ------------------------------------------------------------ --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------ --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.14% 3.03% 2.50% 3.61% 2.74%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.84% 0.83% 0.82% 0.76% 0.64%(c)
- ------------------------------------------------------------
Net investment income 5.00% 2.92% 2.48% 3.64% 5.04%(c)
- ------------------------------------------------------------
Expense waiver (d) 0.10% 0.19% 0.20% 0.16% 0.05%(c)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $5,284 $5,759 $5,671 $7,874 $8,947
- ------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 29, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. As of the date of this prospectus,
the Board of Trustees (the "Trustees") has established two classes of shares,
Investment Shares and Trust Shares. This prospectus relates only to Investment
Shares of the Fund.
The Fund is designed as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio consisting primarily of short-term
government securities. A minimum initial investment of $1,000 is required.
Subsequent investments must be in amounts of at least $100.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by complying with the various
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. government securities. The average maturity of the U.S.
government securities in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less. Unless indicated otherwise, the investment
policies set forth below may be changed by the Trustees without the approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. government
securities. These instruments are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include, but
are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Farm Credit Banks, National Bank for
Cooperatives, Federal Home Loan Banks, Farmers Home Administration, and
Federal National Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full
faith and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These instrumentalities
are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
The securities in which the Fund invests mature in thirteen months or less from
the date of acquisition unless they are purchased under a repurchase agreement
that provides for repurchase by the seller within one year from the date of
acquisition.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price within one year from the date of acquisition. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term basis up to one-third of the
value of its total assets to broker/dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trustees, where
loaned securities are marked to market daily and where the Fund receives
collateral equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank, as the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund, up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain states.
The Adviser may voluntarily choose to reimburse a portion of its fee and
certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994,
offers a full range of financial services to the public including
commercial lending, depository services, cash management, brokerage
services, retail banking, credit card services, investment advisory
services and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990, and as of December 31, 1994, the Trust Division of Compass Bank had
approximately $4.1 billion under administration of which it had investment
discretion over approximately $1.95 billion. The Trust Division of Compass
Bank provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations.
Since 1972, the Trust Division has managed pools of commingled funds which
now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
Shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to Federated Securities Corp. an amount computed at an annual rate of
.25 of 1% of the average daily net asset value of Shares to finance any activity
which is principally intended to result in the sale of Shares subject to the
Plan.
Federated Securities Corp. may, from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the Shares exceed such lower expense
limitation as the Distributor may, by notice to the Trust, voluntarily declare
to be effective.
The Distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers, including
Compass Bank and various other affiliates of Bancshares, to provide sales and/or
administrative services as agents for their clients or customers who
beneficially own Shares of the Fund. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions, including Compass Bank and various other affiliates of
Bancshares, will receive fees from the Distributor based upon Shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined, from time to time, by the
Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the Distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to recover
such amounts or may earn a profit from future payments made by the Fund under
the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
SHAREHOLDER SERVICING ARRANGEMENTS. In addition to the fees paid by the
Distributor to financial institutions under the Plan as described above, the
Distributor may also pay financial institutions, including Compass Bank and
various other affiliates of Bancshares, a fee with respect to the average daily
net asset value of Shares held by their customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan, and, if
paid, will be reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN INVESTMENT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through Compass Brokerage, Inc., a
subsidiary of Compass Bank, formerly known as Central Brokerage Services, Inc.
Investors may purchase Shares of the Fund on all business days except on days
which the New York Stock Exchange is closed and federal or state holidays
restricting wire transfers. In connection with the sale of Shares, the
Distributor may, from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
TO PLACE AN ORDER. An investor may call Compass Brokerage, Inc. at
1-800-239-1930 or locally at 205-558-5620. Payment may be made either by check,
wire transfer of federal funds, or direct debit from a Compass account.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Government Money Market Fund--Investment Shares." Orders are
considered received after payment by check is converted into federal funds.
To purchase by wire, investors should call their Compass representative prior to
11:00 a.m. (Eastern time). It is the responsibility of Compass to transmit
orders promptly. When payment is made through wire transfer of federal funds,
the order is considered received immediately upon receipt of the wire by
Compass. Payment by wire must be received before 11:00 a.m. (Eastern time) on
the same day as the order to earn dividends for that day. Shares cannot be
purchased on days on which the New York Stock Exchange is closed and on federal
or state holidays restricting wire transfers.
Under limited circumstances, arrangements may be made with Compass Brokerage,
Inc. for same day receipt of purchase orders, to earn dividends that day, if
such orders are received prior to 2:00 p.m. (Eastern time). Investors interested
in establishing such arrangements are requested to call Compass Brokerage, Inc.
at 1-800-239-1930, and are reminded that the Fund does reserve the right to
refuse any purchase request.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000, except for an IRA account,
which requires a minimum initial investment of $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time) and as
of the close of trading (normally 4:00 p.m., Eastern time), on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by Federated Services Company. A shareholder may apply for
participation in this program by calling a Compass representative.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting a Compass representative in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by shareholders in writing to the Fund through a Compass
representative. Share purchase orders received by the Fund before 12:00 noon
(Eastern time) earn dividends that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange Shares of the Fund for shares in The Starburst
Government Income Fund, The Starburst Money Market Fund, The Starburst Municipal
Income Fund, and any other portfolios of The Starburst Funds. 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. Neither the
Trust nor any of the funds imposes any additional fees on exchanges. Exchange
requests cannot be executed on days on which the New York Stock Exchange is
closed or on applicable banking holidays for affiliates of Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholders. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange Shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass or an authorized
broker and transmitted to Federated Services Company before 4:00 p.m. (Eastern
time) for Shares to be exchanged the same day. Shareholders who exchange into
Shares of the Fund will not receive a dividend from the Fund on the date of the
exchange.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Mutual Fund Coordinator, Compass Brokerage, Inc.,
701 S. 32nd Street, Birmingham, Alabama 35233. In addition, an investor may
exchange Shares by sending a written request to their authorized broker
directly.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Compass
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery. Send
mail requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Compass
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through a Compass
representative or authorized broker.
BY TELEPHONE. Shareholders may redeem Shares of the Fund by telephoning a
Compass representative. Shareholders may call 205-558-5620 in Birmingham,
Alabama or 1-800-239-1930. Redemption requests through Compass must be received
before 11:00 a.m. (Eastern time). It is the responsibility of Compass to
transmit orders to the Fund by 12:00 noon (Eastern time). If at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
Redemption requests must be received by and transmitted to Federated Services
Company before 12:00 noon (Eastern time) in order for the proceeds to be wired
that same day. Compass is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to Federated
Services Company.
For calls received by Compass before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to Compass. For calls received after 11:00 a.m.
(Eastern time) proceeds will normally be wired the following business day. In no
event will proceeds be wired more than seven days after a proper request for
redemption has been received.
Under limited circumstances, arrangements may be made with Compass for same day
receipt of redemption proceeds, if such redemption requests are received prior
to 2:00 p.m. (Eastern time). Investors interested in establishing such
arrangements are requested to call Compass Brokerage, Inc. at 1-800-239-1930.
A daily dividend will be paid on Shares redeemed if the redemption request is
received by Compass after 11:00 a.m. (Eastern time). However, the proceeds are
normally not wired until the following business day. Redemption requests
received before 11:00 a.m. (Eastern time) will normally be paid the same day but
will not be entitled to that day's dividend.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Compass representative. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem Shares of the Fund by sending a written
request to the Fund through a Compass representative. The written request should
include the shareholder's name, the Fund name, the class name, the account
number, and the Share or dollar amount requested. Investors redeeming through
Compass should mail written requests to: Mutual Fund Coordinator, Compass
Brokerage, Inc., 701 S. 32nd Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
-
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House ("ACH") member.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid with respect to Shares, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. A shareholder may apply for participation in this
program by calling a Compass representative.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular fund or class, only shares of that fund or class are entitled to
vote. As of December 5, 1995, Compass Bank, Birmingham, Alabama, acting in
various capacities for numerous accounts, was the owner of record of
approximately 111,757,159 shares (97.05%) of the Trust Shares of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund intends to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax advisers
-
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return, yield and effective
yield for Shares.
The yield of Shares represents the annualized rate of income earned on an
investment in Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Total return, yield and effective yield will be calculated separately for
Investment Shares and Trust Shares. Because Investment Shares are subject to
12b-1 fees, the total return, yield, and effective yield for Trust Shares, for
the same period, will exceed that of Investment Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Trust Shares. Trust Shares
are sold to accounts where Compass Bank or bank affiliates of Bancshares have a
trust or agency relationship. Trust Shares are sold at net asset value.
Investments in Trust Shares are subject to a minimum initial investment of
$1,000.
Trust Shares are not sold pursuant to a 12b-1 Plan. Financial institutions and
brokers providing sales and/or administrative services may receive different
compensation depending upon which class of shares of the Fund are sold. The
Distributor may pay an administrative fee to a financial institution or broker
for administrative services provided to the Trust Shares class, and may pay such
a fee for administrative services provided to the Investment Shares class, in
addition to fees paid pursuant to the Rule 12b-1 Plan. Any fee paid by the
Distributor for administrative services will not be an expense of the class, but
will be reimbursed to the Distributor by the Adviser. Expense differences
between Investment Shares and Trust Shares may affect the performance of each
class.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Trust Shares, investors may call
1-800-239-1930.
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990*
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------
Net investment income 0.05 0.03 0.02 0.04 0.06 0.05
- ----------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.06) (0.05)
- ---------------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ---------------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.29% 3.18% 2.65% 3.72% 6.05% 5.74%
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------
Expenses 0.69% 0.68% 0.67% 0.65% 0.64% 0.62%(a)
- ----------------------------------------------------
Net investment income 5.15% 3.09% 2.63% 3.64% 5.76% 7.61%(a)
- ----------------------------------------------------
Expense waiver (c) 0.00% 0.00% 0.00% 0.01% 0.05% 0.10%(a)
- ----------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------
Net assets, end of period
(000 omitted) $121,074 $150,507 $175,601 $221,785 $174,158 $82,346
- ----------------------------------------------------
</TABLE>
* Reflects operations for the period from February 5, 1990 (date of initial
public investment) to October 31, 1990.
(a) Computed on an annualized basis.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
UNITED STATES TREASURY BILL--5.5%
- -------------------------------------------------------------------------------------------------
$ 7,000,000 11/02/1995 $ 6,999,003
---------------------------------------------------------------------------------- --------------
UNITED STATES TREASURY NOTES--26.8%
- -------------------------------------------------------------------------------------------------
34,000,000 4.25%-8.50%, 11/15/1995-8/15/1996 33,928,429
---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--67.7%
- -------------------------------------------------------------------------------------------------
6,000,000 Barclay's Dezeot Securities Corp., 5.83%, dated 10/31/1995,
due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
25,472,000 First Chicago Capital Markets, Inc., 5.83%, dated 10/31/1995,
due 11/1/1995 25,472,000
----------------------------------------------------------------------------------
30,000,000 Fuji Securities, Inc., 5.875%, dated 10/31/1995, due 11/1/1995 30,000,000
----------------------------------------------------------------------------------
6,000,000 HSBC Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Nesbitt Burns Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Merrill Lynch Government Securities, Inc., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
----------------------------------------------------------------------------------
6,000,000 Sanwa Securities Co., 5.80%, dated 10/31/1995, due 11/1/1995 6,000,000
---------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS 85,472,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 126,399,432+
---------------------------------------------------------------------------------- --------------
</TABLE>
+Also represents cost for federal tax purposes.
*Repurchase agreements are fully collateralized by U.S. Government and/or agency
obligations based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($126,357,466) at October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 85,472,000
- ----------------------------------------------------------------------------------
Investments in securities 40,927,432
- ---------------------------------------------------------------------------------- -------------
Total investments in securities, at amortized cost and value $ 126,399,432
- -------------------------------------------------------------------------------------------------
Cash 945
- -------------------------------------------------------------------------------------------------
Income receivable 533,965
- ------------------------------------------------------------------------------------------------- --------------
Total assets 126,934,342
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable $ 517,091
- ----------------------------------------------------------------------------------
Accrued expenses 59,785
- ---------------------------------------------------------------------------------- -------------
Total liabilities 576,876
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 126,357,466 shares outstanding $ 126,357,466
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
- -------------------------------------------------------------------------------------------------
$121,073,863 / 121,073,863 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
- -------------------------------------------------------------------------------------------------
$5,283,603 / 5,283,603 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 8,639,506
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 591,636
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 206,194
- --------------------------------------------------------------------------------------
Custodian fees 35,437
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 67,874
- --------------------------------------------------------------------------------------
Directors'/Trustees' fees 4,294
- --------------------------------------------------------------------------------------
Auditing fees 22,571
- --------------------------------------------------------------------------------------
Legal fees 3,883
- --------------------------------------------------------------------------------------
Portfolio accounting fees 49,345
- --------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 15,305
- --------------------------------------------------------------------------------------
Share registration costs 17,028
- --------------------------------------------------------------------------------------
Printing and postage 11,865
- --------------------------------------------------------------------------------------
Insurance premiums 9,888
- --------------------------------------------------------------------------------------
Miscellaneous 1,368
- -------------------------------------------------------------------------------------- ------------
Total expenses 1,036,688
- --------------------------------------------------------------------------------------
Waiver--
- --------------------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (6,122)
- -------------------------------------------------------------------------------------- ------------
Net expenses 1,030,566
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 7,608,940
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 7,608,940 $ 5,876,916
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income:
- -------------------------------------------------------------------------------
Trust Shares (7,302,938) (5,721,662)
- -------------------------------------------------------------------------------
Investment Shares (306,002) (155,254)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (7,608,940) (5,876,916)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 294,773,565 477,308,758
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 259,517 134,615
- -------------------------------------------------------------------------------
Cost of shares redeemed (324,941,168) (502,449,797)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions (29,908,086) (25,006,424)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (29,908,086) (25,006,424)
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 156,265,552 181,271,976
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 126,357,466 $ 156,265,552
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of four diversified portfolios. The financial statements
included herein are only those of The Starburst Government Money Market Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund offers
two classes of shares; Trust and Investment.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized if required by the Internal Revenue Code, as amended (the
"Code").
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1995, capital paid-in aggregated $126,357,466.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
TRUST SHARES 1995 1994
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 218,014,505 405,150,009
- ----------------------------------------------------------------------------------
Shares redeemed (247,446,938) (430,244,529)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Trust share transactions (29,432,433) (25,094,520)
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INVESTMENT SHARES 1995 1994
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 76,759,064 72,158,749
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 259,513 134,615
- ----------------------------------------------------------------------------------
Shares redeemed (77,494,230) (72,205,268)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from Investment share
transactions (475,653) 88,096
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (29,908,086) (25,006,424)
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate any
voluntary waiver any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund. This fee is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST GOVERNMENT MONEY MARKET FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Government Money Market Fund (a
portfolio of The Starburst Funds) as of October 31, 1995, and the related
statement of operations for the year then ended, and the statement of changes in
net assets for the years ended October 31, 1995 and 1994, and the financial
highlights (see pages 2 and 16) for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst
Government Money Market Fund as of October 31, 1995, the results of its
operations, the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Government Money Market Fund
Investment Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
GOVERNMENT
MONEY MARKET FUND
INVESTMENT SHARES
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
An Open-End, Management
Investment Company
December 31, 1995
-------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245304
1010703A-R (12/95)
93/33-2396
THE STARBURST GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
INVESTMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of Investment Shares of The Starburst Government Money Market Fund (the
"Fund") dated December 31, 1995. This Statement is not a prospectus itself.
To receive a copy of the prospectus, write the Fund or call toll-free 1-
800-239-1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND3
INVESTMENT OBJECTIVE AND POLICIES3
Types of Investments 3
When-Issued and Delayed Delivery
Transactions 4
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Lending of Portfolio Securities 5
Investment Limitations 6
Regulatory Compliance 8
THE STARBURST FUNDS MANAGEMENT 8
Fund Ownership 17
Trustees Compensation 18
Trustee Liability 19
INVESTMENT ADVISORY SERVICES 19
Adviser to the Fund 19
Advisory Fees 20
BROKERAGE TRANSACTIONS 21
OTHER SERVICES 22
Fund Administration 22
Custodian 23
Transfer Agent and Dividend
Disbursing Agent 23
Independent Auditors 23
PURCHASING INVESTMENT SHARES 23
Distribution Plan 24
Conversion to Federal Funds 25
DETERMINING NET ASSET VALUE 25
Use of the Amortized Cost Method25
REDEEMING INVESTMENT SHARES 27
Redemption in Kind 28
MASSACHUSETTS PARTNERSHIP LAW 28
TAX STATUS 29
The Fund's Tax Status 29
Shareholders' Tax Status 29
TOTAL RETURN 30
YIELD 30
EFFECTIVE YIELD 31
PERFORMANCE COMPARISONS 32
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 7, 1989.
Shares of the Fund are offered in two classes, known as Investment Shares and
Trust Shares. This Statement of Additional Information relates to the
Investment Shares ("Shares") of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders. The investment policies described below may be
changed by the Board of Trustees (the "Trustees") without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not be
greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only
enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser
to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only
to the extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreement.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, the Fund will restrict the purchase of portfolio instruments
to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements, but only to the extent necessary to
assure completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets of the Fund at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding bonds,
debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective,
policies, limitations, or its Declaration of Trust.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain restricted
securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5%
of the value of its net assets during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. For example, with limited exceptions, Rule 2a-7 prohibits
the investment of more than 5% of the Fund's total assets in the securities of
any one issuer, although the Fund's investment limitation only requires such
5% diversification with respect to 75% of its assets. The Fund will invest
more than 5% of its assets in any one issuer only under the circumstances
permitted by Rule 2a-7. The Fund will also determine the effective maturity of
its investments, as well as its ability to consider a security as having
received the requisite short-term ratings by NRSROs (nationally recognized
statistical rating organizations), according to Rule 2a-7. The Fund may change
these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
THE STARBURST FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with The Starburst Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of
the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Services Company; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; President,
Executive Vice President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; President and
Trustee, Federated Shareholder Services; Director, Federated Securities Corp.;
Executive Vice President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, the following shareholders of record owned 5% or more
of the outstanding Investment shares of the Fund: Barzoria Valve and Fitting
Co., Lake Jackson, Texas owned approximately 660,492 shares (11.54%); Lawson
State Community College, Birmingham, Alabama owned approximately 482,631
shares (8.43%); Compass Bank, as Trustee for IDB Mobile County, Axis, Alabama
owned approximately 467,065 shares (8.16%); Mary Ann Davis, Birmingham,
Alabama owned approximately 408,175 shares (7.13%); Fred Burgos Construction
Co., Inc., Montgomery, Alabama owned approximately 401,216 shares (7.01%);
Mobile Heart Center, PC, Mobile, Alabama owned approximately 349,458 shares
(6.11%); and the Estate of Rosetta T. Yarbrough, Lucretia Y. Gay and Beverly
Yarbrough Chancey, Co-Executors, Birmingham, Alabama owned approximately
287,219 shares (5.02%).
As of December 5, 1995, the following shareholder of record owned 5% or more
of the outstanding Trust shares of the Fund: Compass Bank, Birmingham,
Alabama, acting in various capacities for numerous accounts, owned
approximately 111,757,159 shares (97.05%)
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc.
("Bancshares"), formerly known as Central Bancshares of the South, Inc., a
bank holding company organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Because of the internal controls maintained by Compass Bank to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of Compass Bank's or its affiliates' lending relationships with
an issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser
earned $591,636, $761,164, and $851,820, respectively, which was reduced by
$0, $0, and $0, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services
for which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended October 31, 1995,
1994, and 1993, the Fund paid administrative services fees of $206,194,
$260,034, and $287,970, respectively.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, serves as transfer agent and dividend disbursing agent
for the Fund. The fee paid to the transfer agent is based upon the size, type
and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING INVESTMENT SHARES
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing Shares of the Fund is
explained in the prospectus under "Investing in Investment Shares."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes
are referred to herein as "Compass."
DISTRIBUTION PLAN
With respect to the Investment Shares class of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 (the "Plan") which was promulgated by the
Securities and Exchange Commission under the Investment Company Act of 1940.
The Plan provides for payment of fees to Federated Securities Corp. to finance
any activity which is principally intended to result in the sale of the Fund's
Shares subject to the Plan. Such activities may include the advertising and
marketing of Shares; preparing, printing and distributing prospectuses and
sales literature to prospective shareholders, brokers or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the distributor may
pay fees to brokers for distribution and administrative services and to
administrators for administrative services as to Shares. The administrative
services are provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are not
limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions; wiring funds and
receiving funds for Share purchases and redemptions; confirming and
reconciling all transactions; reviewing the activity in Fund accounts; and
providing training and supervision of broker personnel; posting and
reinvesting dividends to Fund accounts or arranging for this service to be
performed by the Fund's transfer agent; and maintaining and distributing
current copies of prospectuses and shareholder reports to the beneficial
owners of Shares and prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended October 31, 1995, the Fund paid distribution
services fees of $15,305, of which $6,122, was voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
The Fund attempts to stabilize the value of a Share at $1.00. The days on
which net asset value is calculated by the Fund are described in the
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed
for purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party on (1) no more than 30 days'
notice or (2) at specified intervals not exceeding one year on no more than 30
days' notice. A standby commitment entitles the Fund to achieve same day
settlement and to receive an exercise price equal to the amortized cost of the
underlying instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than thirteen months can be
purchased by the Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than
a similar computation made by using a method of valuation based upon market
prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of
the Fund computed the same way may tend to be lower than a similar computation
made by using a method of calculation based upon market prices and estimates.
REDEEMING INVESTMENT SHARES
The Fund redeems Shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Investment Shares." Although
Federated Services Company does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of wire-transferred
redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed
in determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument that the Trust or its Trustees enter
into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash
or additional Shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total return for Investment Shares for the fiscal
year ended October 31, 1995, and for the period from April 29, 1991 (date of
initial public investment) to October 31, 1995, was 5.14% and 3.78%,
respectively.
The Fund's average annual total return for Trust Shares for the fiscal year
ended October 31, 1995, and for the period from February 5, 1990 (date of
initial public investment) to October 31, 1995, was 5.29% and 4.64%,
respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at
the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The yield for the Investment Shares for the seven-day period ended October 31,
1995 was 4.97%. The yield for the Trust Shares for the same period was 5.12%.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period."
This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original one
Share and all dividends declared on the original and any purchased
Shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base period
return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
The effective yield for the Investment Shares for the seven-day period ended
October 31, 1995 was 5.10%. The effective yield for the Trust Shares for the
same period was 5.25%.
The Fund's effective yield for both classes of shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance of both classes of shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Fund's or either class of shares expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Fund will quote its Lipper
ranking in the "short-term U.S. government funds" category in advertising
and sales literature.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in
the Fund based on the monthly reinvestment of dividends over a specified
period of time.
Cusip 855245304
1010703B-R (12/95)
THE STARBURST MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
TRUST SHARES
PROSPECTUS
The Trust Shares ("Shares") offered by this prospectus represent interests in
the diversified portfolio known as The Starburst Money Market Fund (the "Fund").
The Fund is one of a series of investment portfolios in The Starburst Funds (the
"Trust"), an open-end, management investment company (a mutual fund).
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income consistent
with stability of principal. The Fund pursues this investment objective by
investing in a variety of high-quality money market instruments maturing in
thirteen months or less.
Shareholders can invest in or redeem Shares at any time without charge or
penalty imposed by the Fund.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Trust Shares
dated
December 31, 1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to the Fund or calling toll-free
1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--TRUST SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 7
Investment Limitations 7
FUND INFORMATION 8
- ------------------------------------------------------
Management of the Fund 8
Distribution of Trust Shares 9
Administration of the Fund 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN TRUST SHARES 10
- ------------------------------------------------------
Share Purchases 10
Minimum Investment Required 11
What Shares Cost 11
Shareholder Accounts 11
Dividends 11
Capital Gains 11
Retirement Plans 11
EXCHANGE PRIVILEGE 12
- ------------------------------------------------------
REDEEMING TRUST SHARES 13
- ------------------------------------------------------
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- ------------------------------------------------------
Voting Rights 15
EFFECT OF BANKING LAWS 15
- ------------------------------------------------------
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 18
- ------------------------------------------------------
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 28
- ------------------------------------------------------
ADDRESSES 29
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)........................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee......................................................................... 0.40%
12b-1 Fee................................................................................. None
Total Other Expenses.................................................................... 0.24%
Total Trust Shares Operating Expenses (1)...................... ............ 0.64%
</TABLE>
(1) The Annual Trust Shares Operating Expenses were 0.59% for the fiscal year
ended October 31, 1995. The expenses in the table above reflect a reduction
in the voluntary waiver of the investment advisory fee for the fiscal year
ending October 31, 1996.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN TRUST
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The Fund charges no contingent deferred sales charge.. $7 $21 $36 $80
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Trust Shares of the Fund. The Fund also offers another class of shares called
Investment Shares. Trust Shares and Investment Shares are subject to certain of
the same expenses; however, Trust Shares are not subject to a 12b-1 fee. See
"Other Classes of Shares."
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.06 0.06
- --------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.06) (0.06)
- -------------------------------------------------------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.51% 3.29% 2.84% 4.07% 6.44% 5.89%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 0.56% 0.75% 0.70% 0.64% 0.62% 0.58%(c)
- --------------------------------------------------------
Net investment income 5.38% 3.26% 2.83% 4.01% 6.13% 7.80%(c)
- --------------------------------------------------------
Expense waiver/reimbursement (d) 0.10% 0.04% 0.00% 0.01% 0.05% 0.10%(c)
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $141,435 $158,367 $131,508 $187,394 $212,997 $117,716
- --------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 5, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. As of the date of this prospectus,
the Board of Trustees (the "Trustees") has established two classes of shares,
Investment Shares and Trust Shares. This prospectus relates only to Trust Shares
of the Fund.
The Fund is designed as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio limited to money market
instruments maturing in thirteen months or less. Except as noted herein, a
minimum initial investment of $1,000 is required. Subsequent investments must be
in amounts of at least $100.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by complying with the various
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of money market instruments maturing in thirteen months or less. The average
maturity of money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies set forth below may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations or of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
domestic issues of corporate debt obligations, including variable rate
demand notes;
commercial paper (including Canadian Commercial Paper and Europaper);
certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
short-term credit facilities, such as demand notes;
asset-backed securities;
obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Canadian
Time Deposits, Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits
("ETDs"). The Fund will treat securities credit enhanced with a bank's
letter of credit as Bank Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. To the extent that the original seller
does not repurchase the securities from the Fund, the Fund could receive less
than the repurchase price on any sale of such securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
-
credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy,
receivership or default of the party providing the credit enhancement will
adversely affect the quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies, or from single-purpose, stand-alone finance subsidiaries or
trusts of such institutions, or from other special purpose entities.
Single-purpose, stand-alone finance subsidiaries or trusts and special purpose
entities generally do not have any significant assets other than the receivables
securing the participation interests. Participation interests give the Fund an
undivided fractional ownership interest in debt obligations. The debt
obligations may include pools of credit card receivables, automobile installment
loan contracts, corporate loans or debt securities, corporate receivables or
other types of debt obligations. In addition to being supported by the stream of
payments generated by the debt obligations, payments of principal and interest
on the participation interests may be supported up to certain amounts and for
certain periods of time by irrevocable letters of credit, insurance policies,
and/or other credit agreements issued by financial institutions unaffiliated
with the issuers and by monies on deposit in certain bank accounts of the
issuer. Payments of interest on the participation interests may also rely on
payments made pursuant to interest rate swap agreements made with other
unaffiliated financial institutions.
The participation interests described above will be rated Aa or better or P-1 by
Moody's Investor Service, Inc. or AA or A-1 or better by Standard & Poor's
Ratings Group. The Fund may also invest in participation interests which are not
rated but are determined by the Trustees to be of comparable quality.
If the participation interests include the unconditional written right to demand
payment at par value plus accrued interest from the issuer, the demand feature
will be used in determining the maturity of the participation interest. So long
as the demand feature can require payment by the issuer within seven days, the
participation interest will not be deemed to be illiquid. The secondary market,
if any, for certain of these obligations may be extremely limited and any such
obligations purchased by the Fund will be regarded as illiquid, unless they
include the seven-day demand feature. Such illiquid obligations will be included
within the 10% limitation by the Fund on investment of its net assets in
illiquid securities. Participation interests which do not include a demand
feature will nevertheless be of high quality and will be purchased taking into
consideration the Fund's intent to value its securities at amortized cost and to
stabilize the net asset value of its shares at $1.00.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. This restriction is not applicable to commercial paper issued under Section
4(2) of the Securities Act of 1933. However, the Fund will limit investments in
illiquid securities, including certain restricted securities not determined by
the Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to 10%
of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) paper is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as the Fund, who agree that they
are purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis up to one-third of
the value of its total assets to broker/dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trustees, where
loaned securities are marked to market daily and where the Fund receives
collateral equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
CONCENTRATION OF INVESTMENTS. The Fund will not invest 25% or more of its total
assets in any one industry except that the Fund may invest 25% or more of its
total assets in the commercial paper issued by finance companies. The finance
companies in which the Fund expects to invest can be divided into two
categories, commercial finance companies and consumer finance companies.
Commercial finance companies are principally engaged in lending to corporations
or other businesses. Consumer finance companies are primarily engaged in lending
to individuals. Captive finance companies or finance subsidiaries which exist to
facilitate the marketing and financial activities of their parent will, for
purposes of industry concentration, be classified by the Fund in the industry of
its parent corporation.
In addition, the Fund may invest 25% or more of the value of its total assets in
any combination of cash or cash items, securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, and instruments secured by
these money market instruments, such as repurchase agreements.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, CCPs, Canadian Time Deposits, and Europaper are subject
to somewhat different risks than domestic obligations of domestic banks.
Examples of these risks include international, economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
bank, and the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for Canadian Time
Deposits, ECDs, ETDs and Yankee CDs because the banks issuing these instruments,
or their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. These factors will be
carefully considered by the Fund's adviser in selecting investments for the
Fund.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings; or
with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in the securities of any one issuer,
other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 5% of the value of its total assets in securities of
issuers that have records of less than three years of continuous
operations, including the operations of any predecessor.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank, as the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund, up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain states.
The Adviser may voluntarily choose to reimburse a portion of its fee and
certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994, offers a full range of financial services to the public
including commercial lending, depository services, cash management,
brokerage services, retail banking, credit card services, investment
advisory services and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990, and as of December 31, 1994, the Trust Division of Compass Bank had
approximately $4.1 billion under administration of which it had investment
discretion over approximately $1.95 billion. The Trust Division
Compass Bank provides investment advisory and management services for the
assets of individuals, pension and profit sharing plans, endowments and
foundations. Since 1972, the Trust Division has managed pools of commingled
funds which now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
Shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may pay financial institutions a
fee based upon the average net asset value of Shares of their customers invested
in the Fund for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it recives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN TRUST SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through the Trust Division of Compass Bank,
Birmingham, Alabama or through other affiliates of Bancshares providing trust
and similar services. Investors may purchase Shares of the Fund on all business
days except on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. In connection with the sale of
Shares, the Distributor may, from time to time, offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
To purchase Shares, a customer may contact their local Compass trust
administrator or contact a Compass Bank trust officer by telephoning Compass
Bank. Payment may be made either by check or wire transfer of federal funds or
by debiting a customer's account at Compass.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Money Market Fund--Trust Shares." Orders are considered
received after payment by check is converted into federal funds.
When payment is made through wire transfer of federal funds, the order is
considered received immediately upon receipt of the wire by Compass. Payment by
wire must be received at Compass before 11:00 a.m. (Eastern time) on the same
day as the order to earn dividends for that day. Prior to purchasing by wire,
investors should call their Compass representative prior to 11:00 a.m. (Eastern
time). Federal funds should be wired as follows: Compass Bank; ABA Number
06001186; Credit: Federated Services Company Deposit Account--A/C Number
70124645; Further credit to: The Starburst Money Market Fund--Trust Shares; Re:
(Shareholder name and account number).
Under limited circumstances, arrangements may be made with Compass for same day
receipt of purchase orders, to earn dividends that day, if such orders are
received prior to 2:00 p.m. (Eastern time). Investors interested in establishing
such arrangements are requested to call their Compass representative, and are
reminded that the Fund does reserve the right to refuse any purchase request.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed and on federal or state holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000, except for an IRA account,
which requires a minimum initial investment of $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
SHAREHOLDER ACCOUNTS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting the Fund in writing. Shares sold to Compass acting in a
fiduciary, advisory, custodial, agency, or similar capacity on behalf of
customers may be held of record by Compass. Beneficial ownership of the Shares
will be recorded by Compass and reflected in the account statements provided by
Compass to customers, and reports of purchases and redemptions of Shares by
Compass on behalf of customers will be provided periodically by Compass to such
customers.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by shareholders in writing to the Fund or Compass, as appropriate.
Share purchase orders received by the Fund before 12:00 noon (Eastern time) earn
dividends that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange Shares of the Fund for shares in The Starburst
Government Income Fund, The Starburst Government Money Market Fund, The
Starburst Municipal Income Fund, and any other portfolios of The Starburst
Funds. 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. Neither the Trust nor any of the funds imposes any additional fees on
exchanges. Exchange requests cannot be executed on days on which the New York
Stock Exchange is closed or on applicable banking holidays for affiliates of
Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholders. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass trust representative.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange Shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass trust representative.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass and transmitted to
Federated Services Company before 4:00 p.m. (Eastern time) for Shares to be
exchanged the same day. Shareholders who exchange into Shares of the Fund will
not receive a dividend from the Fund on the date of the exchange.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: The Starburst Money Market Fund-Trust Shares, 701 S.
32nd Street, Birmingham, Alabama 35233.
Shareholders of the Fund may have difficulty in making exchanges by telephone
during times of drastic economic or market changes. If shareholders cannot
contact their Compass trust representative by telephone, it is recommended that
an exchange request be made in writing and sent by mail for next day delivery.
Send mail requests to: The Starburst Money Market Fund-Trust Shares, 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, and deposited to
the shareholder's account before being exchanged.
REDEEMING TRUST SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through their
Compass trust representative.
BY TELEPHONE. Shareholders may redeem Shares of the Fund by telephoning their
Compass trust representative. Shareholders may call toll-free 800-239-2265 Ext.
6701. Redemption requests through Compass must be received before 11:00 a.m.
(Eastern time). It is the responsibility of Compass to transmit orders to the
Fund by 12:00 noon (Eastern time). If at any time, the Fund shall determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.
Redemption requests must be received by and transmitted to Federated Services
Company before 12:00 noon (Eastern time) in order for the proceeds to be wired
that same day. Compass is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to Federated
Services Company.
For calls received by Compass before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to Compass. For calls received after 11:00 a.m.
(Eastern time) proceeds will normally be
wired the following business day. In no event will proceeds be wired more than
seven days after a proper request for redemption has been received.
Under limited circumstances, arrangements may be made with Compass for same day
receipt of redemption proceeds, if such redemption requests are received prior
to 2:00 p.m. (Eastern time). Investors interested in establishing such
arrangements are requested to call their Compass representative.
A daily dividend will be paid on Shares redeemed if the redemption request is
received by Compass after 11:00 a.m. (Eastern time). However, the proceeds are
normally not wired until the following business day. Redemption requests
received before 11:00 a.m. (Eastern time) will normally be paid the same day but
will not be entitled to that day's dividend.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a shareholder's Compass trust representative. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem Shares of the Fund by sending a written
request to the Fund through their Compass trust representative. The written
request should include the shareholder's name, the Fund name, the class name,
the account number, and the Share or dollar amount requested. Investors
redeeming through Compass should mail written requests to: The Starburst Money
Market Fund Trust Shares, 701 S. 32nd Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by SAIF
which is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to
institutions that are members of a signature guarantee program. The Fund and its
transfer agent reserve the right to amend these standards at any time without
notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular fund or class, only shares of that fund or class are entitled to
vote. As of December 5, 1995, Compass Bank, Birmingham, Alabama, acting in
various capacities for numerous accounts, was the owner of record of
approximately 115,195,288 shares (84.88%) of the Trust Shares of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund intends to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return, yield and effective
yield for Shares.
The yield of Shares represents the annualized rate of income earned on an
investment in Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Total return, yield and effective yield will be calculated separately for Trust
Shares and Investment Shares. Because Investment Shares are subject to 12b-1
fees, the total return, yield, and effective yield for Trust Shares, for the
same period, will exceed that of Investment Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Investment Shares.
Investment Shares are sold primarily to retail customers of Compass. Investment
Shares are sold at net asset value. Investments in Investment Shares are subject
to a minimum initial investment of $1,000.
Investment Shares are distributed pursuant to a 12b-1 Plan. Financial
institutions and brokers providing sales and/or administrative services may
receive different compensation from one class of shares of the Fund than from
another class of shares. While the Distributor may in addition to fees paid
pursuant to the Rule 12b-1 Plan, pay an administrative fee to a financial
institution or broker for administrative services provided to a class, such a
fee will not be an expense of the class, but will be reimbursed to the
Distributor by the Adviser. Expense differences between Investment Shares and
Trust Shares may affect the performance of each class.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Investment Shares, investors may
call 1-800-239-1930.
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Auditors on page 28.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.06
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.06)
- ---------------------------------------------------------------------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------- --------- --------- --------- --------- ---------
TOTAL RETURN (b) 5.35% 3.13% 2.69% 3.95% 2.90%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.71% 0.91% 0.86% 0.78% 0.61%(c)
- ----------------------------------------------------------------------
Net investment income 5.22% 3.11% 2.66% 3.65% 5.51%(c)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.20% 0.22% 0.20% 0.19% 0.05%(c)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $54,914 $39,722 $39,780 $36,432 $7,238
- ----------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 29, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
CERTIFICATES OF DEPOSIT--6.6%
- -------------------------------------------------------------------------------------------------
$ 5,000,000 National Westminster Bank, 5.75%, 11/27/1995 $ 4,999,947
----------------------------------------------------------------------------------
8,000,000 Societe Generale Bank, 5.75%, 12/15/1995 8,000,097
---------------------------------------------------------------------------------- --------------
TOTAL CERTIFICATES OF DEPOSIT 13,000,044
---------------------------------------------------------------------------------- --------------
*COMMERCIAL PAPER--60.1%
- -------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--2.5%
----------------------------------------------------------------------------------
5,000,000 Philip Morris Cos., Inc., 5.75%, 11/9/1995 4,993,611
---------------------------------------------------------------------------------- --------------
FINANCE AUTOMOTIVE--4.1%
----------------------------------------------------------------------------------
8,000,000 Vehicle Services of America, Inc., 5.70%, 12/6/1995 7,955,667
---------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--13.7%
----------------------------------------------------------------------------------
5,000,000 American General Finance Corp., 5.72%, 11/17/1995 4,987,289
----------------------------------------------------------------------------------
9,000,000 Bankamerica Corp., 5.73%, 11/3/1995--11/10/1995 8,992,678
----------------------------------------------------------------------------------
9,000,000 Merrill Lynch & Co., Inc., 5.73%, 11/10/1995 8,987,108
----------------------------------------------------------------------------------
4,000,000 Transamerica Finance Corp., 5.72%, 11/6/1995 3,996,822
---------------------------------------------------------------------------------- --------------
Total 26,963,897
---------------------------------------------------------------------------------- --------------
FUNDING CORPORATION--33.3%
----------------------------------------------------------------------------------
5,000,000 Black & Decker Recop Trust, 5.76%, 11/28/1995 5,000,000
----------------------------------------------------------------------------------
9,000,000 Circuit City Recop Trust, 5.73%, 11/08/1995 9,000,000
----------------------------------------------------------------------------------
9,446,000 Credit Card Securitization Corp., 5.73%, 12/14/1995 9,381,350
----------------------------------------------------------------------------------
9,000,000 Falcon Asset Securitization Corp., 5.70%--5.72%,
11/1/1995--11/13/1995 8,992,373
----------------------------------------------------------------------------------
9,000,000 General Electric Capital Corp., 5.60%--5.73%, 11/3/1995--12/20/1995 8,981,099
----------------------------------------------------------------------------------
9,000,000 Madison Funding Corp., 5.75%, 12/20/1995 8,929,563
----------------------------------------------------------------------------------
9,000,000 Receivables Capital Corp., 5.73%--5.74%, 11/16/1995--11/20/1995 8,975,313
----------------------------------------------------------------------------------
6,000,000 Safeco Credit Co., Inc., 5.69%, 12/19/1995 5,954,480
---------------------------------------------------------------------------------- --------------
Total 65,214,178
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
*COMMERCIAL PAPER--CONTINUED
- -------------------------------------------------------------------------------------------------
LEASING--2.5%
----------------------------------------------------------------------------------
$ 5,000,000 International Lease Finance Corp., 5.69%, 11/10/1995 $ 4,992,887
---------------------------------------------------------------------------------- --------------
UTILITIES--4.0%
----------------------------------------------------------------------------------
3,000,000 Southern California Edison Co., 5.60%, 12/21/1995 2,976,667
----------------------------------------------------------------------------------
5,000,000 Southwestern Bell Telephone Co., 5.65%, 1/30/1996 4,929,375
---------------------------------------------------------------------------------- --------------
Total 7,906,042
---------------------------------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 118,026,282
---------------------------------------------------------------------------------- --------------
CORPORATE NOTES--13.0%
- -------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--1.0%
----------------------------------------------------------------------------------
2,000,000 Philip Morris Cos., Inc., 8.55%, 7/26/1996 2,037,304
---------------------------------------------------------------------------------- --------------
FINANCE-AUTOMOTIVE--3.2%
----------------------------------------------------------------------------------
6,250,000 Ford Motor Credit Corp., 5.15%--8.90%, 12/11/1995--8/1/1996 6,300,529
---------------------------------------------------------------------------------- --------------
FINANCE-COMMERCIAL--4.0%
----------------------------------------------------------------------------------
7,770,000 Associates Corp. of North America, 5.75%--9.00%,
12/1/1995--10/15/1996 7,813,420
---------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--.5%
----------------------------------------------------------------------------------
1,000,000 Nationsbank Corp., 4.75%, 8/15/1996 989,852
---------------------------------------------------------------------------------- --------------
LEASING--2.5%
----------------------------------------------------------------------------------
4,900,000 International Lease Finance Corp., 5.75%--7.99%,
1/15/1996--10/15/1996 4,948,217
---------------------------------------------------------------------------------- --------------
UTILITIES--1.8%
----------------------------------------------------------------------------------
3,500,000 Southwestern Bell Telephone Co., 8.30%, 6/1/1996 3,547,733
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE NOTES 25,637,055
---------------------------------------------------------------------------------- --------------
**VARIABLE RATE INSTRUMENTS--13.3%
- -------------------------------------------------------------------------------------------------
8,000,000 Commonwealth Life Insurance Co., 6.08%, 1/3/1996++ 8,000,000
----------------------------------------------------------------------------------
8,000,000 National Home Life Assurance Co., 6.08%, 1/3/1996++ 8,000,000
----------------------------------------------------------------------------------
10,000,000 Student Loan Marketing Association, 5.825%, 11/27/1996 10,007,383
---------------------------------------------------------------------------------- --------------
TOTAL VARIABLE RATE INSTRUMENTS 26,007,383
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
***REPURCHASE AGREEMENT--7.0%
- -------------------------------------------------------------------------------------------------
$ 13,667,000 Fuji Securities, Inc., 5.875%, dated 10/31/1995, due 11/1/1995 $ 13,667,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 196,337,764+
---------------------------------------------------------------------------------- --------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Denotes variable rate securities which show current rate and next demand
date.
*** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+Also represents cost for federal tax purposes.
++Denotes restricted securities which are subject to restrictions on resale
under Federal Securities law. These securities are considered illiquid.
Note: The categories of investments are shown as a percentage of net assets
($196,348,411) at October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 196,337,764
- -------------------------------------------------------------------------------------------------
Cash 222
- -------------------------------------------------------------------------------------------------
Income receivable 783,653
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 21,509
- ------------------------------------------------------------------------------------------------- --------------
Total assets 197,143,148
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable $ 719,967
- -------------------------------------------------------------------------------------
Accrued expenses 74,770
- ------------------------------------------------------------------------------------- ----------
Total liabilities 794,737
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 196,348,411 shares outstanding $ 196,348,411
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
- -------------------------------------------------------------------------------------------------
$141,434,536 / 141,434,536 shares outstanding $ 1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
- -------------------------------------------------------------------------------------------------
$54,913,875 / 54,913,875 shares outstanding $ 1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 11,576,511
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 779,414
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 271,773
- -------------------------------------------------------------------------------------
Custodian fees 47,531
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 64,423
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,538
- -------------------------------------------------------------------------------------
Auditing fees 19,866
- -------------------------------------------------------------------------------------
Legal fees 4,130
- -------------------------------------------------------------------------------------
Portfolio accounting fees 47,513
- -------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 107,306
- -------------------------------------------------------------------------------------
Share registration costs 28,458
- -------------------------------------------------------------------------------------
Printing and postage 11,107
- -------------------------------------------------------------------------------------
Insurance premiums 7,741
- -------------------------------------------------------------------------------------
Miscellaneous 985
- ------------------------------------------------------------------------------------- ------------
Total expenses 1,392,785
- -------------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------
Waiver of investment advisory fee $ (188,477)
- ------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (42,922)
- ------------------------------------------------------------------------ -----------
Total waivers (231,399)
- ------------------------------------------------------------------------------------- ------------
Net expenses 1,161,386
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 10,415,125
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 10,415,125 $ 5,694,713
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------
Trust Shares (8,173,671) (4,486,408)
- ----------------------------------------------------------------------
Investment Shares (2,241,454) (1,208,305)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from distributions to
shareholders (10,415,125) (5,694,713)
- ---------------------------------------------------------------------- -------------------- --------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of shares 714,974,884 712,751,811
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 2,128,998 1,156,479
- ----------------------------------------------------------------------
Cost of shares redeemed (718,844,833) (687,107,098)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from share transactions (1,740,951) 26,801,192
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (1,740,951) 26,801,192
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 198,089,362 171,288,170
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 196,348,411 $ 198,089,362
- ---------------------------------------------------------------------- -------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of four diversified portfolios. The financial statements
included herein are only those of The Starburst Money Market Fund (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The Fund offers two classes of
shares: Trust and Investment.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized if required by the Internal Revenue Code, as amended (the
"Code").
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1995, capital paid-in aggregated $196,348,411.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
TRUST SHARES 1995 1994
<S> <C> <C>
Shares sold 334,084,839 349,300,863
- ----------------------------------------------------------------------------
Shares redeemed (351,017,125) (322,442,175)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Trust share transactions (16,932,286) 26,858,688
- ---------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
INVESTMENT SHARES 1994 1995
<S> <C> <C>
Shares sold 380,890,049 363,450,948
- ----------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 2,128,994 1,156,479
- ----------------------------------------------------------------------------
Shares redeemed (367,827,708) (364,664,923)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Investment share
transactions 15,191,335 (57,496)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Fund share transactions (1,740,951) 26,801,192
- ---------------------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate any
voluntary waiver any time at its sole discretion.
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund. This fee is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST MONEY MARKET FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Money Market Fund (a portfolio of
The Starburst Funds) as of October 31, 1995, and the related statement of
operations for the year then ended, and the statement of changes in net assets
for the years ended October 31, 1995 and 1994, and the financial highlights (see
pages 2 and 18) for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst Money
Market Fund as of October 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Money Market Fund
Trust Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
MONEY MARKET FUND
TRUST SHARES
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
An Open-End, Management
Investment Company
December 31, 1995
------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245601
1010704A-R (12/95)
THE STARBURST MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
TRUST SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of Trust Shares of The Starburst Money Market Fund (the "Fund") dated
December 31, 1995. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write the Fund or call toll-free 1-800-239-1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
Custodian 25
Transfer Agent and Dividend
GENERAL INFORMATION ABOUT THE FUND1
Disbursing Agent 25
INVESTMENT OBJECTIVE AND POLICIES1 Independent Auditors 26
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 3
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Credit Enhancement 5
Restricted and Illiquid Securities
5
Lending of Portfolio Securities 6
Investment Limitations 6
Regulatory Compliance 10
THE STARBURST FUNDS MANAGEMENT 11
Fund Ownership 19
Trustees Compensation 20
Trustee Liability 22
INVESTMENT ADVISORY SERVICES 22
Adviser to the Fund 22
Advisory Fees 22
BROKERAGE TRANSACTIONS 23
OTHER SERVICES 25
Fund Administration 25
PURCHASING TRUST SHARES 26
Conversion to Federal Funds 26
DETERMINING NET ASSET VALUE 26
Use of the Amortized Cost Method26
REDEEMING TRUST SHARES 28
Redemption in Kind 29
MASSACHUSETTS PARTNERSHIP LAW 29
TAX STATUS 30
The Fund's Tax Status 30
Shareholders' Tax Status 30
TOTAL RETURN 31
YIELD 31
EFFECTIVE YIELD 32
PERFORMANCE COMPARISONS 33
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
August 7, 1989.
Shares of the Fund are offered in two classes, known as Investment Shares and
Trust Shares. This Statement of Additional Information relates to the Trust
Shares ("Shares") of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders. The investment policies described below may be changed
by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in money market instruments which mature in thirteen
months or less and which include, but are not limited to, commercial paper and
variable amount demand master notes, bank instruments, U.S. government
obligations and repurchase agreements.
The instruments of banks and savings associations whose deposits are insured by
the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC") or the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC, such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, are not
necessarily guaranteed by those organizations.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, the
Fund may invest in:
oEurodollar Certificates of Deposit issued by foreign branches of U.S. or
foreign banks;
oEurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
oCanadian Time deposits, which are U.S. dollar-denominated deposits issued
by branches of major Canadian banks located in the United States; and
oYankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and held
in the United States.
RATINGS.
A nationally recognized statistical rating organizations' ("NRSROs")
highest rating category is determined without regard for sub-categories and
gradations. For example, securities rated A-1 or A-1+ by Standard & Poor's
Ratings Group ("S&P"), Prime-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund
will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in the highest short-term
rating category; currently, such securities must be rated by two NRSROs in
their highest rating category. See "Regulatory Compliance."
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oNational Bank for Cooperatives;
oFederal Home Loan Banks;
oFarmers Home Administration; and
oFederal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreement.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer.
Generally, the Fund will not treat credit-enhanced securities as being issued by
the credit enhancer for diversification purposes. However, under certain
circumstances applicable regulations may require the Fund to treat securities as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under an SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is
a non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resale of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under Rule 144A. The Fund believes that the Staff of the SEC has left the
question of determining the liquidity of all restricted securities (eligible for
resale under Rule 144A) to the Trustees. The Board considers the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, the Fund will restrict the purchase
of portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
value not exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets of the Fund at the time of the pledge.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry except that the Fund will invest 25% of the value of its
total assets in the commercial paper issued by finance companies.
The Fund may invest more than 25% of the value of its total assets in cash
or cash items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
INVESTING IN COMMODITIES AND REAL ESTATE
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. The Fund will not purchase or sell real
estate, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are subject to legal or contractual restrictions on
resale, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements or engaging in other transactions where
permitted by the Fund's investment objective, policies, limitations or its
Declaration of Trust.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (other than cash, cash items
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value
of its total assets would be invested in the securities of that issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies except
as part of a merger, consolidation, reorganization, or other acquisition.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, and certain restricted securities
not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money, pledge securities, invest in illiquid
securities, restricted securities or engage in when-issued and delayed delivery
transactions, or reverse repurchase agreements, in excess of 5% of the value of
its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. For example, with limited exceptions, Rule 2a-7 prohibits the investment
of more than 5% of the Fund's total assets in the securities of any one issuer,
although the Fund's investment limitation only requires such 5% diversification
with respect to 75% of its assets. The Fund will invest more than 5% of its
assets in any one issuer only under the circumstances permitted by Rule 2a-7.
The Fund will also determine the effective maturity of its investments, as well
as its ability to consider a security as having received the requisite short-
term ratings by NRSROs (nationally recognized statistical rating organizations),
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
THE STARBURST FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with The Starburst Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of the
Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, the following shareholder of record owned 5% or more of
the outstanding Trust shares of the Fund: Compass Bank, Birmingham, Alabama,
acting in various capacities for numerous accounts, owned approximately
115,195,288 shares (84.88%); Compass Bank, for the account of River Oaks
Trust/ERISA, owned approximately 12,401,800 shares (9.14%); and Compass Bank,
for the account of River Oaks Trust Co., owned approximately 8,110,898 shares
(5.98%).
As of December 5, 1995, the following shareholders of record owned 5% or more of
the outstanding Investment shares of the Fund: Mobile Aerospace Engineering,
Inc., Mobile, Alabama owned approximately 8,082,500 shares (15.08%); Pilot
Catastrophe Services, Inc., Mobile, Alabama owned approximately 4,608,493 shares
(8.60%); and Compass Bancshares Insurance, Inc., Birmingham, Alabama, acting in
various capacities for numerous accounts, owned approximately 3,668,171 shares
(6.84%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama State banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc. ("Bancshares"),
formerly known as Central Bancshares of the South, Inc., as bank holding company
organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Compass Bank to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of Compass Bank's or its affiliates' lending relationships with an
issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser earned
$779,414, $706,200, and $825,361, respectively, which was reduced by $188,477,
$63,808, and $0, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the
Fund incurred administrative service fees of $271,773, $241,658, and $279,069,
respectively.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, serves as transfer agent and dividend disbursing agent for the Fund.
The fee paid to the transfer agent is based upon the size, type and number of
accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING TRUST SHARES
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing Shares of the Fund is
explained in the prospectus under "Investing in Trust Shares."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund are sometimes
referred to herein as "Compass."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than .5 of 1%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average portfolio
maturity) to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instrument with
a remaining maturity of more than thirteen months can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING TRUST SHARES
The Fund redeems Shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Trust Shares." Although Federated
Services Company does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less than
$5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption in made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument that the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional Shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total return for Trust Shares for the fiscal year
ended October 31, 1995, and for the period from February 5, 1990 (date of
initial public investment) to October 31, 1995, was 5.51% and 4.88%,
respectively.
The Fund's average annual total return for Investment Shares for the fiscal year
ended October 31, 1995, and for the period from April 29, 1991 (date of initial
public investment) to October 31, 1995, was 5.35% and 4.00%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
The yield for the Trust Shares for the seven-day period ended October 31, 1995
was 5.37%. The yield for the Investment Shares for the same period was 5.22%.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased Shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
The effective yield for the Trust Shares for the seven-day period ended October
31, 1995 was 5.52%. The effective yield for Investment Shares for the same
period was 5.36%.
The Fund's effective yield for both classes of shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance for both classes of shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Fund's or either class of shares expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all income dividends and capital gains distributions,
if any. From time to time, the Fund will quote its Lipper ranking in the
"money market instrument funds" category in advertising and sales
literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Cusip 855245601
1010704B-I (12/95)
THE STARBURST MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
INVESTMENT SHARES
PROSPECTUS
The Investment Shares ("Shares") offered by this prospectus represent interests
in the diversified portfolio known as The Starburst Money Market Fund (the
"Fund"). The Fund is one of a series of investment portfolios in The Starburst
Funds (the "Trust"), an open-end, management investment company (a mutual fund).
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
The investment objective of the Fund is to provide current income consistent
with stability of principal. The Fund pursues this investment objective by
investing in a variety of high-quality money market instruments maturing in
thirteen months or less.
Shareholders can invest in or redeem Shares at any time without charge or
penalty imposed by the Fund.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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.
This prospectus contains the information you should read and know before you
invest in Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Investment
Shares dated
December 31, 1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to the Fund or calling toll-free
1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Risks 7
Investment Limitations 7
FUND INFORMATION 8
- ------------------------------------------------------
Management of the Fund 8
Distribution of Investment Shares 9
Administration of the Fund 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 11
- ------------------------------------------------------
Share Purchases 11
Minimum Investment Required 11
What Shares Cost 12
Systematic Investment Program 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Retirement Plans 12
EXCHANGE PRIVILEGE 13
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 14
- ------------------------------------------------------
Systematic Withdrawal Program 16
Accounts with Low Balances 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
EFFECT OF BANKING LAWS 17
- ------------------------------------------------------
TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
PERFORMANCE INFORMATION 18
- ------------------------------------------------------
OTHER CLASSES OF SHARES 18
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--TRUST SHARES 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES 30
- -----------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)............................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee............................................................................................ 0.40%
12b-1 Fee (after waiver) (1).............................................................................. 0.15%
Total Other Expenses...................................................................................... 0.24%
Total Investment Shares Operating Expenses (2)................................................... 0.79%
</TABLE>
(1) Under the Fund's Rule 12b-1 Distribution Plan, the Fund can pay the
distributor up to 0.25% as a 12b-1 fee. The 12b-1 fee has been reduced to
reflect the voluntary waiver of compensation by the distributor. The
distributor can terminate this voluntary waiver at any time at its sole
discretion.
(2) The Annual Investment Shares Operating Expenses were 0.74% for the fiscal
year ended October 31, 1995. The expenses in the table above reflect a
reduction in the voluntary waiver of the investment advisory fee for the
fiscal year ending October 31, 1996. Total Investment Shares Operating
Expenses are anticipated to be 0.89% absent the voluntary waiver by the
distributor.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN INVESTMENT
SHARES." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
--------- --------- --------- ---------
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period. The
Fund charges no contingent deferred sales charge......................... $8 $25 $44 $98
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Investment Shares of the Fund. The Fund also offers another class of shares
called Trust Shares. Investment Shares and Trust Shares are subject to certain
of the same expenses; however, Trust Shares are not subject to a 12b-1 fee. See
"Other Classes of Shares."
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Auditors on page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.03
- -------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.03)
- ------------------------------------------------------------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------- --------- --------- --------- --------- -----------
TOTAL RETURN (b) 5.35% 3.13% 2.69% 3.95% 2.90%
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 0.71% 0.91% 0.86% 0.78% 0.61%(c)
- -------------------------------------------------------------
Net investment income 5.22% 3.11% 2.66% 3.65% 5.51%(c)
- -------------------------------------------------------------
Expense waiver/reimbursement (d) 0.20% 0.22% 0.20% 0.19% 0.05%(c)
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $54,914 $39,722 $39,780 $36,432 $7,238
- -------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 29, 1991 (date of initial
public investment) to October 31, 1991.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares of beneficial interest in any one
portfolio may be offered in separate classes. As of the date of this prospectus,
the Board of Trustees (the "Trustees") has established two classes of shares,
Investment Shares and Trust Shares. This prospectus relates only to Investment
Shares of the Fund.
The Fund is designed as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio limited to money market
instruments maturing in thirteen months or less. Except as noted herein, a
minimum initial investment of $1,000 is required. Subsequent investments must be
in amounts of at least $100.
The Fund attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by complying with the various
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of money market instruments maturing in thirteen months or less. The average
maturity of money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies set forth below may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations or of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
domestic issues of corporate debt obligations, including variable rate
demand notes;
commercial paper (including Canadian Commercial Paper and Europaper);
certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
short-term credit facilities, such as demand notes;
asset-backed securities;
obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates
and provide the Fund with the right to tender the security for repurchase
at its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow the Fund to demand the repurchase of the security on not more
than seven days' prior notice. Other notes only permit the Fund to tender
the security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Fund treats variable rate demand
notes as maturing on the later of the date of the next interest adjustment
or the date on which the Fund may next tender the security for repurchase.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Canadian
Time Deposits, Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits
("ETDs"). The Fund will treat securities credit enhanced with a bank's
letter of credit as Bank Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. To the extent that the original seller
does not repurchase the securities from the Fund, the Fund could receive less
than the repurchase price on any sale of such securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
-
credit-enhanced by a guaranty, letter of credit or insurance. Any bankruptcy,
receivership or default of the party providing the credit enhancement will
adversely affect the quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations, and
insurance companies, or from single-purpose, stand-alone finance subsidiaries or
trusts of such institutions, or from other special purpose entities.
Single-purpose, stand-alone finance subsidiaries or trusts and special purpose
entities generally do not have any significant assets other than the receivables
securing the participation interests. Participation interests give the Fund an
undivided fractional ownership interest in debt obligations. The debt
obligations may include pools of credit card receivables, automobile installment
loan contracts, corporate loans or debt securities, corporate receivables or
other types of debt obligations. In addition to being supported by the stream of
payments generated by the debt obligations, payments of principal and interest
on the participation interests may be supported up to certain amounts and for
certain periods of time by irrevocable letters of credit, insurance policies,
and/or other credit agreements issued by financial institutions unaffiliated
with the issuers and by monies on deposit in certain bank accounts of the
issuer. Payments of interest on the participation interests may also rely on
payments made pursuant to interest rate swap agreements made with other
unaffiliated financial institutions.
The participation interests described above will be rated Aa or better or P-1 by
Moody's Investor Service, Inc. or AA or A-1 or better by Standard & Poor's
Ratings Group. The Fund may also invest in participation interests which are not
rated but are determined by the Trustees to be of comparable quality.
If the participation interests include the unconditional written right to demand
payment at par value plus accrued interest from the issuer, the demand feature
will be used in determining the maturity of the participation interest. So long
as the demand feature can require payment by the issuer within seven days, the
participation interest will not be deemed to be illiquid. The secondary market,
if any, for certain of these obligations may be extremely limited and any such
obligations
purchased by the Fund will be regarded as illiquid, unless they include the
seven-day demand feature. Such illiquid obligations will be included within the
10% limitation by the Fund on investment of its net assets in illiquid
securities. Participation interests which do not include a demand feature will
nevertheless be of high quality and will be purchased taking into consideration
the Fund's intent to value its securities at amortized cost and to stabilize the
net asset value of its shares at $1.00.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. This restriction is not applicable to commercial paper issued under Section
4(2) of the Securities Act of 1933. However, the Fund will limit investments in
illiquid securities, including certain restricted securities not determined by
the Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to 10%
of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) paper is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as the Fund, who agree that they
are purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis up to one-third of
the value of its total assets to broker/dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trustees, where
loaned securities are marked to market daily and where the Fund receives
collateral equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
CONCENTRATION OF INVESTMENTS. The Fund will not invest 25% or more of its total
assets in any one industry except that the Fund may invest 25% or more of its
total assets in the commercial paper issued by finance companies. The finance
companies in which the Fund expects to invest can be divided into two
categories, commercial finance companies and consumer finance companies.
Commercial finance companies are principally engaged in lending to corporations
or other businesses. Consumer finance companies are primarily engaged in lending
to individuals. Captive finance companies or finance subsidiaries which exist to
facilitate the marketing and financial activities of their parent will, for
purposes of industry concentration, be classified by the Fund in the industry of
its parent corporation.
In addition, the Fund may invest 25% or more of the value of its total assets in
any combination of cash or cash items, securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities and instruments secured by
these money market instruments, such as repurchase agreements.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, CCPs, Canadian Time Deposits, and Europaper are subject
to somewhat different risks than domestic obligations of domestic banks.
Examples of these risks include international, economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
bank, and the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for Canadian Time
Deposits, ECDs, ETDs and Yankee CDs because the banks issuing these instruments,
or their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. These factors will be
carefully considered by the Fund's adviser in selecting investments for the
Fund.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 15% of the value of its total assets to secure such borrowings; or
with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in the securities of any one issuer,
other than cash, cash items or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such
securities.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 5% of the value of its total assets in securities of
issuers that have records of less than three years of continuous
operations, including the operation of any predecessor.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank, as the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund, up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain states.
The Adviser may voluntarily choose to reimburse a portion of its fee and
certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994, offers a full range of financial services to the public
including commercial lending, depository services, cash management,
brokerage services, retail banking, credit card services, investment
advisory services, and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990, and as of
December 31, 1994, the Trust Division of the Compass Bank had approximately
$4.1 billion under administration of which it had investment discretion
over approximately $1.95 billion.
The Trust Division of Compass Bank provides investment advisory and
management services for the assets of individuals, pension and profit
sharing plans, endowments and foundations. Since 1972, the Trust Division
has managed pools of commingled funds which now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
Shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to Federated Securities Corp. an amount computed at an annual rate of
.25 of 1% of the average daily net asset value of the Shares to finance any
activity which is principally intended to result in the sale of Shares subject
to the Plan.
Federated Securities Corp. may, from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the Shares exceed such lower expense
limitation as the Distributor may, by notice to the Trust, voluntarily declare
to be effective.
The Distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers, including
Compass Bank and various other affiliates of Bancshares, to provide sales and/or
administrative services as agents for their clients or customers who
beneficially own Shares of the Fund. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions, including Compass Bank and various other affiliates of
Bancshares, will receive fees from the Distributor based upon Shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined, from time to time, by the
Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the Distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
SHAREHOLDER SERVICING ARRANGEMENTS. In addition to the fees paid by the
Distributor to financial institutions under the Plan as described above, the
Distributor may also pay financial institutions, including Compass Bank and
various other affiliates of Bancshares, a fee with respect to the average daily
net asset value of Shares held by their customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan, and, if
paid, will be reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by adding the interest of the Shares in the value
of all securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN INVESTMENT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through Compass Brokerage, Inc., a
subsidiary of Compass Bank, formerly known as Central Brokerage Services, Inc.
Investors may purchase Shares of the Fund on all business days except on days
which the New York Stock Exchange is closed and federal or state holidays
restricting wire transfers. In connection with the sale of Shares, the
Distributor may, from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
TO PLACE AN ORDER. An investor may call Compass Brokerage, Inc. at
1-800-239-1930 or locally at 205-558-5620. Payment may be made either by check,
wire transfer of federal funds, or direct debit from a Compass account.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Money Market Fund--Investment Shares." Orders are considered
received after payment by check is converted into federal funds.
To purchase by wire, investors should call their Compass representative prior to
11:00 a.m. (Eastern time). It is the responsibility of Compass to transmit
orders promptly. When payment is made through wire transfer of federal funds,
the order is considered received immediately upon receipt of the wire by
Compass. Payment by wire must be received before 11:00 a.m. (Eastern time) on
the same day as the order to earn dividends for that day. Shares cannot be
purchased on days on which the New York Stock Exchange is closed and on federal
or state holidays restricting wire transfers.
Under limited circumstances, arrangements may be made with Compass Brokerage,
Inc. for same day receipt of purchase orders, to earn dividends that day, if
such orders are received prior to 2:00 p.m. (Eastern time). Investors interested
in establishing such arrangements are requested to call Compass Brokerage, Inc.
at 1-800-239-1930, and are reminded that the Fund does reserve the right to
refuse any purchase request.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000, except for an IRA account,
which requires a minimum initial investment of $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by Federated Services Company. A shareholder may apply for
participation in this program by calling a Compass representative.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting a Compass representative in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by shareholders in writing to the Fund through a Compass
representative. Share purchase orders received by the Fund before 12:00 noon
(Eastern time) earn dividends that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange Shares of the Fund for shares in The Starburst
Government Income Fund, The Starburst Government Money Market Fund, The
Starburst Municipal Income Fund, and any other portfolios of The Starburst
Funds. 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. Neither the Trust nor any of the funds imposes any additional fees on
exchanges. Exchange requests cannot be executed on days on which the New York
Stock Exchange is closed or on applicable banking holidays for affiliates of
Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholders. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange Shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass or an authorized
broker and transmitted to Federated Services Company before 4:00 p.m. (Eastern
time) for Shares to be exchanged the same day. Shareholders who exchange into
Shares of the Fund will not receive a dividend from the Fund on the date of the
exchange.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Mutual Fund Coordinator, Compass Brokerage, Inc.,
701 S. 32nd Street, Birmingham, Alabama 35233. In addition, an investor may
exchange Shares by sending a written request to their authorized broker
directly.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Compass
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery. Send
mail requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Compass
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through a Compass
representative or authorized broker.
BY TELEPHONE. Shareholders may redeem Shares of the Fund by telephoning a
Compass representative. Shareholders may call 205-558-5620 in Birmingham,
Alabama or 1-800-239-1930. Redemption requests through Compass must be received
before 11:00 a.m. (Eastern time). It is the responsibility of Compass to
transmit orders to the Fund by 12:00 noon (Eastern time). If at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
Redemption requests must be received by and transmitted to Federated Services
Company before 12:00 noon (Eastern time) in order for the proceeds to be wired
that same day. Compass is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to Federated
Services Company.
For calls received by Compass before 11:00 a.m. (Eastern time) proceeds will
normally be wired the same day to Compass. For calls received after 11:00 a.m.
(Eastern time) proceeds will normally be wired the following business day. In no
event will proceeds be wired more than seven days after a proper request for
redemption has been received.
Under limited circumstances, arrangements may be made with Compass for same day
receipt of redemption proceeds, if such redemption requests are received prior
to 2:00 p.m. (Eastern time). Investors interested in establishing such
arrangements are requested to call Compass Brokerage, Inc. at 1-800-239-1930.
A daily dividend will be paid on Shares redeemed if the redemption request is
received by Compass after 11:00 a.m. (Eastern time). However, the proceeds are
normally not wired until the following business day. Redemption requests
received before 11:00 a.m. (Eastern time) will normally be paid the same day but
will not be entitled to that day's dividend.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Compass representative. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem Shares of the Fund by sending a written
request to the Fund through a Compass representative. The written request should
include the shareholder's name, the Fund name, the class name, the account
number, and the Share or dollar amount requested. Investors redeeming through
Compass should mail written requests to: Mutual Fund Coordinator, Compass
Brokerage, Inc., 701 S. 32nd Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by SAIF,
which is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantee from the above institutions. The Fund may elect in the future to limit
eligible signature guarantors to institutions that are members of a signature
guarantee program. The Fund and its transfer agent reserve the right to amend
these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House ("ACH") member.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid with respect to Shares, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. A shareholder may apply for participation in this
program by calling a Compass representative.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular fund or class, only shares of that fund or class are entitled to
vote. As of December 5, 1995, Compass Bank, Birmingham, Alabama, acting in
various capacities for numerous accounts, was the owner of record of
approximately 115,195,288 shares (84.88%) of the Trust Shares of the Fund, and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund intends to pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax advisers
-
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return, yield and effective
yield for Shares.
The yield of Shares represents the annualized rate of income earned on an
investment in Shares over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in Shares is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
Total return, yield and effective yield will be calculated separately for
Investment Shares and Trust Shares. Because Investment Shares are subject to
12b-1 fees, the total return, yield, and effective yield for Trust Shares, for
the same period, will exceed that of Investment Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund also offers another class of shares called Trust Shares. Trust Shares
are sold to accounts with which Compass Bank or bank affiliates of Bancshares
have a trust or agency relationship. Trust Shares are sold at net asset value.
Investments in Trust Shares are subject to a minimum initial investment of
$1,000.
Trust Shares are not sold pursuant to a 12b-1 Plan. Financial institutions and
brokers providing sales and/or administrative services may receive different
compensation depending upon which class of shares of the Fund are sold. The
Distributor may pay an administrative fee to a financial institution or broker
for administrative services provided to the Trust Shares class, and may pay such
a fee for administrative services provided to the Investment Shares class, in
addition to fees paid pursuant to the Rule 12b-1 Plan. Any fee paid by the
Distributor for administrative services will not be an expense of the class, but
will be reimbursed to the Distributor by the Adviser. Expense differences
between Investment Shares and Trust Shares may affect the performance of each
class.
The stated advisory fee is the same for both classes of shares.
To obtain more information and a prospectus for Trust Shares, investors may call
1-800-239-1930.
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Auditors on page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1990 1990(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.06 0.06
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03) (0.04) (0.06) (0.06)
- ----------------------------------------------------------- --------- --------- --------- --------- --------- -----
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- ----------------------------------------------------------- --------- --------- --------- --------- --------- -----
TOTAL RETURN (b) 5.51% 3.29% 2.84% 4.07% 6.44% 5.89%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.56% 0.75% 0.70% 0.64% 0.62%0.58%(c)
- -----------------------------------------------------------
Net investment income 5.38% 3.26% 2.83% 4.01% 6.13%0.80%(c)
- -----------------------------------------------------------
Expense waiver/reimbursement (d) 0.10% 0.04% 0.00% 0.01% 0.05%0.10%(c)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $141,434 $158,367 $131,508 $187,394$212,997$117,716
- -----------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from February 5, 1990 (date of initial
public investment) to October 31, 1990.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(SEE NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS)
THE STARBURST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
CERTIFICATES OF DEPOSIT--6.6%
- -------------------------------------------------------------------------------------------------
$ 5,000,000 National Westminster Bank, 5.75%, 11/27/1995 $ 4,999,947
----------------------------------------------------------------------------------
8,000,000 Societe Generale Bank, 5.75%, 12/15/1995 8,000,097
---------------------------------------------------------------------------------- --------------
TOTAL CERTIFICATES OF DEPOSIT 13,000,044
---------------------------------------------------------------------------------- --------------
*COMMERCIAL PAPER--60.1%
- -------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--2.5%
----------------------------------------------------------------------------------
5,000,000 Philip Morris Cos., Inc., 5.75%, 11/9/1995 4,993,611
---------------------------------------------------------------------------------- --------------
FINANCE AUTOMOTIVE--4.1%
----------------------------------------------------------------------------------
8,000,000 Vehicle Services of America, Inc., 5.70%, 12/6/1995 7,955,667
---------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--13.7%
----------------------------------------------------------------------------------
5,000,000 American General Finance Corp., 5.72%, 11/17/1995 4,987,289
----------------------------------------------------------------------------------
9,000,000 Bankamerica Corp., 5.73%, 11/3/1995--11/10/1995 8,992,678
----------------------------------------------------------------------------------
9,000,000 Merrill Lynch & Co., Inc., 5.73%, 11/10/1995 8,987,108
----------------------------------------------------------------------------------
4,000,000 Transamerica Finance Corp., 5.72%, 11/6/1995 3,996,822
---------------------------------------------------------------------------------- --------------
Total 26,963,897
---------------------------------------------------------------------------------- --------------
FUNDING CORPORATION--33.3%
----------------------------------------------------------------------------------
5,000,000 Black & Decker Recop Trust, 5.76%, 11/28/1995 5,000,000
----------------------------------------------------------------------------------
9,000,000 Circuit City Recop Trust, 5.73%, 11/08/1995 9,000,000
----------------------------------------------------------------------------------
9,446,000 Credit Card Securitization Corp., 5.73%, 12/14/1995 9,381,350
----------------------------------------------------------------------------------
9,000,000 Falcon Asset Securitization Corp., 5.70%--5.72%,
11/1/1995--11/13/1995 8,992,373
----------------------------------------------------------------------------------
9,000,000 General Electric Capital Corp., 5.60%--5.73%, 11/3/1995--12/20/1995 8,981,099
----------------------------------------------------------------------------------
9,000,000 Madison Funding Corp., 5.75%, 12/20/1995 8,929,563
----------------------------------------------------------------------------------
9,000,000 Receivables Capital Corp., 5.73%--5.74%, 11/16/1995--11/20/1995 8,975,313
----------------------------------------------------------------------------------
6,000,000 Safeco Credit Co., Inc., 5.69%, 12/19/1995 5,954,480
---------------------------------------------------------------------------------- --------------
Total 65,214,178
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
*COMMERCIAL PAPER--CONTINUED
- -------------------------------------------------------------------------------------------------
LEASING--2.5%
----------------------------------------------------------------------------------
$ 5,000,000 International Lease Finance Corp., 5.69%, 11/10/1995 $ 4,992,887
---------------------------------------------------------------------------------- --------------
UTILITIES--4.0%
----------------------------------------------------------------------------------
3,000,000 Southern California Edison Co., 5.60%, 12/21/1995 2,976,667
----------------------------------------------------------------------------------
5,000,000 Southwestern Bell Telephone Co., 5.65%, 1/30/1996 4,929,375
---------------------------------------------------------------------------------- --------------
Total 7,906,042
---------------------------------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 118,026,282
---------------------------------------------------------------------------------- --------------
CORPORATE NOTES--13.0%
- -------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--1.0%
----------------------------------------------------------------------------------
2,000,000 Philip Morris Cos., Inc., 8.55%, 7/26/1996 2,037,304
---------------------------------------------------------------------------------- --------------
FINANCE-AUTOMOTIVE--3.2%
----------------------------------------------------------------------------------
6,250,000 Ford Motor Credit Corp., 5.15%--8.90%, 12/11/1995--8/1/1996 6,300,529
---------------------------------------------------------------------------------- --------------
FINANCE-COMMERCIAL--4.0%
----------------------------------------------------------------------------------
7,770,000 Associates Corp. of North America, 5.75%--9.00%,
12/1/1995--10/15/1996 7,813,420
---------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--.5%
----------------------------------------------------------------------------------
1,000,000 Nationsbank Corp., 4.75%, 8/15/1996 989,852
---------------------------------------------------------------------------------- --------------
LEASING--2.5%
----------------------------------------------------------------------------------
4,900,000 International Lease Finance Corp., 5.75%--7.99%,
1/15/1996--10/15/1996 4,948,217
---------------------------------------------------------------------------------- --------------
UTILITIES--1.8%
----------------------------------------------------------------------------------
3,500,000 Southwestern Bell Telephone Co., 8.30%, 6/1/1996 3,547,733
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE NOTES 25,637,055
---------------------------------------------------------------------------------- --------------
**VARIABLE RATE INSTRUMENTS--13.3%
- -------------------------------------------------------------------------------------------------
8,000,000 Commonwealth Life Insurance Co., 6.08%, 1/3/1996++ 8,000,000
----------------------------------------------------------------------------------
8,000,000 National Home Life Assurance Co., 6.08%, 1/3/1996++ 8,000,000
----------------------------------------------------------------------------------
10,000,000 Student Loan Marketing Association, 5.825%, 11/27/1996 10,007,383
---------------------------------------------------------------------------------- --------------
TOTAL VARIABLE RATE INSTRUMENTS 26,007,383
---------------------------------------------------------------------------------- --------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
***REPURCHASE AGREEMENT--7.0%
- -------------------------------------------------------------------------------------------------
$ 13,667,000 Fuji Securities, Inc., 5.875%, dated 10/31/1995, due 11/1/1995 $ 13,667,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 196,337,764+
---------------------------------------------------------------------------------- --------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** Denotes variable rate securities which show current rate and next demand
date.
*** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+Also represents cost for federal tax purposes.
++Denotes restricted securities which are subject to restrictions on resale
under Federal Securities law. These securities are considered illiquid.
Note: The categories of investments are shown as a percentage of net assets
($196,348,411) at October 31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 196,337,764
- -------------------------------------------------------------------------------------------------
Cash 222
- -------------------------------------------------------------------------------------------------
Income receivable 783,653
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 21,509
- ------------------------------------------------------------------------------------------------- --------------
Total assets 197,143,148
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable $ 719,967
- -------------------------------------------------------------------------------------
Accrued expenses 74,770
- ------------------------------------------------------------------------------------- ----------
Total liabilities 794,737
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 196,348,411 shares outstanding $ 196,348,411
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
- -------------------------------------------------------------------------------------------------
$141,434,536 / 141,434,536 shares outstanding $ 1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
- -------------------------------------------------------------------------------------------------
$54,913,875 / 54,913,875 shares outstanding $ 1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 11,576,511
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 779,414
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 271,773
- -------------------------------------------------------------------------------------
Custodian fees 47,531
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 64,423
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,538
- -------------------------------------------------------------------------------------
Auditing fees 19,866
- -------------------------------------------------------------------------------------
Legal fees 4,130
- -------------------------------------------------------------------------------------
Portfolio accounting fees 47,513
- -------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 107,306
- -------------------------------------------------------------------------------------
Share registration costs 28,458
- -------------------------------------------------------------------------------------
Printing and postage 11,107
- -------------------------------------------------------------------------------------
Insurance premiums 7,741
- -------------------------------------------------------------------------------------
Miscellaneous 985
- ------------------------------------------------------------------------------------- ------------
Total expenses 1,392,785
- -------------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------
Waiver of investment advisory fee $ (188,477)
- ------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (42,922)
- ------------------------------------------------------------------------ -----------
Total waivers (231,399)
- ------------------------------------------------------------------------------------- ------------
Net expenses 1,161,386
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 10,415,125
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------
Net investment income $ 10,415,125 $ 5,694,713
- ------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------
Trust Shares (8,173,671) (4,486,408)
- -------------------------------------------------------------------------
Investment Shares (2,241,454) (1,208,305)
- ------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to
shareholders (10,415,125) (5,694,713)
- ------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------
Proceeds from sale of shares 714,974,884 712,751,811
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 2,128,998 1,156,479
- -------------------------------------------------------------------------
Cost of shares redeemed (718,844,833) (687,107,098)
- ------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions (1,740,951) 26,801,192
- ------------------------------------------------------------------------- --------------- ---------------
Change in net assets (1,740,951) 26,801,192
- -------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------
Beginning of period 198,089,362 171,288,170
- ------------------------------------------------------------------------- --------------- ---------------
End of period $ 196,348,411 $ 198,089,362
- ------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Trust consists of four diversified portfolios. The financial statements
included herein are only those of The Starburst Money Market Fund (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The Fund offers two classes of
shares: Trust and Investment.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Funds use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Distributions to
shareholders are recorded on the ex-dividend date. Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized if required by the Internal Revenue Code, as amended (the
"Code").
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At October 31, 1995, capital paid-in aggregated $196,348,411.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
TRUST SHARES 1995 1994
<S> <C> <C>
Shares sold 334,084,839 349,300,863
- ----------------------------------------------------------------------------
Shares redeemed (351,017,125) (322,442,175)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Trust share transactions (16,932,286) 26,858,688
- ---------------------------------------------------------------------------- -------------- --------------
<CAPTION>
YEAR ENDED OCTOBER 31,
INVESTMENT SHARES 1995 1994
<S> <C> <C>
Shares sold 380,890,049 363,450,948
- ----------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 2,128,994 1,156,479
- ----------------------------------------------------------------------------
Shares redeemed (367,827,708) (364,664,923)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Investment share
transactions 15,191,335 (57,496)
- ---------------------------------------------------------------------------- -------------- --------------
Net change resulting from Fund share transactions (1,740,951) 26,801,192
- ---------------------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate any
voluntary waiver any time at its sole discretion.
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. This fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Investment Shares, annually, to compensate FSC. The distributor may voluntarily
choose to waive a portion of its fee. The distributor can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund. This fee is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST MONEY MARKET FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Money Market Fund (a portfolio of
The Starburst Funds) as of October 31, 1995, and the related statement of
operations for the year then ended, and the statement of changes in net assets
for the years ended October 31, 1995 and 1994, and the financial highlights (see
pages 2 and 19) for the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst Money
Market Fund as of October 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Money Market Fund
Investment Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
MONEY MARKET FUND
INVESTMENT SHARES
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
An Open-End, Management
Investment Company
December 31, 1995
-------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245502
1010704A-R (12/95)
93/33-2398
THE STARBURST MONEY MARKET FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
INVESTMENT SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus
of Investment Shares of The Starburst Money Market Fund (the "Fund") dated
December 31, 1995. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write the Fund or call toll-free 1-800-239-1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
Custodian 25
Transfer Agent and Dividend
GENERAL INFORMATION ABOUT THE FUND1
Disbursing Agent 25
INVESTMENT OBJECTIVE AND POLICIES1 Independent Auditors 25
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 3
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Credit Enhancement 5
Restricted and Illiquid Securities
5
Lending of Portfolio Securities 6
Investment Limitations 6
Regulatory Compliance 10
THE STARBURST FUNDS MANAGEMENT 11
Fund Ownership 19
Trustees Compensation 20
Trustee Liability 21
INVESTMENT ADVISORY SERVICES 22
Adviser to the Fund 22
Advisory Fees 22
BROKERAGE TRANSACTIONS 23
OTHER SERVICES 25
Fund Administration 25
PURCHASING INVESTMENT SHARES 26
Distribution Plan 26
Conversion to Federal Funds 27
DETERMINING NET ASSET VALUE 27
Use of the Amortized Cost Method27
REDEEMING INVESTMENT SHARES 29
Redemption in Kind 30
MASSACHUSETTS PARTNERSHIP LAW 30
TAX STATUS 31
The Fund's Tax Status 31
Shareholders' Tax Status 31
TOTAL RETURN 32
YIELD 33
EFFECTIVE YIELD 33
PERFORMANCE COMPARISONS 34
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust dated
August 7, 1989.
Shares of the Fund are offered in two classes, known as Investment Shares and
Trust Shares. This Statement of Additional Information relates to the Investment
Shares ("Shares") of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders. The investment policies described below may be changed
by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in money market instruments which mature in thirteen
months or less and which include, but are not limited to, commercial paper and
variable amount demand master notes, bank instruments, U.S. government
obligations and repurchase agreements.
The instruments of banks and savings associations whose deposits are insured by
the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC") or the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC, such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, are not
necessarily guaranteed by those organizations.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, the
Fund may invest in:
oEurodollar Certificates of Deposit issued by foreign branches of U.S. or
foreign banks;
oEurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
oCanadian Time deposits, which are U.S. dollar-denominated deposits issued
by branches of major Canadian banks located in the United States; and
oYankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and held
in the United States.
RATINGS.
A nationally recognized statistical rating organizations' ("NRSROs")
highest rating category is determined without regard for sub-categories and
gradations. For example, securities rated A-1 or A-1+ by Standard & Poor's
Ratings Group ("S&P"), Prime-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund
will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in the highest short-term
rating category; currently, such securities must be rated by two NRSROs in
their highest rating category. See "Regulatory Compliance."
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit Banks;
oNational Bank for Cooperatives;
oFederal Home Loan Banks;
oFarmers Home Administration; and
oFederal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreement.
CREDIT ENHANCEMENT
The Fund typically evaluates the credit quality and ratings of credit enhanced
securities based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"), rather than the issuer.
Generally, the Fund will not treat credit-enhanced securities as being issued by
the credit enhancer for diversification purposes. However, under certain
circumstances applicable regulations may require the Fund to treat securities as
having been issued by both the issuer and the credit enhancer.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under an SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is
a non-exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resale of otherwise restricted
securities to qualified institutional buyers. The Rule was expected to further
enhance the liquidity of the secondary market for securities eligible for resale
under Rule 144A. The Fund believes that the Staff of the SEC has left the
question of determining the liquidity of all restricted securities (eligible for
resale under Rule 144A) to the Trustees. The Board considers the following
criteria in determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, the Fund will restrict the purchase
of portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
value not exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets of the Fund at the time of the pledge.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry except that the Fund will invest 25% of the value of its
total assets in the commercial paper issued by finance companies.
The Fund may invest more than 25% of the value of its total assets in cash
or cash items, securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
INVESTING IN COMMODITIES AND REAL ESTATE
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. The Fund will not purchase or sell real
estate, although it may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities which are subject to legal or contractual restrictions on
resale, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements or engaging in other transactions where
permitted by the Fund's investment objective, policies, limitations or its
Declaration of Trust.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (other than cash, cash items
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value
of its total assets would be invested in the securities of that issuer.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies except
as part of a merger, consolidation, reorganization, or other acquisition.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits with maturities over seven days, and certain restricted securities
not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money, pledge securities, invest in illiquid
securities, restricted securities or engage in when-issued and delayed delivery
transactions, or reverse repurchase agreements in excess of 5% of the value of
its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. For example, with limited exceptions, Rule 2a-7 prohibits the investment
of more than 5% of the Fund's total assets in the securities of any one issuer,
although the Fund's investment limitation only requires such 5% diversification
with respect to 75% of its assets. The Fund will invest more than 5% of its
assets in any one issuer only under the circumstances permitted by Rule 2a-7.
The Fund will also determine the effective maturity of its investments, as well
as its ability to consider a security as having received the requisite short-
term ratings by NRSROs (nationally recognized statistical rating organizations),
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
THE STARBURST FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with The Starburst Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of the
Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant
Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between meetings
of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, the following shareholders of record owned 5% or more of
the outstanding Investment shares of the Fund: Mobile Aerospace Engineering,
Inc., Mobile, Alabama owned approximately 8,082,500 shares (15.08%); Pilot
Catastrophe Services, Inc., Mobile, Alabama owned approximately 4,608,493 shares
(8.60%); and Compass Bancshares Insurance, Inc., Birmingham, Alabama, acting in
various capacities for numerous accounts, owned approximately 3,668,171 shares
(6.84%).
As of December 5, 1995, the following shareholder of record owned 5% or more of
the outstanding Trust shares of the Fund: Compass Bank, Birmingham, Alabama,
acting in various capacities for numerous accounts, owned approximately
115,195,288 shares (84.88%); Compass Bank, for the account of River Oaks
Trust/ERISA, owned approximately 12,401,800 shares (9.14%); and Compass Bank,
for the account of River Oaks Trust Co., owned approximately 8,110,898 shares
(5.98%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc. ("Bancshares"),
formerly known as Central Bancshares of the South, Inc., as bank holding company
organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Compass Bank to restrict the flow
of non-public information, Fund investments are typically made without any
knowledge of Compass Bank's or its affiliates' lending relationships with an
issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser earned
$779,414, $706,200, and $825,361, respectively, which was reduced by $188,477,
$63,808, and $0, respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended October 31, 1995, 1994, and 1993, the
Fund incurred administrative services fees of $271,773, $241,658, and $279,069,
respectively.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, serves as transfer agent and dividend disbursing agent for the Fund.
The fee paid to the transfer agent is based upon the size, type and number of
accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING INVESTMENT SHARES
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing Shares of the Fund is
explained in the prospectus under "Investing in Investment Shares."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
DISTRIBUTION PLAN
With respect to the Investment Shares class of the Fund, the Trust has adopted a
Plan pursuant to Rule 12b-1 (the "Plan") which was promulgated by the Securities
and Exchange Commission under the Investment Company Act of 1940. The Plan
provides for payment of fees to Federated Securities Corp. to finance any
activity which is principally intended to result in the sale of the Fund's
Shares subject to the Plan. Such activities may include the advertising and
marketing of Shares; preparing, printing and distributing prospectuses and sales
literature to prospective shareholders, brokers or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the distributor may
pay fees to brokers for distribution and administrative services and to
administrators for administrative services as to Shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to:
communicating account openings; communicating account closings; entering
purchase transactions; entering redemption transactions; providing or arranging
to provide accounting support for all transactions; wiring funds and receiving
funds for Share purchases and redemptions; confirming and reconciling all
transactions; reviewing the activity in Fund accounts; and providing training
and supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of Shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
For the fiscal year ended October 31, 1995, the Fund paid distribution services
fees of $107,306, of which $42,922 was voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
The Fund attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than .5 of 1%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average portfolio
maturity) to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risks and have
received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity
(not more than 90 days) appropriate to the objective of maintaining a
stable net asset value of $1.00 per share. In addition, no instrument with
a remaining maturity of more than thirteen months can be purchased by the
Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares of
the Fund, computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above, may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on Shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING INVESTMENT SHARES
The Fund redeems Shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Investment Shares." Although
Federated Services Company does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of wire-transferred redemptions
of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the respective
class' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation or instrument that the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional Shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
TOTAL RETURN
The Fund's average annual total return for Investment Shares for the fiscal year
ended October 31, 1995, and for the period from April 29, 1991 (date of initial
public investment) to October 31, 1995, was 5.35% and 4.00%, respectively.
The Fund's average annual total return for Trust Shares for the fiscal year
ended October 31, 1995, and for the period from February 5, 1990 (date of
initial public investment) to October 31, 1995, was 5.51% and 4.88%,
respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
The yield for the Investment Shares for the seven-day period ended October 31,
1995 was 5.22%. The yield for the Trust Shares for the same period was 5.37%.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased Shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
EFFECTIVE YIELD
The effective yield for Investment Shares for the seven-day period ended October
31, 1995 was 5.36%. The effective yield for the Trust Shares for the same period
was 5.52%.
The Fund's effective yield for both classes of shares is computed by compounding
the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Fund's performance of both classes of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Fund's or either class of shares expenses; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all income dividends and capital gains distributions,
if any. From time to time, the Fund will quote its Lipper ranking in the
"money market instrument funds" category in advertising and sales
literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
Cusip 855245502
1010704B-R (12/95)
THE STARBURST MUNICIPAL INCOME FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
PROSPECTUS
The shares offered by this prospectus represent interests in a diversified
portfolio known as The Starburst Municipal Income Fund (the "Fund"). The Fund is
one of a series of investment portfolios in The Starburst Funds (the "Trust"),
an open-end, management investment company (a mutual fund).
The investment objective of the Fund is to provide current income exempt from
federal regular income tax. The Fund pursues this investment objective by
investing primarily in a portfolio of municipal securities with an average
weighted maturity of 15 years or less.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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 LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling toll free 1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Municipal Bond Insurance 6
Investment Risks 9
Investment Limitations 9
FUND INFORMATION 10
- ------------------------------------------------------
Management of the Fund 10
Distribution of Fund Shares 11
Administration of the Fund 13
NET ASSET VALUE 13
- ------------------------------------------------------
INVESTING IN THE FUND 13
- ------------------------------------------------------
Share Purchases 13
Minimum Investment Required 14
What Shares Cost 14
Reducing the Sales Load 15
Systematic Investment Program 16
Certificates and Confirmations 16
Dividends 16
Capital Gains 16
EXCHANGE PRIVILEGE 16
- ------------------------------------------------------
REDEEMING SHARES 18
- ------------------------------------------------------
Systematic Withdrawal Program 19
Accounts with Low Balances 19
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
EFFECT OF BANKING LAWS 20
- ------------------------------------------------------
TAX INFORMATION 21
- ------------------------------------------------------
Federal Income Tax 21
State and Local Taxes 21
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
FINANCIAL STATEMENTS 23
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 33
- ------------------------------------------------------
ADDRESSES 34
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. 2.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable)........................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)........................................................................ 0.00%
12b-1 Fee (after waiver) (2)............................................................................. 0.06%
Total Other Expenses (after waiver) (3).................................................................. 0.86%
Total Fund Operating Expenses (4).............................................................. 0.92%
</TABLE>
(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%.
(2) Under the Fund's rule 12b-1 Distribution Plan, the Fund can pay the
distributor up to 0.25% as a 12b-1 fee. The 12b-1 fee has been reduced to
reflect the voluntary waiver of compensation by the distributor. The
distributor can terminate this voluntary waiver at any time at its sole
discretion.
(3) Other expenses have been reduced to reflect the voluntary waiver of a
portion of the administrators fee. The administrator can terminate this
voluntary waiver at any time at its sole discretion. Other operating
expenses would have been 0.99% absent the voluntary waiver by the
administrator.
(4) Total Fund Operating Expenses would have been 2.00% absent the voluntary
waivers by the investment adviser, the distributor, and the administrator.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The Fund charges no contingent deferred sales charge.......... $34 $54 $75 $135
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE STARBURST MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992*
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 10.82 $ 10.08 $ 9.90
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------
Net investment income 0.43 0.44 0.47 0.46
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.61 (0.70) 0.74 0.18
- ------------------------------------------------------------------------- --------- --------- --------- ---------
Total from investment operations 1.04 (0.26) 1.21 0.64
- ------------------------------------------------------------------------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------
Distributions from net investment income (0.43) (0.44) (0.47) (0.46)
- -------------------------------------------------------------------------
Distributions in excess of net investment income (a) 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------
Distributions from net realized gain on investment transactions 0.00 (0.07) 0.00 0.00
- ------------------------------------------------------------------------- --------- --------- --------- ---------
Total distributions (0.43) (0.51) (0.47) (0.46)
- ------------------------------------------------------------------------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.66 $ 10.05 $ 10.82 $ 10.08
- ------------------------------------------------------------------------- --------- --------- --------- ---------
TOTAL RETURN (b) 10.65% (2.49%) 12.22% 6.60%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------
Expenses 0.92% 0.75% 0.52% 0.77%**
- -------------------------------------------------------------------------
Net investment income 4.20% 4.18% 4.41% 4.89%**
- -------------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.08% 0.89% 1.26% 1.25%**
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $19,486 $27,911 $42,966 $14,487
- -------------------------------------------------------------------------
Portfolio turnover 7% 18% 27% 48%
- -------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1991 (date of initial
public investment) to October 31, 1992.
** Computed on an annualized basis.
(a) Distributions in excess of net investment income in 1993 ($372) were a
result of certain book and tax timing differences. These distributions did
not result in a return of capital for federal income tax purposes.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. This prospectus relates only to The Starburst
Funds' municipal bond portfolio, known as The Starburst Municipal Income Fund.
The Fund is primarily designed for customers of Compass Bank and its
correspondents or affiliates who desire a convenient means of accumulating an
interest in a professionally managed, diversified portfolio primarily investing
in municipal securities with an average weighted maturity of 15 years or less. A
minimum initial investment of $1,000 is required. Subsequent investments must be
in amounts of at least $100.
Fund shares are currently sold at net asset value plus an applicable sales load
and redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax. (Federal regular income tax does not
include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund attempts to achieve its investment objective by investing at least 80%
of its net assets in a diversified portfolio of municipal securities whose
average weighted maturity is 15 years or less. This policy cannot be changed
without approval of shareholders. Unless stated otherwise, the investment
policies set forth below may be changed by the Board of Trustees (the
"Trustees") without the approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS
MUNICIPAL SECURITIES. The municipal securities in which the Fund invests are:
obligations issued by or on behalf of any state, territory, or possession
of the United States, including the District of Columbia, or any
political subdivision or agency of any of these; and
participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the investment adviser to the Fund,
exempt from federal regular income tax. It is likely that shareholders who are
subject to alternative minimum tax will be required to include interest from a
portion of the municipal securities owned by the Fund in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.
CHARACTERISTICS. The municipal securities which the Fund buys are subject
to the following quality standards:
rated A or above by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa,
or A) or A or above by Standard & Poor's Ratings Group ("S & P") (AAA,
AA, or A). A description of the rating categories is contained in the
Appendix to the Statement of Additional Information;
insured by a municipal bond insurance company which is rated Aaa by
Moody's or AAA by S & P;
guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
fully collateralized by an escrow of U.S. government securities; or
unrated if determined to be of equivalent quality to one of the foregoing
rating categories by the Fund's adviser.
If a security loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings associations and
insurance companies. These participation interests would give the Fund an
undivided interest in one or more underlying municipal securities. The financial
institutions from which the Fund purchases participation interests frequently
provide or obtain irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Trustees will determine that
participation interests meet the prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which the
Fund purchases may have variable interest rates. Variable interest rates are
ordinarily stated as a percentage of the prime rate of a bank or some similar
standard, such as the 91-day U.S. Treasury bill rate. Variable interest rates
are adjusted on a periodic basis, e.g., every 30 days. The Fund will consider
this adjustment period to be the maturity of the security for purposes of
determining the weighted average maturity of the portfolio. Many variable rate
municipal securities are subject to payment of principal on demand by the Fund
usually in not more than seven days. If a variable rate municipal security does
not have this demand feature, or the demand feature extends beyond seven days
and the Fund's adviser believes the security cannot be sold within seven days,
the Fund's adviser may consider the security to be illiquid. However, the Fund's
investment limitations provide that it will not invest more than 15% of its net
assets in illiquid securities. All variable rate municipal securities will meet
the quality standards for the Fund. The Fund's investment adviser has been
instructed by the Trustees to monitor the pricing, quality and liquidity of the
variable rate municipal securities, including participation interests held by
the Fund on the basis of published financial information and reports of the
rating agencies and other analytical services.
INDUSTRIAL DEVELOPMENT BONDS. Industrial development bonds are generally issued
to provide financing aid to acquire sites or construct and equip facilities for
use by privately or publicly owned entities. Most state and local governments
have the power to permit the issuance of industrial development bonds to provide
financing for such entities in order to encourage the corporations to locate
within their communities. Industrial development bonds, which are in most cases
revenue bonds, do not represent a pledge of credit or create any debt of a
municipality or a public authority, and no taxes may be levied for the payment
of principal or interest on these bonds. The principal and interest is payable
solely out of monies generated by the entities using or purchasing the sites or
facilities. These bonds will be considered municipal securities eligible for
purchase by the Fund if the interest paid on them, in the opinion of bond
counsel or in the opinion of the officers of the Fund and/or the adviser of the
Fund, is exempt from federal regular income tax. The Fund may invest more than
25% of its assets in industrial development bonds (including pollution control
revenue bonds).
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but it will not own more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general. The Fund will invest
in other investment companies primarily for the purpose of investing short-term
cash which has not yet been invested in other portfolio instruments. The Fund's
adviser will waive its investment advisory fee on assets invested in securities
of open-end investment companies.
RESTRICTED SECURITIES. The Fund may invest up to 10% of its net assets in
restricted securities. Restricted securities are any securities in which the
Fund may otherwise invest pursuant to its investment objective and policies but
which are subject to restrictions on resale under federal securities laws. To
the extent these securities are deemed to be illiquid, the Fund will limit its
purchase together with other securities considered to be illiquid to 15% of its
net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may purchase put options on
municipal securities in an amount up to 5% of its total assets or may purchase
municipal securities accompanied by agreements of sellers to repurchase them at
the Fund's option.
FUTURES CONTRACTS AND OPTIONS TO BUY OR SELL SUCH CONTRACTS. The Fund reserves
the right to enter into interest rate futures contracts and options to buy or
sell such contracts as a hedge without shareholder action. Before the Fund
begins using this investment technique, it will notify shareholders.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term, tax-exempt or taxable
temporary investments. These temporary investments include: tax-exempt variable
and floating rate demand notes; tax-free commercial paper; other temporary
municipal securities; notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; shares of other investment companies; and repurchase
agreements (arrangements in which the organization selling the Fund a bond or
temporary investment agrees at the time of sale to repurchase it at a mutually
agreed upon time and price).
There are no rating requirements applicable to temporary investments with the
exception of temporary municipal securities which are subject to the same rating
requirements as all other municipal securities in which the Fund invests.
However, the investment adviser will limit temporary investments to those having
one or more of the characteristics set forth under "Acceptable Investments--
Municipal Securities--Characteristics."
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities. Municipal securities include industrial development bonds issued by
or on behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
MUNICIPAL BOND INSURANCE
The Fund may purchase municipal securities covered by insurance which guarantees
the timely payment of principal at maturity and interest on such securities.
These insured municipal securities are either (1) covered by an insurance policy
applicable to a particular security, whether obtained by the issuer of the
security or by a third party ("Issuer-Obtained Insurance") or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the Fund (the "Policies").
The Fund will require or obtain municipal bond insurance when purchasing
municipal securities which would not otherwise meet the Fund's quality
standards. The Fund may also require or obtain municipal bond insurance when
purchasing or holding specific municipal securities when, in the opinion of the
Fund's investment adviser, such insurance would benefit the Fund, for example,
through improvement of portfolio quality or increased liquidity of certain
securities. The Fund's investment adviser anticipates that not more than 50% of
the Fund's net assets will be invested in municipal securities which are
insured.
Issuer-Obtained Insurance policies are noncancellable and continue in force as
long as the municipal securities are outstanding and their respective insurers
remain in business. If a municipal security is covered by Issuer-Obtained
Insurance, then such security need not be insured by the Policies purchased by
the Fund.
The Fund may purchase two types of Policies issued by municipal bond insurers.
One type of Policy covers certain municipal securities only during the period in
which they are in the Fund's portfolio. In the event that a municipal security
covered by such a Policy is sold from the Fund, the insurer of the relevant
Policy will be liable only for those payments of interest and principal which
are then due and owing at the time of sale.
The other type of Policy covers municipal securities not only while they remain
in the Fund's portfolio but also until their final maturity even if they are
sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance. Payments received from municipal bond issuers may not be
tax-exempt income to shareholders of the Fund.
The premiums for the Policies are paid by the Fund and the yield on the Fund's
portfolio is reduced thereby. Premiums for the Policies are paid by the Fund
monthly, and are adjusted for purchases and sales of municipal securities during
the month. Depending upon the characteristics of the municipal security held by
the Fund, the annual premiums for the Policies are estimated to range from 0.1%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.
The Fund may purchase Policies from MBIA Corp. ("MBIA"), AMBAC Indemnity
Corporation ("AMBAC"), and Financial Guaranty Insurance Company ("FGIC"), or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S & P. A
more detailed description of these insurers may be found in the Statement of
Additional Information. Each Policy will obligate the insurer to provide
insurance payments pursuant to valid claims under the Policy equal to the
payment of principal and interest on those municipal securities it insures. The
Policies will have the same general characteristics and features. A municipal
security will be eligible for coverage if it meets certain requirements set
forth in a Policy. In the event interest or principal on an insured municipal
security is not paid when due, the insurer covering the security will be
obligated under its Policy to make such payment not later than 30 days after it
has been notified by the Fund that such non-payment has occurred. The insurance
feature reduces financial risk, but the cost thereof and the restrictions on
investments imposed by the guidelines in the insurance policies reduce the yield
to shareholders.
MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on securities
insured by their Policies so long as such securities remain in the Fund's
portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any reason
except failure to pay premiums when due. MBIA, AMBAC, and FGIC will reserve the
right at any time upon 90 days' written notice to the Fund to refuse to insure
any additional municipal securities purchased by the Fund after the effective
date of such notice. The Trustees will reserve the right to terminate any of the
Policies if it determines that the benefits to the Fund of having its portfolio
insured under such Policy are not justified by the expense involved.
Additionally, the Trustees reserves the right to enter into contracts with
insurance carriers other than MBIA, AMBAC, or FGIC if such carriers are rated
AAA by S & P or Aaa by Moody's.
Under the Policies, municipal bond insurers unconditionally guarantee to the
Fund the timely payment of principal and interest on the insured municipal
securities when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than acceleration
by reason of mandatory sinking fund payments), default or otherwise, the
payments guaranteed will be made in such amounts and at such times as payments
of principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any amounts
received by the Fund from any trustee for the municipal bond issuers or from any
other source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value for the shares of the Fund, or
payments of any tender purchase price upon the tender of the municipal
securities. The Policies also do not insure against nonpayment of principal of
or interest on the securities resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for the securities.
However, with respect to small issue industrial development municipal bonds and
pollution control revenue municipal bonds covered by the Policies, the municipal
bond insurers guarantee the full and complete payments required to be made by or
on behalf of an issuer of such municipal securities if there occurs any change
in the tax-exempt status of interest on such municipal securities, including
principal, interest or premium payments, if any, as and when required to be made
by or on behalf of the issuer pursuant to the terms of such municipal
securities. A "when issued" municipal security will be covered under the
Policies upon the settlement date of the issuer of such "when issued" municipal
securities. In determining whether to insure municipal securities held by the
Fund, each municipal bond insurer has applied its own standard, which
corresponds generally to the standards it has established for determining the
insurability of new issues of municipal securities. This insurance is intended
to reduce financial risk, but the cost thereof and compliance with investment
restrictions imposed under the Policies will reduce the yield to shareholders of
the Fund.
If a Policy terminates as to municipal securities sold by the Fund on the date
of sale, in which event municipal bond insurers will be liable only for those
payments of principal and interest that are then due and owing, the provision
for insurance will not enhance the marketability of securities held by the Fund,
whether or not the securities are in default or subject to significant risk of
default, unless the option to obtain permanent insurance is exercised. On the
other hand, since Issuer-Obtained Insurance will remain in effect as long as the
insured municipal securities are outstanding, such insurance may enhance the
marketability of municipal securities covered thereby, but the exact effect, if
any, on marketability cannot be estimated. The Fund generally intends to retain
any securities that are in default or subject to significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated "Baa" by Moody's or
"BBB" by S & P) that are not in default. To the extent that the Fund holds
defaulted securities, it may be limited in its ability to manage its investment
and to purchase other municipal securities. Except as described above with
respect to securities that are in default or subject to significant risk of
default, the Fund will not place any value on the insurance in valuing the
municipal securities that it holds.
INVESTMENT RISKS
The value of the Fund's shares will fluctuate. The amount of this fluctuation is
dependent upon the quality and maturity of the municipal securities in the
Fund's portfolio, as well as on market conditions. Municipal security prices are
interest rate sensitive, which means that their value varies inversely with
market interest rates. Thus, if market interest rates have increased from the
time a security was purchased, the security, if sold, might be sold at a price
less than its cost. Similarly, if market interest rates have declined from the
time a security was purchased, the security, if sold, might be sold at a price
greater than its cost. (In either instance, if the security was held to
maturity, no loss or gain normally would be realized as a result of interim
market fluctuations.)
Yields on municipal securities depend on a variety of factors, including: the
general conditions of the money market and the taxable and municipal security
markets; the size of the particular offering; the maturity of the obligations;
and the credit quality of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
municipal securities to meet their obligations for the payment of interest and
principal when due.
Further, any adverse economic conditions or developments affecting the states or
municipalities could impact the Fund's portfolio. Investing in municipal
securities which meet the Fund's quality standards may not be possible if the
states and municipalities do not maintain their current credit ratings.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings;
purchase or sell puts, calls, straddles, spreads, or any combination of
them, except that the Fund may purchase put options on municipal
securities in an amount up to 5% of the value of its total assets and
purchase securities accompanied by agreements of sellers to repurchase
them at the Fund's option;
invest more than 10% of its net assets in securities subject to
restrictions on resale under the Securities Act of 1933; or
with respect to securities comprising 75% of its assets, invest more than
5% of its total assets in securities of one issuer (except cash and
certain money market instruments, and U.S. government obligations).
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 15% of the value of its net assets in illiquid
securities including repurchase agreements providing for settlement in
more than seven days after notice, certain securities determined by the
Trustees not to be liquid, participation interests and variable rate
municipal securities without a demand feature or with a demand feature of
longer than seven days and which the adviser believes cannot be sold
within seven days; or
invest more than 5% of its total assets in industrial development bonds,
the principal and interest of which are paid by companies (or guarantors,
where applicable) which have an operating history of less than three
years.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank as the Fund's
investment adviser (the "Adviser") subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to reimburse a portion of its fee and certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994, offers a full range of financial services to the public
including commercial lending, depository services, cash management,
brokerage services, retail banking, credit card services, investment
advisory services, and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990 and as of December 31, 1994, the Trust Division of Compass Bank had
approximately $4.1 billion under administration of which it had investment
discretion over approximately $1.95 billion. The Trust Division of Compass
Bank provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations.
Since 1972, the Trust Division has managed pools of commingled funds which
now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
The Fund is managed by members of the Starburst Portfolio Management
Committee. No one person is primarily responsible for the management of the
Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to Federated Securities Corp. an amount computed at an annual rate of
.25 of 1% of the average daily net asset value of the shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan.
Federated Securities Corp. may, from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the Distributor may, by notice to the Trust, volun-
tarily declare to be effective.
The Distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers, including
Compass Bank and various other affiliates of Bancshares, to provide sales and/or
administrative services as agents for their clients or customers who
beneficially own shares of the Fund. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions, including Compass Bank and various other affiliates of
Bancshares, will receive fees from the Distributor based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined, from time to time, by the
Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the Distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
SHAREHOLDER SERVICING ARRANGEMENTS. In addition to the fees paid by the
Distributor to financial institutions under the Plan as described above, the
Distributor may also pay financial institutions, including Compass Bank and
various other affiliates of Bancshares, a fee with respect to the average daily
net asset value of shares held by their customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan, and, if
paid, will be reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through Compass Brokerage, Inc., a
subsidiary of Compass Bank, formerly known as Central Brokerage Services, Inc.
Investors may purchase shares of the Fund on all business days except on days
which the New York Stock Exchange is closed and federal or state holidays
restricting wire transfers. In connection with the sale of Fund shares, the
Distributor may, from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
TO PLACE AN ORDER. An investor (including Compass customers) may call Compass
Brokerage, Inc.; customers in Birmingham, Alabama call at 205-558-5620. Other
customers may call 1-800-239-1930. Payment may be made either by check,
wire-transfer of federal funds or direct debit from a Compass Bank account.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Municipal Income Fund." Orders are considered received after
payment by check is converted into federal funds.
To purchase by wire, investors should call their Compass representative for
wiring instructions at 205-558-5620 in Birmingham, Alabama or 1-800-239-1930.
Payment for all orders must be received within three days of placing the order.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed and on federal or state holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS A SALES LOAD AS A
PERCENTAGE OF PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million but less than $2 million 0.25% 0.25%
$2 million or more 0.00% 0.00%
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales load, by the Trust Division of Compass Bank or other
affiliates of Bancshares for funds which are held in a fiduciary, agency,
custodial, or similar capacity. Directors and employees of the Fund, Bancshares
or its affiliates, or Federated Securities Corp. or their affiliates, or any
bank or investment dealer who has a sales agreement with Federated Securities
Corp. with regard to the Fund, and their spouses and children under 21 may also
buy shares at net asset value, without a sales load.
SALES LOAD REALLOWANCE. For sales of shares of the Fund, Compass or any
authorized dealer will normally receive up to 85% of the applicable sales load.
Any portion of the sales load which is not paid to Compass or registered
broker/dealers will be retained by the Distributor. However, the Distributor
will periodically, uniformly offer to pay to dealers additional amounts in the
form of cash or promotional incentives, such as reimbursement of certain
expenses of qualified employees and their spouses to attend informational
meetings about the Fund or other special events at recreational-type facilities,
or items of material value. Such payments, all or a portion of which may
be paid from the sales load the Distributor normally retains or any other source
available to it, will be predicated upon the amount of the shares of the Fund
that are sold by the dealer.
The sales load for shares sold other than through Compass or registered
broker/dealers will be retained by the Distributor. The distributor may pay fees
to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of shares of the Fund.
REDUCING THE SALES LOAD
The sales load can be reduced on the purchase of Fund shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent; or
using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales load paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales load.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$490,000 and purchases $10,000 more at the public offering price, the sales load
on the additional purchase according to the schedule now in effect would be
2.00%, not 2.50%.
To receive the sales load reduction, Compass Brokerage, Inc. or the Distributor
must be notified by the shareholder in writing at the time the purchase is made
that Fund shares are already owned or that purchases are being combined. The
Fund will reduce the sales load after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $500,000 of
Fund shares over the next 13 months, the sales load may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 2.50% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
load applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load. Compass
Brokerage, Inc. or the distributor must be notified by the shareholder in
writing or by his financial institution of the reinvestment, in order to
eliminate a sales load. If the shareholder redeems his shares in the Fund, there
may be tax consequences.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by Federated Services Company, plus the applicable sales load. A
shareholder may apply for participation in this program by calling a Compass
representative.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting a Compass representative in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional shares on payment dates without a sales load unless cash payments are
requested by writing to the Fund or Compass as appropriate.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange shares of the Fund for shares in The Starburst
Government Income Fund, The Starburst Government Money Market Fund, The
Starburst Money Market Fund, and any other portfolio of The Starburst Funds.
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. Neither the Trust nor any of the funds imposes any additional fees on
exchanges. Exchange requests cannot be executed on days on which the New York
Stock Exchange is closed or on applicable banking holidays for affiliates of
Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass or an authorized
broker and transmitted to Federated Services Company before 4:00 p.m. (Eastern
time) for shares to be exchanged the same day.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Mutual Fund Coordinator, Compass Brokerage, Inc.,
701 S. 32nd Street, Birmingham, Alabama 35233. In addition, an investor may
exchange shares by sending a written request to their authorized broker
directly.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Compass
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery. Send
mail requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Compass
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through a Compass
representative or authorized broker.
BY TELEPHONE. Shareholders may redeem shares of the Fund by telephoning a
Compass representative at 205-558-5620 in Birmingham, Alabama or 1-800-239-1930.
For calls received by Compass before 4:00 p.m. (Eastern time), proceeds will
normally be deposited into the shareholder's account, if any, at Compass or a
check will be sent to the address of record on the next business day. In no
event will it take more than seven days for proceeds to be wired or a check to
be sent after a proper request for redemption has been received. If, at any
time, the Fund shall determine it necessary to terminate or modify this method
of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Compass representative. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written
request to the Fund through a Compass representative. The written request should
include the shareholder's name, the Fund name, the account number, and the share
or dollar amount requested. Investors redeeming through Compass should mail
written requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S.
32nd Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net asset
value of Fund shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price).
A shareholder may apply for participation in this program through Compass. Due
to the fact that shares are sold with a sales load, it is not advisable for
shareholders to be purchasing shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.
This requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Interest on some municipal securities may be subject to the federal alternative
minimum tax.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase all types of municipal bonds, including private activity
bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Income from the Fund is not necessarily free from income taxes of any state or
local taxing authority. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return, yield and
tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a specific tax rate. The yield and
the tax-equivalent yield do not necessarily reflect income actually earned by
the Fund and therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return, yield, and tax-equivalent yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
THE STARBURST MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--3.2% ---------------------------------------------------------------
$ 625,461 Lehman Tax-Free Money Market Fund (at net asset value) NR $ 625,461
--------------------------------------------------------------- -------------
LONG-TERM MUNICIPALS--95.5%
- --------------------------------------------------------------------------------
ALABAMA--33.1%
---------------------------------------------------------------
1,885,000 Alabama Municipal Electric Authority Power, 6.5% Revenue Bonds,
(Series A)/(MBIA Insured), 9/1/2005, (Prerefunded) AAA 2,106,356
---------------------------------------------------------------
1,125,000 Auburn University, Housing & Dining, 5.20% Revenue Bonds, (MBIA
Insured), 6/1/2004 AAA 1,159,898
---------------------------------------------------------------
1,000,000 Birmingham, AL, 7.75% Refunding GO Bonds,
10/1/2007 AA 1,088,670
---------------------------------------------------------------
1,000,000 Birmingham, AL, Specialty Care Facilities, 5.00% Revenue
Refunding Bonds, (Series B)/(MBIA Insured), 6/1/2003 AAA 1,021,790
---------------------------------------------------------------
1,000,000 Birmingham, AL, Water Works & Sewer Board, 6.25% Revenue Bonds,
1/1/2008 AA 1,065,980
--------------------------------------------------------------- -------------
Total 6,442,694
--------------------------------------------------------------- -------------
FLORIDA--5.2%
---------------------------------------------------------------
975,000 Homestead, FL, Special Insurance Assessment, 4.90% Revenue
Bonds, (MBIA Insured), 9/1/2000, (Unrefunded Balance) AAA 1,000,448
---------------------------------------------------------------
25,000 Homestead, FL, Special Insurance Assessment, 4.90% Revenue
Bonds, (MBIA Insured), 9/1/2000, (Escrowed to Maturity) AAA 25,592
--------------------------------------------------------------- -------------
Total 1,026,040
--------------------------------------------------------------- -------------
ILLINOIS--6.2%
---------------------------------------------------------------
1,200,000 Chicago, IL, School Financing Authority, 5.20% Refunding GO
Bonds, (Series A)/(FGIC Insured),
6/1/2006, (Prerefunded) AAA 1,215,540
--------------------------------------------------------------- -------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
MARYLAND--8.6%
---------------------------------------------------------------
$ 1,470,000 Washington County Suburban Sanitation District, MD, 6.90%
Revenue Bonds, 6/1/2009, (Prerefunded) AAA $ 1,671,596
--------------------------------------------------------------- -------------
NEVADA--5.0%
---------------------------------------------------------------
1,000,000 Las Vegas, NV, 5.00% Refunding GO Bonds,
(Series B)/(MBIA Insured), 1/1/2008 AAA 978,100
--------------------------------------------------------------- -------------
NORTH CAROLINA--4.9%
---------------------------------------------------------------
850,000 Charlotte, NC, 6.90% GO Bonds, 10/1/2006 (Prerefunded) AAA 961,563
--------------------------------------------------------------- -------------
SOUTH CAROLINA--1.6%
---------------------------------------------------------------
255,000 Columbia, SC, Waterworks & Sewer System, 6.30% Revenue
Refunding Bonds, 2/1/2000 (Unrefunded Balance) AA 273,319
---------------------------------------------------------------
45,000 Columbia, SC, Waterworks & Sewer System, 6.30% Revenue
Refunding Bonds, 2/1/2000 (Escrowed to Maturity) AA 48,475
--------------------------------------------------------------- -------------
Total 321,794
--------------------------------------------------------------- -------------
TEXAS--18.7%
---------------------------------------------------------------
1,000,000 Alief, TX, Independent School District, 5.875% Refunding GO
Bonds, 2/15/2005 AAA 1,044,150
---------------------------------------------------------------
600,000 Carrollton, TX, Farmers Branch/Independent School District,
6.75% GO Bonds, 2/15/2007 (Prerefunded) AAA 665,237
---------------------------------------------------------------
500,000 Dallas, TX, 6.20% GO Bonds, 1/1/2003 AAA 542,910
---------------------------------------------------------------
500,000 Plano, TX, 5.60% Refunding GO Bonds, (AMBAC Insured), 9/1/2005 AAA 521,110
---------------------------------------------------------------
800,000 Sabine River Authority, TX, 6.50% Revenue Bonds, 12/1/2002,
(Prerefunded) AA 876,120
--------------------------------------------------------------- -------------
Total 3,649,527
--------------------------------------------------------------- -------------
VIRGINIA--6.2%
---------------------------------------------------------------
1,200,000 Virginia State Housing Developement Authority, 5.45% Revenue
Bonds, (Series 1993E), 11/1/2007 AA+ 1,214,292
--------------------------------------------------------------- -------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--CONTINUED
- --------------------------------------------------------------------------------
WASHINGTON--5.8%
---------------------------------------------------------------
$ 1,000,000 Washington County Public Power Supply, 7.25% Revenue Bonds,
(Series B), 7/1/2015, (Prerefunded) AAA $ 1,130,160
--------------------------------------------------------------- -------------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST
$18,052,383) 18,611,306
--------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $18,677,844 AT
AMORTIZED COST)(a) $ 19,236,767
--------------------------------------------------------------- -------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $18,677,844. The
net unrealized appreciation of investments on a federal tax basis amounts to
$558,923 which is comprised of $578,541 appreciation and $19,618
depreciation at October 31, 1995.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($19,485,693) at October 31, 1995.
The following acronyms are used throughout this portfolio:
AMBAC--American Municipal Bond Assurance Corporation
FGIC--Financial Guaranty Insurance Company
GO--General Obligation
MBIA--Municipal Bond Investors Assurance
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $18,677,844) $ 19,236,767
- ---------------------------------------------------------------------------------------------------
Income receivable 311,116
- ---------------------------------------------------------------------------------------------------
Deferred expenses 1,802
- --------------------------------------------------------------------------------------------------- -------------
Total assets 19,549,685
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 160
- ----------------------------------------------------------------------------------------
Income distribution payable 21,199
- ----------------------------------------------------------------------------------------
Accrued expenses 42,633
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 63,992
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,827,345 shares outstanding $ 19,485,693
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 19,258,353
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 558,923
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (331,583)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 19,485,693
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Proceeds Per Share ($19,485,693 / 1,827,345 shares outstanding)
$ 10.66
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/97.50 of $10.66)* $ 10.93
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 1,128,995
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 165,541
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 50,005
- ---------------------------------------------------------------------------------------
Custodian fees 15,000
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 51,769
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,933
- ---------------------------------------------------------------------------------------
Auditing fees 14,844
- ---------------------------------------------------------------------------------------
Legal fees 4,417
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 47,170
- ---------------------------------------------------------------------------------------
Distribution services fee 55,181
- ---------------------------------------------------------------------------------------
Share registration costs 14,905
- ---------------------------------------------------------------------------------------
Printing and postage 10,113
- ---------------------------------------------------------------------------------------
Insurance premiums 4,655
- ---------------------------------------------------------------------------------------
Miscellaneous 2,638
- --------------------------------------------------------------------------------------- -----------
Total expenses 439,171
- ---------------------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (165,541)
- --------------------------------------------------------------------------
Waiver of administrative personnel and services fee (15,481)
- --------------------------------------------------------------------------
Waiver of distribution services fee (40,951)
- --------------------------------------------------------------------------
Waiver of custodian fee (15,000)
- -------------------------------------------------------------------------- -----------
Total waivers (236,973)
- --------------------------------------------------------------------------------------- -----------
Net expenses 202,198
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 926,797
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (330,889)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,564,438
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 1,233,549
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 2,160,346
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 926,797 $ 1,489,299
- ----------------------------------------------------------------------
Net realized (loss) gain on investments ($330,889) and $10,595,
respectively, as computed for federal income tax purposes (330,889) 10,595
- ----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 1,564,438 (2,429,104)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from operations 2,160,346 (929,210)
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------
Distributions from net investment income (926,797) (1,488,927)
- ----------------------------------------------------------------------
Distributions from net realized gains (10,622) (278,081)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from distributions to shareholders (937,419) (1,767,008)
- ---------------------------------------------------------------------- -------------------- --------------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------
Proceeds from sale of shares 786,394 6,261,137
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 645,818 1,232,194
- ----------------------------------------------------------------------
Cost of shares redeemed (11,080,052) (19,852,255)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets resulting from share transactions (9,647,840) (12,358,924)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (8,424,913) (15,055,142)
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 27,910,606 42,965,748
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 19,485,693 $ 27,910,606
- ---------------------------------------------------------------------- -------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of four diversified portfolios. The financial statements
presented herein present only those of The Starburst Municipal Income Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Investments in other open-end
regulated investment companies are valued at net asset value. All other
securities are valued at prices provided by an independent pricing service,
taking into consideration yield, liquidity, risk, credit, quality, coupon,
maturity, type of issue, and any other factors or market data it deems
relevant in determining valuations for normal institutional trading units
of debt securities.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
if required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At October 31, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $330,889 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward of $330,889 will expire in 2003.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
Shares sold 76,118 593,444
- -------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 62,477 117,608
- -------------------------------------------------------------------------------
Shares redeemed (1,089,169) (1,903,129)
- ------------------------------------------------------------------------------- --------------- ---------------
Net change resulting from share transactions (950,574) (1,192,077)
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate any
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to .25 of 1% of the average daily net assets of the Fund, annually,
to compensate FSC. The distributor may voluntarily choose to waive a portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund for
which it receives a fee. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's average
net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $22,000 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 17, 1992 (the date the Fund became
effective). For the fiscal year ended Octo-
ber 31, 1995, the Fund paid $1,112 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 1,556,377
- -------------------------------------------------------------------------------------------------- --------------
SALES 11,029,639
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST MUNICIPAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Municipal Income Fund (a
portfolio of The Starburst Funds) as of October 31, 1995, and the related
statement of operations for the year then ended, and the statement of changes in
net assets for the years ended October 31, 1995 and 1994, and the financial
highlights (see page 2) for the periods presented. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst
Municipal Income Fund as of October 31, 1995, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Municipal Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
MUNICIPAL INCOME FUND
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
An Open-End, Management
Investment Company
December 31, 1995
-------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245700
1102807 (12/95)
93/33-2394
THE STARBURST MUNICIPAL INCOME FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of The Starburst Municipal Income Fund (the "Fund") dated
December 31, 1995. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write to the Fund or call toll-free 1-800-239-
1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Purchasing Put Options on Portfolio Securities 2
Temporary Investments 2
Municipal Bond Insurers 3
Portfolio Turnover 3
The Starburst Funds Management 6
Fund Ownership 11
Trustee Compensation 11
Trustee Liability 12
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Brokerage Transactions 12
Other Services 13
Fund Administration 13
Custodian 13
Transfer Agent and Dividend Disbursing Agent 13
Independent Auditors 13
Purchasing Shares 13
Distribution Plan 14
Conversion to Federal Funds 14
Exchange Privilege 15
Redeeming Shares 15
Redemption in Kind 15
Massachusetts Partnership Law 15
Tax Status 16
The Fund's Tax Status 16
Shareholders' Tax Status 16
Total Return 16
Yield 16
Tax-Equivalent Yield 17
Tax-Equivalency Table 18
Performance Comparisons 18
Appendix 20
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 7, 1989.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income which is exempt
from federal regular income tax. The objective cannot be changed without
approval of shareholders. The investment policies described below may be
changed by the Board of Trustees (the "Trustees") without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
CHARACTERISTICS
The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus.
A municipal security will be determined by the Fund's adviser to meet the
quality standards established by the Trustees if it is of comparable
quality to municipal securities within the Fund's rating requirements.
The Trustees consider the creditworthiness of the issuer of a municipal
security, the issuer of a participation interest if the Fund has the
right to demand payment from such issuer, or the guarantor of payment by
either of those issuers. The Fund is not required to sell a municipal
security if the security's rating is reduced below the required minimum
subsequent to its purchase by the Fund. The investment adviser considers
this event, however, in its determination of whether the Fund should
continue to hold the security in its portfolio. If ratings made by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Group ("S&P") change because of changes in those organizations or in
their rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in the
Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of municipal securities are:
oindustrial development bonds;
omunicipal notes and bonds and tax-exempt commercial paper;
oserial notes and bonds sold with a series of maturity dates;
otax anticipation notes and bonds sold to finance working capital needs
of municipalities in anticipation of receiving taxes at a later date;
obond anticipation notes sold in anticipation of the issuance of longer-
term bonds in the future;
oprerefunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds are assured through the
first call date by the deposit in escrow of U.S. government
securities); and
ogeneral obligation bonds secured by a municipality's pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from other financial institutions
irrevocable letters of credit or guarantees and give the Fund the right
to demand payment on specified notice (normally within thirty days) from
the issuer of the letter of credit or guarantee. These financial
institutions may charge certain fees in connection with their repurchase
commitments, including a fee equal to the excess of the interest paid on
the municipal securities over the negotiated yield at which the
participation interests were purchased by the Fund. By purchasing
participation interests, the Fund is buying a security meeting the
maturity and quality requirements of the Fund and is also receiving the
tax-free benefits of the underlying securities.
In the acquisition of participation interests, the Fund's investment
adviser will consider the following quality factors:
oa high-quality underlying municipal security (of which the Fund takes
possession);
oa high-quality issuer of the participation interest; or
oa guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven days) on
the Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund would purchase a put option on a portfolio security to protect the
Fund against price movements on a particular security in its portfolio. The
put option would give the Fund, in return for a premium, the right to sell the
portfolio security to the writer (seller) at a specified price during the term
of the option. If the Fund were not to exercise the put option, the premium
paid for the option would be lost.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time:
o as a reaction to market conditions;
o while waiting to invest proceeds of sales of shares or portfolio
securities, although generally such proceeds from sale of shares will be
invested in municipal securities as quickly as possible;
o in anticipation of redemption requests; or
o for temporary defensive purposes, in which case the Fund may invest more
than 20% of the value of its net assets in cash or certain money market
instruments, U.S. Treasury bills or securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or repurchase
agreements.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in restricted securities. Restricted securities are
any securities in which the Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restriction on
resale under federal securities law. However, the Fund will limit
investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable
time deposits, and repurchase agreements providing for settlement in more
than seven days after notice, to 10% of its net assets.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government or agency securities or other securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon
time and price within one year from the date of acquisition. The Fund or
its custodian will take possession of the securities subject to
repurchase agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund may only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are found
by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
INVESTMENTS IN CASH
From time to time, such as when suitable municipal securities are not
available, the Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of
assets in municipal securities and thereby reduce the Fund's yield.
MUNICIPAL BOND INSURERS
Municipal bond insurance may be provided by one or more of the following
insurers or any other municipal bond insurer which is rated Aaa by Moody's or
AAA by S & P.
MUNICIPAL BOND INVESTORS ASSURANCE CORP.
Municipal Bond Investors Assurance Corp. ("MBIA") is a wholly-owned
subsidiary of MBIA, Inc., a Connecticut insurance company, which is owned
by AEtna Life and Casualty, Credit Local DeFrance CAECL, S.A., The Fund
American Companies, and the public. The investors of MBIA, Inc., are not
obligated to pay the obligations of MBIA. MBIA, domiciled in New York, is
regulated by the New York State Insurance Department and licensed to do
business in various states. The address of MBIA is 113 King Street,
Armonk, New York 10504, and its telephone number is (914) 273-4345. S & P
has rated the claims-paying ability of MBIA "AAA."
AMBAC INDEMNITY CORPORATION
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance company, regulated by the Insurance Department of Wisconsin,
and licensed to do business in various states. AMBAC is a wholly-owned
subsidiary of AMBAC, Inc., a financial holding company which is owned by
the public. Copies of certain statutorily required filings of AMBAC can
be obtained from AMBAC. The address of AMBAC's administrative offices is
One State Street Plaza, 17th Floor, New York, New York 10004, and its
telephone number is (212) 668-0340. S & P has rated the claims-paying
ability of AMBAC "AAA."
FINANCIAL GUARANTY INSURANCE COMPANY
Financial Guaranty Insurance Company ("Financial Guaranty") is a wholly-
owned subsidiary of FGIC Corporation, a Delaware holding company. FGIC
Corporation is wholly-owned by General Electric Capital Corporation. The
investors of FGIC Corporation are not obligated to pay the debts of or
the claims against Financial Guaranty. Financial Guaranty is subject to
regulation by the state of New York Insurance Department and is licensed
to do business in various states. The address of Financial Guaranty is
175 Water Street, New York, New York 10038, and its telephone number is
(212) 607-3000. S & P has rated the claims-paying ability of Financial
Guaranty "AAA."
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objective. The estimated annual rate of
portfolio turnover will not exceed 100%. For the fiscal years ended October
31, 1995 and 1994, the Fund's portfolio turnover rates were 7% and 18%,
respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of the Fund's total assets, the Fund
will not purchase securities of any one issuer (other than securities
issued or guaranteed by the government of the United States or its
agencies or instrumentalities) if as a result more than 5% of the value
of its total assets would be invested in the securities of that issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or government-issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor, subject to a limit on investments in the guarantor of 10% of
total assets.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments more than 25% of
the value of its assets in cash or certain money market instruments,
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
The Fund does not intend to purchase securities (other than securities
guaranteed by the U.S. government or its agencies or direct obligations
of the U.S. government) if, as a result of such purchases, 25% or more of
the value of its total assets would be invested in a governmental
subdivision in any one state, territory, or possession of the United
States.
BORROWING
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts up to one-
third of the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
would be inconvenient or disadvantageous. Interest paid on borrowed funds
will serve to reduce the Fund's income. The Fund will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge or
hypothecate assets having a market value not exceeding 10% of the value
of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except for delayed-delivery and
when-issued transactions and futures contracts, each of which might be
considered senior securities. In addition, the Fund reserves the right to
purchase municipal securities which the Fund has the right or obligation
to sell to a third party (including the issuer of a participation
interest).
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate including limited partnership
interests, although it may invest in municipal bonds secured by real
estate or interests in real estate.
INVESTING IN COMMODITIES AND MINERALS
The Fund will not buy or sell commodities, commodity contracts, or oil,
gas, or other mineral exploration or development programs or leases.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. The Fund may acquire
publicly or non-publicly issued municipal bonds or temporary investments
or enter into repurchase agreements in accordance with its investment
objective, policies, and limitations or its Declaration of Trust.
DEALING IN PUTS AND CALLS
The Fund will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Fund may purchase put options on
municipal securities in an amount up to 5% of its total assets or may
purchase municipal securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following restrictions, however, may be changed by
the Trustees without shareholder approval. Except as noted, shareholders will
be notified before any material change in these limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of its total assets in any one investment
company, or invest more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain
expenses such as management fees, and therefore any investment by a Fund
in shares of another investment company would be subject to such
duplicate expenses.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of any
predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities
which are not readily marketable or which are otherwise considered
illiquid, including repurchase agreements providing for settlement in
more than seven days after notice and participation interests and
variable rate municipal securities without a demand feature or with a
demand feature of longer than seven days and which the adviser believes
cannot be sold within seven days.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5%
of the value of its net assets.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
THE STARBURST FUNDS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with The Starburst Funds, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of
the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Services Company; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; President,
Executive Vice President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; President and
Trustee, Federated Shareholder Services; Director, Federated Securities Corp.;
Executive Vice President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust For Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, no shareholders of record owned 5% or more of the
outstanding shares of the Fund.
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc.
("Bancshares"), formerly known as Central Bancshares of the South, Inc., a
bank holding company organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Because of the internal controls maintained by Compass Bank to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of Compass Bank's or its affiliates' lending relationships with
an issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994, and 1993, the Adviser
earned $165,541, $267,294, and $193,426, respectively, of which $165,541,
$267,294, and $193,426, respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services
for which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended October 31, 1995,
1994, and 1993, the Fund incurred costs of $50,005, $48,727, and $50,000,
respectively, for administrative services, of which $15,481, $0, and $45,106,
respectively, were voluntarily waived.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, serves as transfer agent and dividend disbursing agent
for the Fund. The fee paid to the transfer agent is based upon the size, type
and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deliotte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value with a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing shares of the Fund is
explained in the prospectus under "Investing in the Fund."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes
are referred herein as "Compass."
DISTRIBUTION PLAN
The Starburst Funds has adopted a Plan for the Fund pursuant to Rule 12b-1
(the "Plan") which was promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of the Fund's shares subject to the
Plan. Such activities may include the advertising and marketing of shares;
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, brokers or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption transactions;
providing or arranging to provide accounting support for all transactions;
wiring funds and receiving funds for share purchases and redemptions;
confirming and reconciling all transactions; reviewing the activity in Fund
accounts; providing training and supervision of broker personnel; posting and
reinvesting dividends to Fund accounts or arranging for this service to be
performed by the Fund's transfer agent; and maintaining and distributing
current copies of prospectuses and shareholder reports to the beneficial
owners of shares and prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended October 31, 1995, brokers and administrators
(financial institutions) received fees in the amount of $55,181, of which
$40,951, was voluntarily waived, pursuant to the Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of less than 60 days at the time of
purchase, at amortized cost unless the Trustees determine this is not
fair value; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such option is traded. Unlisted call options
will be valued at the latest bid price as provided by brokers.
EXCHANGE PRIVILEGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, shares submitted for exchange are redeemed
and the proceeds invested in shares of the other fund.
Instructions for exchanges may be given in writing or by telephone. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed
in determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument that the Trust or its Trustees enter
into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
o new investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
The Fund's average annual total return for the fiscal year ended October 31,
1995, and for the period from November 20, 1991 (date of initial public
investment) to October 31, 1995, was 7.86% and 5.95%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at
the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended October 31, 1995 was 3.96%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the
Fund over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This value is then annualized using semi-
annual compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The Fund's tax-equivalent yield for the thirty-day period ended October 31,
1995 was 5.50%.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn
to equal its actual yield, assuming a 28% tax rate (the maximum effective
federal rate for individuals) and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
A tax-equivalency table may be used in advertising and sales literature. The
interest earned by the municipal securities in the Fund's portfolio generally
remains free from federal regular income tax,* and is often free from state
and local taxes as well. As the table below indicates, a "tax-free"
investment can be an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1995
MULTISTATE MUNICIPAL FUNDS
Federal Income Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%
Joint Return:$1-39,000$39,001-94,250 $94,251-143,600$143,601-256,500
Over $256,500
Single Return: $1-23,350 $23,351-56,550$56,551-117,950$117,951-256,500
Over $256,500
If the tax-free Taxable yield
yield is: Equivalent:
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50 1.76 2.08 2.17 2.34 2.48
2.00 2.35 2.78 2.90 3.13 3.31
2.50 2.94 3.47 3.62 3.91 4.14
3.00 3.53 4.17 4.35 4.69 4.97
3.50 4.12 4.86 5.07 5.47 5.79
4.00 4.71 5.56 5.80 6.25 6.62
4.50 5.29 6.25 6.52 7.03 7.45
5.00 5.88 6.94 7.25 7.81 8.28
5.50 6.47 7.64 7.97 8.59 9.11
6.00 7.06 8.33 8.70 9.38 9.93
6.50 7.65 9.03 9.42 10.16 10.76
7.00 8.24 9.72 10.14 10.94 11.59
7.50 8.82 10.42 10.87 11.72 12.42
8.00 9.41 11.11 11.59 12.50 13.25
Note: The maximum marginal tax rate for each bracket was used in calculating
the Taxable Yield Equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the "general municipal bond funds" category in
advertising and sales literature.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as year-to-
date. Total returns are also calculated as of the index inception,
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities range
between nine and eleven years. Index figures are total returns calculated
for the same periods as listed above.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based
on monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load. In addition, advertisements and sales literature for
the Fund may include charts and other illustrations that depict the
hypothetical growth of a tax-free investment as compared to a taxable
investment.
Advertisements and sales literature for the Fund may include quotations from
financial publications and other sources relating to current economic
conditions in the municipal bond market or to the benefit and popularity of
municipal bonds or mutual funds.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL BOND RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC-Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C-The rating C is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS
AAA- Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in AAA
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Cusip 855245700
1102807B (12/95)
THE STARBURST GOVERNMENT INCOME FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
PROSPECTUS
The shares offered by this prospectus represent interests in a diversified
portfolio known as The Starburst Government Income Fund (the "Fund"). The Fund
is one of a series of investment portfolios in The Starburst Funds (the
"Trust"), an open-end, management investment company (a mutual fund).
The investment objective of the Fund is to provide current income. The Fund
pursues this investment objective by investing in a professionally managed,
diversified portfolio limited primarily to securities issued or guaranteed as to
payment of principal and interest by the U.S. government or its
instrumentalities.
Compass Bank professionally manages the Fund's portfolio.
THE SHARES OFFERED BY THIS PROSPECTUS 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 LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated December 31,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling toll-free 1-800-239-1930.
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.
Prospectus dated December 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 8
FUND INFORMATION 8
- ------------------------------------------------------
Management of the Fund 8
Distribution of Fund Shares 9
Administration of the Fund 11
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Minimum Investment Required 12
What Shares Cost 12
Reducing the Sales Load 13
Systematic Investment Program 14
Certificates and Confirmations 14
Dividends 14
Capital Gains 14
Retirement Plans 14
EXCHANGE PRIVILEGE 14
- ------------------------------------------------------
REDEEMING SHARES 16
- ------------------------------------------------------
Systematic Withdrawal Program 17
Accounts with Low Balances 17
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
EFFECT OF BANKING LAWS 18
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES 30
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............ 2.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, if applicable)......................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)..................... None
Exchange Fee........................................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee (after waiver) (1).................................................. ... 0.44%
12b-1 Fee (after waiver) (2)........................................................... 0.09%
Total Other Expenses................................................................ .. 0.51%
Total Fund Operating Expenses (3).......................................... 1.04%
</TABLE>
(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%.
(2) Under the Fund's Rule 12b-1 Distribution Plan, the Fund can pay up to 0.25%
as a 12b-1 fee. The 12b-1 fee has been reduced to reflect the voluntary
waiver of compensation by the distributor. The distributor can terminate
this waiver at any time at its sole discretion.
(3) Total Fund Operating Expenses would have been 1.51% absent the voluntary
waivers by the adviser and distributor.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "FUND INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period. The Fund charges no contingent deferred sales charge.......... $35 $57 $81 $149
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE STARBURST GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 29.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994 1993 1992(a)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.54 $ 10.40 $ 10.25 $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.63 0.54 0.63 0.36
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.38 (0.86) 0.21 0.25
- ------------------------------------------------------------------------ --------- --------- --------- -----------
Total from investment operations 1.01 (0.32) 0.84 0.61
- ------------------------------------------------------------------------ --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.63) (0.54) (0.63) (0.36)
- ------------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- -- (0.06) --
- ------------------------------------------------------------------------ --------- --------- --------- -----------
Total distributions (0.63) (0.54) (0.69) (0.36)
- ------------------------------------------------------------------------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.92 $ 9.54 $ 10.40 $ 10.25
- ------------------------------------------------------------------------ --------- --------- --------- -----------
TOTAL RETURN (b) 10.94% (3.12%) 8.42% 6.24%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 1.04% 1.20% 1.11% 0.79%*
- ------------------------------------------------------------------------
Net investment income 6.51% 5.44% 6.11% 6.79%*
- ------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.47% 0.30% 0.29% 0.60%*
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $63,521 $58,827 $97,246 $65,984
- ------------------------------------------------------------------------
Portfolio turnover 79% 91% 69% 88%
- ------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 20, 1992 (date of initial
public investment) to October 31, 1992.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended October 31, 1995, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. This prospectus relates only to The Starburst
Funds' government income portfolio, known as The Starburst Government Income
Fund.
The Fund is primarily designed for customers of Compass Bank and its
correspondents or affiliates who desire a convenient means of accumulating an
interest in a professionally managed, diversified portfolio primarily investing
in U.S. government securities. Except as noted herein, a minimum initial
investment of $1,000 is required. Subsequent investments must be in amounts of
at least $100.
Fund shares are currently sold at net asset value plus an applicable sales load
and redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Board of Trustees
(the "Trustees") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in 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. Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in such U.S. government securities. The Fund may also invest in privately
issued mortgage-related securities.
The U.S. government securities in which the Fund invests include:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
obligations of U.S. government agencies or instrumentalities, such as
Federal Home Loan Banks, Farmers Home Administration, Farm Credit Banks,
Federal National Mortgage Association, Government National Mortgage
Association, and Federal Home Loan Mortgage Corporation.
The obligations of U.S. government agencies or instrumentalities which the Fund
may buy are backed in a variety of ways by the U.S. government or its agencies
or instrumentalities. Some of
these obligations, such as Government National Mortgage Association
mortgage-backed securities and obligations of the Farmers Home Administration,
are backed by the full faith and credit of the U.S. Treasury. Obligations of the
Farmers Home Administration are also backed by the issuer's right to borrow from
the U.S. Treasury. Obligations of Federal Home Loan Banks are backed by the
discretionary authority of the U.S. government to purchase certain obligations
of agencies or instrumentalities. Obligations of Federal Home Loan Banks, Farm
Credit Banks, Federal National Mortgage Association, and Federal Home Loan
Mortgage Corporation are backed by the credit of the agency or instrumentality
issuing the obligations.
The Fund may also invest in mortgage-related securities which are issued by
private entities such as investment banking firms and companies related to the
construction industry. The mortgage-related securities in which the Fund may
invest may be: (i) privately issued securities which are collateralized by pools
of mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or (iii) other
privately issued securities in which the proceeds of the issuance are invested
in mortgage-backed securities and payment of the principal and interest are
supported by the credit of any agency or instrumentality of the U.S. government.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Fund as income, and the capital portion will be reinvested.
INVESTMENT RISKS. Mortgage-related securities may have less potential for
capital appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if mortgage-related
securities are purchased at a premium, mortgage foreclosures and unscheduled
principal payments may result in some loss of a holder's principal investment to
the extent of the premium paid. Conversely, if mortgage-related securities are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
The value of the Fund's shares will fluctuate. The amount of this fluctuation is
dependent upon the quality and maturity of the securities in the Fund's
portfolio, as well as on market conditions. Prices of securities eligible for
purchase by the Fund are interest rate sensitive, which means that their value
varies inversely with market interest rates. Thus, if market interest rates have
increased from the time a security was purchased, the security, if sold, might
be sold at a price less than its cost. Similarly, if market interest rates have
declined from the time a security was purchased, the security, if sold, might be
sold at a price greater than its cost. (In either instance, if the security was
held to maturity, no loss or gain normally would be realized as a result of
interim market fluctuations.)
Yields on securities eligible for purchase by the Fund depend on a variety of
factors, including: the general conditions of the markets in which securities
eligible for purchase by the Fund trade; the size of the particular offering;
the maturity of the obligations; and the credit quality of the issue. The
ability of the Fund to achieve its investment objective also depends on the
continuing ability of the
issuers of securities eligible for purchase by the Fund to meet their
obligations for the payment of interest and principal when due.
TEMPORARY INVESTMENTS. The Fund may invest temporarily in cash and short-term
obligations during times of unusual market conditions for defensive purposes.
Short-term obligations may include:
obligations of the U.S. government or its agencies or instrumentalities;
and
repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities. The Fund
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements. This transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, assets of the Fund in a dollar
amount sufficient to make payment for the obligations to be purchased, are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of total assets in any one investment company, or invest more than 10% of
total assets in investment companies in general. The Fund will invest in other
investment companies primarily for the purpose of investing short-term cash
which has not yet been invested in other portfolio instruments. The Fund's
adviser will waive its investment advisory fee on assets invested in securities
of open-end investment companies. These limitations are not applicable if the
securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets.
RESTRICTED SECURITIES. The Fund may invest up to 10% of its net assets in
restricted securities. Restricted securities are any securities in which the
Fund may otherwise invest pursuant to its investment objective and policies but
which are subject to restrictions on resale under federal securities laws.
Restricted securities may be illiquid. Certain restricted securities which the
Trustees deem to be liquid will be excluded from this 10% limitation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term basis up to one-third of the
value of its total assets to broker/ dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Fund's Trustees
and will receive collateral in the form of cash or U.S. government securities
equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis, and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS. The Fund may purchase put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds, or will be purchasing, against
decreases or increases in value. The Fund may also write (sell) put and call
options on all or any portion of its portfolio to generate income for the Fund.
The Fund will write call options on securities either held in its portfolio or
which it has the right to obtain without payment of further consideration or for
which it has segregated cash in the amount of any additional consideration. In
the case of put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the Fund's adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund can purchase or write
options that are either traded over-the-counter or on an exchange.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio of debt
securities against fluctuations in value resulting from changes in interest
rates. Financial futures contracts call for the delivery of particular debt
instruments issued or guaranteed by the U.S. Treasury or by specified agencies
or instrumentalities of the U.S. government at a certain time in the future. The
seller of the contract agrees to make delivery of the type of instrument called
for in the contract and the buyer agrees to take delivery of the instrument at
the specified future time.
The Fund may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling the futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of portfolio
securities resulting from anticipated decreases in market interest rates. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby attempt
to ensure that the use of such futures contracts is unleveraged.
RISKS ASSOCIATED WITH FINANCIAL FUTURES AND OPTIONS ON FINANCIAL FUTURES.
When the Fund uses financial futures and options on financial futures as
hedging devices, there is a risk that the prices of the securities subject
to the futures contracts may not correlate with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors such as interest rate movements. In these events, the Fund may lose
money on the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist at all
times. Although the investment adviser will consider liquidity before
entering into options transactions, there is no assurance that a liquid
secondary market on an exchange will exist for any particular futures
contract or option at any particular time. The Fund's ability to establish
and close out futures and options positions depends on this secondary
market.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its net assets and pledge up
to 10% of the value of its total assets to secure such borrowings; or
with respect to securities comprising 75% of its assets, invest more than
5% of its total assets in securities of one issuer (except cash and cash
items, and securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 15% of its total assets in securities which are not
readily marketable or which are otherwise considered illiquid, including
over-the-counter options and repurchase agreements providing for
settlement in more than seven days after notice.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Board of Trustees is responsible for managing the
business affairs of the Trust and for exercising all of the powers of the Trust
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Compass Bank as the Fund's
investment adviser (the "Adviser") subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to reimburse a portion of its fee and certain expenses of the Fund.
ADVISER'S BACKGROUND. Compass Bank (formerly known as Central Bank of the
-
South), an Alabama state member bank, is a wholly-owned subsidiary of
Compass Bancshares, Inc. ("Bancshares"), formerly known as Central
Bancshares of the South, Inc., a bank holding company organized under the
laws of Delaware. Through its subsidiaries and affiliates, Bancshares, the
62nd largest bank holding company in the United States and the 4th largest
bank holding company in the State of Alabama in terms of total assets as of
December 31, 1994, offers a full range of financial services to the public
including commercial lending, depository services, cash management,
brokerage services, retail banking, credit card services, investment
advisory services, and trust services.
As of December 31, 1994, Compass Bank offered a broad range of commercial
banking services. The Adviser has managed mutual funds since February 5,
1990 and as of December 31, 1994, the Trust Division of Compass Bank had
approximately $4.1 billion under administration of which it had investment
discretion over approximately $1.95 billion. The Trust Division of Compass
Bank provides investment advisory and management services for the assets of
individuals, pension and profit sharing plans, endowments and foundations.
Since 1972, the Trust Division has managed pools of commingled funds which
now number 12.
As part of their regular banking operations, Compass Bank may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Compass Bank. The lending relationship will not be a factor in the
selection of securities.
The Fund is managed by members of the Starburst Portfolio Management
Committee. No one person is primarily responsible for the management of the
Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
will pay to Federated Securities Corp. an amount computed at an annual rate of
.25 of 1% of the average daily net asset value of the shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Plan.
Federated Securities Corp. may, from time to time and for such periods as it
deems appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the Distributor may, by notice to the Trust, voluntarily declare
to be effective.
The Distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers, including
Compass Bank and various other affiliates of Bancshares, to provide sales and/or
administrative services as agents for their clients or customers who
beneficially own shares of the Fund. Administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory, and
computer as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
Financial institutions, including Compass Bank and various other affiliates of
Bancshares, will receive fees from the Distributor based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined, from time to time, by the
Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the Distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
SHAREHOLDER SERVICING ARRANGEMENTS. In addition to the fees paid by the
Distributor to financial institutions under the Plan as described above, the
Distributor may also pay financial institutions, including Compass Bank and
various other affiliates of Bancshares, a fee with respect to the average daily
net asset value of shares held by their customers for providing administrative
services. This fee is in addition to the amounts paid under the Plan, and, if
paid, will be reimbursed by the Adviser and not the Fund.
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes are
referred to herein as "Compass."
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
per fund. Federated Administrative Services may voluntarily reimburse a portion
of its fee.
CUSTODIAN. Compass Bank, Birmingham, Alabama, is custodian for the securities
-
and cash of the Fund for which it receives an annual fee of 0.02% of the Fund's
daily net assets and is reimbursed for its out-of-pocket expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund may be purchased through Compass Brokerage, Inc., a
subsidiary of Compass Bank, formerly known as Central Brokerage Services, Inc.
Investors may purchase shares of the Fund on all business days except on days
which the New York Stock Exchange is closed and federal or state holidays
restricting wire transfers. In connection with the sale of Fund shares, the
Distributor may, from time to time, offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
TO PLACE AN ORDER. An investor (including Compass customers) may call Compass
Brokerage, Inc.; customers in Birmingham, Alabama call at 205-558-5620. Other
customers may call 1-800-239-1930. Payment may be made either by check,
wire-transfer of federal funds or direct debit from a Compass Bank account.
To purchase by check, the check must be included with the order and made payable
to "The Starburst Government Income Fund." Orders are considered received after
payment by check is converted into federal funds.
To purchase by wire, investors should call their Compass representative for
wiring instructions at 205-558-5620 in Birmingham, Alabama or 1-800-239-1930.
Payment for all orders must be received within three days of placing the order.
Shares cannot be purchased on days on which the New York Stock Exchange is
closed and on federal or state holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000, except for an IRA account,
which requires a minimum initial investment of $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS A SALES LOAD AS A
PERCENTAGE OF PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million but less than $2 million 0.25% 0.25%
$2 million or more 0.00% 0.00%
</TABLE>
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales load, by the Trust Division of Compass Bank or other
affiliates of Bancshares for funds which are held in a fiduciary, agency,
custodial, or similar capacity. Directors and employees of the Fund, Bancshares
or its affiliates, or Federated Securities Corp. or their affiliates, or any
bank or investment dealer who has a sales agreement with Federated Securities
Corp. with regard to the Fund, and their spouses and children under 21 may also
buy shares at net asset value, without a sales load.
SALES LOAD REALLOWANCE. For sales of shares of the Fund, Compass or any
authorized dealer will normally receive up to 85% of the applicable sales load.
Any portion of the sales load which is not paid to Compass or registered
broker/dealers will be retained by the Distributor. However, the Distributor
will periodically, uniformly offer to pay to dealers additional amounts in the
form of cash or promotional incentives, such as reimbursement of certain
expenses of qualified employees and their spouses to attend informational
meetings about the Fund or other special events at recreational-type facilities,
or items of material value. Such payments, all or a portion of which may
be paid from the sales load the Distributor normally retains or any other source
available to it, will be predicated upon the amount of the shares of the Fund
that are sold by the dealer.
The sales load for shares sold other than through Compass or registered
broker/dealers will be retained by the Distributor. The Distributor may pay fees
to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of shares of the Fund.
REDUCING THE SALES LOAD
The sales load can be reduced on the purchase of Fund shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent; or
using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales load paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales load.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$490,000 and purchases $10,000 more at the public offering price, the sales load
on the additional purchase according to the schedule now in effect would be
2.00%, not 2.50%.
To receive the sales load reduction, Compass Brokerage, Inc. or the Distributor
must be notified by the shareholder in writing at the time the purchase is made
that Fund shares are already owned or that purchases are being combined. The
Fund will reduce the sales load after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $500,000 of
Fund shares over the next 13 months, the sales load may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales load adjustment depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 2.50% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
load applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load. Compass
Brokerage, Inc. or the Distributor must be notified by the shareholder in
writing or by his financial institution of the reinvestment, in order to
eliminate a sales load. If the shareholder redeems his shares in the Fund, there
may be tax consequences.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by Federated Services Company, plus the applicable sales load. A
shareholder may apply for participation in this program by calling a Compass
representative.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
requested by contacting a Compass representative in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested in
additional shares on payment dates without a sales load unless cash payments are
requested by writing to the Fund or Compass as appropriate.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange shares of the Fund for shares in The Starburst
Municipal Income Fund, The Starburst Government Money Market Fund, The Starburst
Money Market Fund, and any other portfolio of The Starburst Funds. 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. Neither the
Trust nor any of the funds imposes any
additional fees on exchanges. Exchange requests cannot be executed on days on
which the New York Stock Exchange is closed or on applicable banking holidays
for affiliates of Bancshares.
When an exchange is made from a fund with a sales load to a fund with no sales
load, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales load would be at net asset
value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which an
exchange is to be made.
The exchange privilege is available to shareholders residing in any state in
which the participating fund shares being acquired may legally be sold. Upon
receipt by Federated Services Company of proper instructions and all necessary
supporting documents, shares submitted for exchange will be redeemed at the
next-determined net asset value. If the exchanging shareholder does not have an
account in the participating fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gain
options as the account from which shares are exchanged, unless otherwise
specified by the shareholder. In the case where the new account registration is
not identical to that of the existing account, a signature guarantee is
required. (See "Redeeming Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Compass representative or an authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by calling 205-558-5620 in Birmingham, Alabama or
1-800-239-1930. In addition, investors may exchange shares by calling their
authorized representative directly.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Compass representative or authorized broker.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations. Exchange instructions given by telephone may be
electronically recorded. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Telephone exchange instructions must be received by Compass or an authorized
broker and transmitted to Federated Services Company before 4:00 p.m. (Eastern
time) for shares to be exchanged the same day.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Mutual Fund Coordinator, Compass Brokerage, Inc.,
701 S. 32nd Street, Birmingham, Alabama 35233. In addition, an investor may
exchange shares by sending a written request to their authorized broker
directly.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Compass
representative or authorized broker by telephone, it is recommended that an
exchange request be made in writing and sent by mail for next day delivery. Send
mail requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S. 32nd
Street, Birmingham, Alabama 35233.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, the transfer agent, by a Compass
representative or authorized broker and deposited to the shareholder's account
before being exchanged.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemption requests cannot be
executed on days which the New York Stock Exchange is closed and federal or
state holidays restricting wire transfers. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemptions must be received in proper form and can be made through a Compass
representative or authorized broker.
BY TELEPHONE. Shareholders may redeem shares of the Fund by telephoning a
Compass representative at 205-558-5620 in Birmingham, Alabama or 1-800-239-1930.
For calls received by Compass before 4:00 p.m. (Eastern time), proceeds will
normally be deposited into the shareholder's account, if any, at Compass or a
check will be sent to the address of record on the next business day. In no
event will it take more than seven days for proceeds to be wired or a check to
be sent after a proper request for redemption has been received. If, at any
time, the Fund shall determine it necessary to terminate or modify this method
of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Compass representative. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem shares of the Fund by sending a written
request to the Fund through a Compass representative. The written request should
include the shareholder's name, the Fund name, the account number, and the share
or dollar amount requested. Investors redeeming through Compass should mail
written requests to: Mutual Fund Coordinator, Compass Brokerage, Inc., 701 S.
32nd Street, Birmingham, Alabama 35233.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Fund or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net asset
value of Fund shares redeemed under this program, redemptions may reduce, and
eventually deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price).
A shareholder may apply for participation in this program through Compass. Due
to the fact that shares are sold with a sales load, it is not advisable for
shareholders to be purchasing shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. Before shares
are redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.
This requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities. However, such
banking laws and regulations do not prohibit such a holding company affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent for and upon the order of their customer. Compass Bank, Bancshares and
certain of Bancshares' affiliates are subject to such banking laws and
regulations.
Compass Bank believes, based on the advice of its counsel, that Compass Bank may
perform the services for the Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent the adviser from continuing to perform all or a part of the above
services for its customers and/or the Fund. If it were prohibited from engaging
in these customer-related activities, the Trustees would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of the Fund may occur, including possible termination
of any automatic or other Fund share investment and redemption services that are
being provided by Compass Bank and other affiliates of Bancshares. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Compass Bank is
found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions. This applies whether dividends and
distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
THE STARBURST GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- -------------
LONG-TERM OBLIGATIONS--98.1%
- --------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANKS--5.3%
-----------------------------------------------------------------------------------
$ 3,000,000 8.09%, 12/28/2004 $ 3,368,040
----------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP.--5.3%
-----------------------------------------------------------------------------------
3,000,000 8.115%, 1/31/2005 3,373,830
----------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP.--REMIC--5.4%
-----------------------------------------------------------------------------------
3,000,000 5.80%, 7/15/2000 2,993,040
-----------------------------------------------------------------------------------
430,491 8.40%, 1/15/2005 434,908
----------------------------------------------------------------------------------- -------------
Total 3,427,948
----------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--21.7%
-----------------------------------------------------------------------------------
6,000,000 8.20%, 12/23/1996 6,169,320
-----------------------------------------------------------------------------------
7,000,000 8.70%, 6/10/1999 7,625,520
----------------------------------------------------------------------------------- -------------
Total 13,794,840
----------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--REMIC--17.7%
-----------------------------------------------------------------------------------
78,039 8.90%, 6/25/1996 78,039
-----------------------------------------------------------------------------------
674,883 8.75%, 12/25/2004 684,142
-----------------------------------------------------------------------------------
3,000,000 7.15%, 11/25/2005 3,033,780
-----------------------------------------------------------------------------------
3,343,165 7.00%, 3/1/2009 3,375,527
-----------------------------------------------------------------------------------
3,000,000 9.10%, 7/25/2018 3,064,470
-----------------------------------------------------------------------------------
1,000,000 9.40%, 8/25/2018 1,012,930
----------------------------------------------------------------------------------- -------------
Total 11,248,888
----------------------------------------------------------------------------------- -------------
MERRILL LYNCH CMO TRUST--1.6%
-----------------------------------------------------------------------------------
1,000,000 9.50%, 11/20/2000 1,020,800
----------------------------------------------------------------------------------- -------------
STUDENT LOAN MARKETING ASSOCIATION--12.6% (b)
-----------------------------------------------------------------------------------
8,000,000 5.80%, 11/7/1995 8,002,480
----------------------------------------------------------------------------------- -------------
</TABLE>
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ----------------------------------------------------------------------------------- -------------
LONG-TERM OBLIGATIONS--CONTINUED
- --------------------------------------------------------------------------------------------------
U.S. TREASURY BONDS--19.7%
-----------------------------------------------------------------------------------
$ 10,000,000 9.375%, 2/15/2006 $ 12,500,300
----------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--8.8%
-----------------------------------------------------------------------------------
4,500,000 8.875%, 2/15/1996 4,540,770
-----------------------------------------------------------------------------------
1,000,000 6.75%, 5/31/1999 1,031,900
----------------------------------------------------------------------------------- -------------
Total 5,572,670
----------------------------------------------------------------------------------- -------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $62,324,769) 62,309,796
----------------------------------------------------------------------------------- -------------
(a)REPURCHASE AGREEMENT--0.6%
- --------------------------------------------------------------------------------------------------
401,000 Fuji Securities, Inc., 5.875%, dated 10/31/1995, due 11/1/1995
(at amortized cost) 401,000
----------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST, $62,725,769) $ 62,710,796(c)
----------------------------------------------------------------------------------- -------------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices at the date of the portfolio.
(b) Denotes a floating rate obligation for which the current rate and next reset
date are shown.
(c) The cost of investments for federal tax purposes amounts to $62,725,769.
The net unrealized depreciation of investments on a federal tax basis
amounts to $14,973 which is comprised of $738,669 appreciation and $753,642
depreciation at October 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($63,520,817) at October 31, 1995.
The following acronyms are used throughout this portfolio:
CMO -- Collateralized Mortgage Obligation
REMIC -- Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $62,725,769) $ 62,710,796
- ---------------------------------------------------------------------------------------------------
Cash 380
- ---------------------------------------------------------------------------------------------------
Income receivable 982,532
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 162
- ---------------------------------------------------------------------------------------------------
Deferred expenses 7,835
- --------------------------------------------------------------------------------------------------- -------------
Total assets 63,701,705
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 9,878
- ----------------------------------------------------------------------------------------
Income distribution payable 100,112
- ----------------------------------------------------------------------------------------
Accrued expenses 70,898
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 180,888
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 6,401,551 shares outstanding $ 63,520,817
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 66,906,972
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (14,973)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (3,371,182)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 63,520,817
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------------------------
($63,520,817 / 6,401,551 shares outstanding) $ 9.92
- --------------------------------------------------------------------------------------------------- -------------
Computation of Offering Price Per Share: (100/97.50 of $9.92)* $ 10.17
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 4,368,686
- ---------------------------------------------------------------------------------------------------- ------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 434,754
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 80,898
- ---------------------------------------------------------------------------------------
Custodian fees 22,937
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 83,968
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 3,356
- ---------------------------------------------------------------------------------------
Auditing fees 14,147
- ---------------------------------------------------------------------------------------
Legal fees 12,115
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 34,137
- ---------------------------------------------------------------------------------------
Distribution services fee 144,918
- ---------------------------------------------------------------------------------------
Share registration costs 19,186
- ---------------------------------------------------------------------------------------
Printing and postage 13,772
- ---------------------------------------------------------------------------------------
Insurance premiums 1,679
- ---------------------------------------------------------------------------------------
Miscellaneous 8,934
- --------------------------------------------------------------------------------------- -----------
Total expenses 874,801
- ---------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (179,019)
- --------------------------------------------------------------------------
Waiver of distribution services fee (92,518)
- -------------------------------------------------------------------------- -----------
Total waivers (271,537)
- --------------------------------------------------------------------------------------- -----------
Net expenses 603,264
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 3,765,422
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized loss on investments (558,610)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 2,950,347
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 2,391,737
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 6,157,159
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------------
Net investment income $ 3,765,422 $ 4,351,534
- ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($558,610 and $2,421,386 net losses,
respectively, as computed for federal income tax purposes) (558,610) (2,421,386)
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 2,950,347 (4,872,163)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 6,157,159 (2,942,015)
- ---------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------------
Distributions from net investment income (3,765,422) (4,352,321)
- ---------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------------
Proceeds from sale of shares 2,369,982 10,404,085
- ----------------------------------------------------------------------------------
Net asset value of shares issued in connection with acquisition of The Starburst
Quality Income Fund 15,894,086 --
- ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions
declared 2,523,463 2,862,263
- ----------------------------------------------------------------------------------
Cost of shares redeemed (18,485,866) (44,390,859)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 2,301,665 (31,124,511)
- ---------------------------------------------------------------------------------- -------------- --------------
Change in net assets 4,693,402 (38,418,847)
- ----------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------
Beginning of period 58,827,415 97,246,262
- ---------------------------------------------------------------------------------- -------------- --------------
End of period $ 63,520,817 $ 58,827,415
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Starburst Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of four diversified portfolios. The financial statements
presented herein present only those of The Starburst Government Income Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
On May 19, 1995, the Fund acquired all the net assets of The Starburst Quality
Income Fund pursuant to a plan of reorganization approved by The Starburst
Quality Income Fund shareholders on May 12, 1995. The acquisition was
accomplished by a tax-free exchange of 1,620,192 shares of the Fund (valued at
$15,894,086) for the 1,687,270 shares of The Starburst Quality Income Fund on
May 19, 1995. The Starburst Quality Income Fund's net assets at that date
($15,980,770), including $290,415 of unrealized appreciation were combined with
those of the Fund. The aggregate net assets of the Fund and The Starburst
Quality Income Fund immediately before acquisition were $50,021,050 and
$15,980,770, respectively. Immediately after the acquisition, the combined
aggregate net assets of the Fund were $66,188,136.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Investments in other open-end
regulated investment companies are valued at net asset value. All other
securities are valued at prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy
pursuant to the guidelines and/or standards reviewed or established by the
Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
if required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At October 31, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $3,371,288 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward of $391,292, $2,421,386 and $558,610 will expire in 2001, 2002
and 2003, respectively.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1995 1994
<S> <C> <C>
Shares sold 273,302 1,025,192
- ------------------------------------------------------------------------------------
Shares issued in connection with acquisition of The Starburst Quality Income Fund 1,620,192 --
- ------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 258,615 290,048
- ------------------------------------------------------------------------------------
Shares redeemed (1,914,646) (4,502,369)
- ------------------------------------------------------------------------------------ ----------- -----------
Net change resulting from share transactions 237,463 (3,187,129)
- ------------------------------------------------------------------------------------ ----------- -----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Compass Bank, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee. The Adviser can modify or terminate any
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to .25 of 1% of the average daily net assets of the Fund, annually,
to compensate FSC. The distributor may voluntarily choose to waive a portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund for
which it receives a fee. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's average
net assets for the period, plus out-of-pocket expenses.
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
CUSTODIAN FEES--Compass Bank is the Fund's custodian for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $22,617 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following April 17, 1992 (the date the Fund became
effective). For the fiscal year ended October 31, 1995, the Fund paid $3,614
pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended October 31, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 41,314,405
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 46,734,715
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of THE STARBURST FUNDS
and the Shareholders of THE STARBURST GOVERNMENT INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Starburst Government Income Fund (a
portfolio of The Starburst Funds) as of October 31, 1995, and the related
statement of operations for the year then ended, and the statement of changes in
net assets for the years ended October 31, 1995 and 1994, and the financial
highlights (see page 2) for the periods presented. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
October 31, 1995 by correspondence with the custodian and broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Starburst
Government Income Fund as of October 31, 1995, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
December 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Starburst Government Income Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser and Custodian
Compass Bank 701 S. 32nd Street
Birmingham, Alabama 35233
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE STARBURST
GOVERNMENT INCOME FUND
PROSPECTUS
[LOGO OF STARBURST FUNDS]
A Portfolio of The Starburst Funds,
An Open-End, Management
Investment Company
December 31, 1995
-------------
FEDERATED SECURITIES CORP.
--------------------------
Distributor
COMPASS BANK
--------------------------
Investment Adviser
Cusip 855245809
2040607A (12/95)
93/33-2400
THE STARBURST GOVERNMENT INCOME FUND
(A PORTFOLIO OF THE STARBURST FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of The Starburst Government Income Fund (the "Fund") dated
December 31, 1995. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write to the Fund or call toll-free 1-800-239-
1930.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 31, 1995
FEDERATED SECURITIES CORP.
Distributor
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Futures and Options Transactions 1
Lending of Portfolio Securities 4
Restricted Securities 4
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
Investment Limitations 5
The Starburst Funds Management 7
Fund Ownership 11
Trustee Compensation 11
Trustee Liability 12
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Brokerage Transactions 12
Other Services 14
Fund Administration 14
Custodian 14
Transfer Agent and Dividend Disbursing Agent 14
Independent Auditors 14
Purchasing Shares 14
Distribution Plan 15
Conversion to Federal Funds 15
Determining Net Asset Value 15
Determining Market Value of Securities 15
Exchange Privilege 16
Redeeming Shares 16
Redemption in Kind 16
Massachusetss Partnership Law 16
Tax Status 17
The Fund's Tax Status 17
Shareholders' Tax Status 17
Total Return 17
Yield 17
Performance Comparison 17
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in The Starburst Funds (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of Trust
dated August 7, 1989.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income. Current income
includes, in general, discount earned on U.S. Treasury bills and agency
discount notes, interest earned on all other U.S. government securities and
mortgage-related securities, and short-term capital gains. The investment
objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in securities which are issued or guaranteed as to
payment of principal and interest by the U.S. government or its
instrumentalities.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
othe full faith and credit of the U.S. Treasury (such as Farmers Home
Administration and Government National Mortgage Association);
othe issuer's right to borrow from the U.S. Treasury (such as Farmers
Home Administration);
othe discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities (such as Federal Home Loan
Banks and Farmers Home Administration); or
othe credit of the agency or instrumentality issuing the obligations
(such as Federal Home Loan Banks, Farmers Home Administration, Farm
Credit Banks, Federal National Mortgage Association, and Federal Home
Loan Mortgage Corporation).
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass through securities
such as those issued by Government National Mortgage Association. The
terms and characteristics of the mortgage instruments may vary among pass
through mortgage loan pools.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the
Fund's records at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts and options on financial futures
contracts. Additionally, the Fund may buy and sell call and put options on
U.S. government securities.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties, the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. Financial
futures contracts call for the delivery of particular debt securities
issued or guaranteed by the U.S. Treasury or by specified agencies or
instrumentalities of the U.S. government.
In the fixed income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
PURCHASING PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts
for U.S. government securities. Unlike entering directly into a futures
contract, which requires the purchaser to buy a financial instrument on a
set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or
before a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures to protect portfolio
securities against decreases in value resulting from an anticipated
increase in market interest rates. Generally, if the hedged portfolio
securities decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it could
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date provided in
the option contract, and the premium paid for the contract will be lost.
WRITING CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts for U.S. government securities
to hedge its portfolio against an increase in market interest rates. When
the Fund writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As market interest rates rise, causing
the prices of futures to go down, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.
WRITING PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may write listed put options on financial futures contracts for
U.S. government securities to hedge its portfolio against a decrease in
market interest rates. When the Fund writes a put option on a futures
contract, it receives a premium for undertaking the obligation to assume
a long futures position (buying a futures contract) at a fixed price at
any time during the life of the option. As market interest rates
decrease, the market price of the underlying futures contract normally
increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the
buyer can sell the same futures contract at a higher price in the market.
The premium received by the Fund can then be used to offset the higher
prices of portfolio securities to be purchased in the future due to the
decrease in market interest rates.
Prior to the expiration of the put option, or its exercise by the buyer,
the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of buying the second option will be less
than the premium received by the Fund for the initial option.
PURCHASING CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
An additional way in which the Fund may hedge against decreases in market
interest rates is to buy a listed call option on a financial futures
contract for U.S. government securities. When the Fund purchases a call
option on a futures contract, it is purchasing the right (not the
obligation) to assume a long futures position (buy a futures contract) at
a fixed price at any time during the life of the option. As market
interest rates fall, the value of the underlying futures contract will
normally increase, resulting in an increase in value of the Fund's option
position. When the market price of the underlying futures contract
increases above the strike price plus premium paid, the Fund could
exercise its option and buy the futures contract below market price.
Prior to the exercise or expiration of the call option the Fund could
sell an identical call option and close out its position. If the premium
received upon selling the offsetting call is greater than the premium
originally paid, the Fund has completed a successful hedge.
LIMITATION ON OPEN FUTURES POSITIONS
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark-to-
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT AND CALL OPTIONS ON U.S. GOVERNMENT SECURITIES
The Fund may purchase put and call options on U.S. government securities
to protect against price movements in particular securities. A put option
gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of
the option. A call option gives the Fund, in return for a premium, the
right to buy the underlying security from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON U.S. GOVERNMENT SECURITIES
The Fund may write covered put and call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. As a writer of a put option, the Fund has
the obligation to purchase a security from the purchaser of the option
upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount of
any additional consideration). In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Fund or the borrower. The Fund may pay reasonable administrative
and custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash or equivalent collateral to the borrower or
placing broker.
RESTRICTED SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restriction on resale under
federal securities law. The Fund will not invest more than 10% of the value of
its net assets in restricted securities, however, certain restricted
securities which the Board of Trustees (the "Trustees") deem to be liquid will
be excluded from this 10% limitation.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under an SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act of 1933 (the "Rule").
The Rule is a non-exclusive, safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration for
resale of otherwise restricted securities to qualified institutional buyers.
The Rule was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) for determination
of the Fund's Board. The Board considers the following criteria in determining
the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security:
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Fund's investment objective. The estimated annual rate of
portfolio turnover will not exceed 100%. For the fiscal years ended October
31, 1995 and 1994, the Fund's portfolio turnover rates were 79% and 91%,
respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of the Fund's total assets, the Fund
will not purchase securities of any one issuer (other than cash, cash
items and securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities) if as a result more than 5%
of the value of its total assets would be invested in the securities of
that issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to one-
third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, the Fund will
restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing. Neither
the deposit of underlying securities and other assets in escrow in
connection with the writing of put or call options on securities nor
margin deposits for the purchase and sale of financial futures contracts
and related options are deemed to be a pledge.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate including limited partnership
interests, although it may invest in securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933, as amended,
in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. (This shall not prevent
the purchase or holding of U.S. government securities, repurchase
agreements covering U.S. government securities, or other transactions
which are permitted by the Fund's investment objective and policies.)
SELLING SHORT
The Fund will not sell securities short.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective,
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its total assets
in securities which are not readily marketable or which are otherwise
considered illiquid, including over-the-counter options and also
including repurchase agreements providing for settlement in more than
seven days after notice.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of total assets in any one
investment company, or invest more than 10% of total assets in investment
companies in general. The Fund will purchase securities of closed-end
investment companies only in open market transactions involving only
customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. It should be noted that
investment companies incur certain expenses such as management fees, and
therefore any investment by a Fund in shares of another investment
company would be subject to such customary expenses.
WRITING COVERED PUT AND CALL OPTIONS AND PURCHASING PUT OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. When writing put options, the Fund
will segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities. The Fund
will not purchase put options on securities unless the securities are
held in the Fund's portfolio. The Fund will not write put or call options
or purchase put or call options in excess of 5% of the value of its total
assets.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
THE STARBURST FUNDS MANAGEMENT
OFFICERS AND TRUSTEES ARE LISTED WITH THEIR ADDRESSES, BIRTHDATES, PRESENT
POSITIONS WITH THE STARBURST FUNDS, AND PRINCIPAL OCCUPATIONS.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, President of
the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds;
formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Services Company; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; President,
Executive Vice President or Treasurer of some of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Executive Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the Funds.
Mr. Donahue is the son of John F. Donahue, Trustee of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; President and
Trustee, Federated Shareholder Services; Director, Federated Securities Corp.;
Executive Vice President and Secretary of the Funds.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
ARMs Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 3-5 Years; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,
Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of December 5, 1995, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Blue Cross Blue Shield of Alabama,
Birmingham, Alabama owned approximately 1,143,335 shares (18.01%); and Compass
Bank Trustee, for the account of Compass Bank Pension Trust, Birmingham,
Alabama owned approximately 555,684 shares (8.75%)
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0
Trustee
Thomas G. Bigley,$1,225
Trustee
John T. Conroy, Jr., $1,584
Trustee
William J. Copeland, $1,584
Trustee
James E. Dowd, $1,584
Trustee
Lawrence D. Ellis, M.D., $1,447
Trustee
Edward L. Flaherty, Jr., $1,584
Trustee
Edward D. Gonzales, $ 0
Executive Vice President,
Treasurer and Trustee
Peter E. Madden, $1,226
Trustee
Gregor F. Meyer, $1,447
Trustee
John E. Murray, Jr., $ 858
Trustee
Wesley W. Posvar,$1,447
Trustee
Marjorie P. Smuts, $1,447
Trustee
* Information is furnished for the fiscal year ended October 31, 1995. The
Trust is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Trust which is comprised of
four portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Compass Bank, an Alabama state banking
corporation, formerly known as Central Bank of the South (the "Adviser"). The
Adviser is a wholly-owned subsidiary of Compass Bancshares, Inc.
("Bancshares"), formerly known as Central Bancshares of the South, Inc., a
bank holding company organized under the laws of Delaware.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
Because of the internal controls maintained by Compass Bank to restrict the
flow of non-public information, Fund investments are typically made without
any knowledge of Compass Bank's or its affiliates' lending relationships with
an issuer.
ADVISORY FEES
For its advisory services, Compass Bank receives an annual investment advisory
fee as described in the prospectus.
For the fiscal years ended October 31, 1995, 1994 and 1993, the Adviser earned
$434,754, $600,031, and $626,935, respectively, of which $179,019, $240,012,
and $238,749, respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio valuations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided.
Research services provided by brokers may be used by the Adviser for other
accounts. To the extent that receipt of these services may supplant services
for which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or
more other accounts managed by the Adviser are prepared to invest in, or
desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the fiscal years ended October 31, 1995, 1994
and 1993, the Fund incurred $80,898, $109,358, and $113,364, respectively, for
administrative services, of which $0, $0, and $0, respectively, were
voluntarily waived.
CUSTODIAN
Compass Bank, Birmingham, Alabama, is custodian for the securities and cash of
the Fund for which it receives an annual fee of 0.02% of the Fund's average
aggregate daily net assets and is reimbursed for its out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, serves as transfer agent and dividend disbursing agent
for the Fund. The fee paid to the transfer agent is based upon the size, type
and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The
fee paid for this service is based upon the level of the Fund's average net
assets for the period plus out-of-pocket expenses.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value with a sales load on days the New
York Stock Exchange is open for business except for federal or state holidays
restricting wire transfers. The procedure for purchasing shares of the Fund is
explained in the prospectus under "Investing in the Fund."
Compass Bank, Compass Brokerage, Inc. and the other affiliates of Bancshares
which provide shareholder and administrative services to the Fund sometimes
are referred herein as "Compass."
DISTRIBUTION PLAN
The Starburst Funds has adopted a Plan for the Fund pursuant to Rule 12b-1
(the "Plan") which was promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. The Plan provides for payment of
fees to Federated Securities Corp. to finance any activity which is
principally intended to result in the sale of the Fund's shares subject to the
Plan. Such activities may include the advertising and marketing of shares;
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, brokers or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption transactions;
providing or arranging to provide accounting support for all transactions;
wiring funds and receiving funds for share purchases and redemptions;
confirming and reconciling all transactions; reviewing the activity in Fund
accounts; providing training and supervision of broker personnel; posting and
reinvesting dividends to Fund accounts or arranging for this service to be
performed by the Fund's transfer agent; and maintaining and distributing
current copies of prospectuses and shareholder reports to the beneficial
owners of shares and prospective shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund
will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended October 31, 1995 , brokers and administrators
(financial institutions) received fees in the amount of $144,918, of which
$92,518 was voluntarily waived, pursuant to the Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value
is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of less than 60 days at the time of
purchase, at amortized cost unless the Trustees determine this is not
fair value; or
o at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such option is traded. Unlisted call options
will be valued at the latest bid price as provided by brokers.
EXCHANGE PRIVILEGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, shares submitted for exchange are redeemed
and the proceeds invested in shares of the other fund.
Instructions for exchange may be given in writing or by telephone. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed
in determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation or instrument that the Trust or its Trustees enter
into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares.
No portion of any income dividend paid by the Fund is eligible for the
dividends received deduction available to corporations. These dividends, and
any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund shares.
TOTAL RETURN
The Fund's average annual total return for the fiscal year ended October 31,
1995, and for the period from April 20, 1992 (date of initial public
investment) to October 31, 1995, was 8.21% and 5.46%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at
the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended October 31, 1995 was 5.61%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the
Fund over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This value is then annualized using semi-
annual compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index
used, prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price. The
financial publications and/or indices which the Fund uses in advertising may
include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the "U.S. government funds" category in advertising and
sales literature.
o THE SALOMON BROTHERS TOTAL RATE-OF-RETURN INDEX for mortgage pass through
securities reflects the entire mortgage pass through market and reflects
their special characteristics. The index represents data aggregated by
mortgage pool and coupon within a given sector. A market weighted
portfolio is constructed considering all newly created pools and coupons.
o THE MERRILL LYNCH TAXABLE BOND INDICES include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the
fixed income market. The performance indicators capture all rating
changes, new issues, and any structural changes of the entire market.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an
unmanaged index comprised of all approximately 5,000 issues which
include: non-convertible bonds publicly issued by the U.S. government or
its agencies; corporate bonds guaranteed by the U.S. government and
quasi-federal corporations; and publicly issued, fixed-rate, non-
convertible domestic bonds of companies in industry, public utilities,
and finance with maturities between 1 and 9.99 years. Total return is
based on price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based
on monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
Cusip 855245809
2040607B (12/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A)
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the
Registrant;+
(i) Conformed Copy of Amendment No. 1 to Declaration
of Trust (1);
(ii) Conformed Copy of Amendment No. 2 to the
Declaration of Trust (2);
(iii)Conformed Copy of Amendment Nos. 3, 4,and 5 to the
Declaration of Trust (3);
(iv) Conformed Copy of Amendment No. 6 to the
Declaration of Trust (4);
(v) Conformed Copy of Amendment No. 7 to the
Declaration of Trust (5);
(vi) Conformed Copy of Amendment Nos. 8 and 9 to the
Declaration of Trust;+
(2) Copy of By-Laws of the Registrant;+
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Municipal
Income Fund;+
(ii) Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Government
Income Fund;+
(iii)Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Government
Money Market Fund-Investment Shares;+
(iv) Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Government
Money Market Fund-Trust Shares;+
(v) Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Money Market
Fund-Investment Shares;+
(vi) Copy of Specimen Certificate for Shares of
Beneficial Interest of The Starburst Money Market
Fund-Trust Shares;+
(5) (i) Conformed Copy of the Investment Advisory Contract
thru and including Exhibit D;+
(ii) Conformed Copy of Investment Management Contract
thru and including Exhibit A;+
+ Exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 filed on Form N-1A November 16, 1989 (File Nos. 33-
30950 and 811-5900).
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 21, 1990. (File Nos. 33-30950
and 811-5900)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed September 11, 1991. (File Nos. 33-
30950 and 811-5900)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed February 14, 1992. (File Nos. 33-
30950 and 811-5900)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed September 28, 1992. (File Nos. 33-
30950 and 811-5900)
(6) Conformed Copy of Distributor's Contract of the
Registrant thru and including Exhibit F;+
(7) Not applicable;
(8) Conformed Copy of Custodian Agreement of the
Registrant;+
(9) (i) Conformed Copy of Agreement for Fund Accounting
Shareholder Recordkeeping, and Custody Services
Procurement (7);
(ii) Conformed Copy of Sales Agreement with Federated
Securities Corp. (6);
(iii)Conformed Copy of Electronic Communications and
Recordkeeping Agreement (6);
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered (7);
(11) Conformed Copy of Consent of the Independent
Auditors;+
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding (1);
(14) Not applicable;
(15) (i) Conformed Copy of Distribution Plan thru and
including Exhibit G;+
(ii) Form of 12b-1 Agreement;+
(16) (i) Copy of Schedule of Computation of Fund
Performance for The Starburst Municipal Income
Fund;+
(ii) Copy of Schedule of Computation of Fund
Performance for The Starburst Government Income
Fund;+
(iii)Copy of Schedule of Computation of Fund
Performance for The Starburst Government Money
Market Fund;+
(iv) Copy of Schedule of Computation of Fund
Performance for The Starburst Money Market Fund;+
(17) Copy of Financial Data Schedules;+
(18) Not Applicable;
(19) Conformed Copy of Power of Attorney;+
+ Exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 filed on Form N-1A November 16, 1989 (File Nos. 33-
30950 and 811-5900).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 3, 1994 (File Nos. 33-30950
and 811-5900)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 28, 1994 (File Nos. 33-
30950 and 811-5900)
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 5, 1995
The Starburst Government Money
Market Fund-Trust Shares 8
The Starburst Government Money
Market Fund-Investment Shares 84
The Starburst Money Market Fund-
Trust Shares 5
The Starburst Money Market Fund-
Investment Shares 1,269
The Starburst Municipal Income Fund 997
The Starburst Government Income Fund3,149
Item 27. Indemnification: (4.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of Central Bank of the
South, the investment adviser, see the section entitled
"Management of the Fund" in Part A.
The Executive Officers of the investment adviser are:
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation, Employment
D. Paul Jones, Jr. Chairman, President, Chairman, Chief
Chief Executive Officer, Executive Officer,
Treasurer and Director Treasurer and Director
of Compass Bancshares, Inc.;
Director of Golden
Enterprises, Inc. (snack
food and metal fastener
production and
distribution), the principal
business address of which is
110 South Sixth Street,
Birmingham, Alabama 35205
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 23, 1990. (File No. 33-30950)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation, Employment
Byrd Williams Executive Vice President Executive Vice
President of Compass
Bancshares, Inc.
Garrett R. Hegel Chief Financial Officer Chief Financial Officer of
Compass Bancshares, Inc.
Jerry W. Powell General Counsel General Counsel of Compass
Bancshares, Inc.
G. Ray Stone Senior Vice President
E. Lee Harris Senior Vice President
J. Vance Davidson Vice President and
Senior Trust Officer
The business address for each of the above-listed persons is 15 South 20th
Street, Birmingham, Alabama 35233.
The principal business address of Compass Bank, Compass Bancshares, Inc.
and Compass Bancshares Insurance, Inc. is 15 South 20th Street, Birmingham,
Alabama 35233.
Directors:
Other Substantial Business, Profession
Name Vocation or Employment
Charles W. Daniel President, Dantract, Inc. (real estate
investments), Suite 100, 200 Office Park
Drive, Birmingham, Alabama 35223.
William Eugene Davenport President and Chief Operating Officer of
Russell Lands, Inc. (real estate
development), 1 Willowpoint Road, Alexander
City, Alabama 35010.
Marshall Durbin, Jr. President of Marshall Durbin & Company, Inc.
(poultry processing), 3125 Independence
Drive, Birmingham, Alabama 35209.
Tranum Fitzpatrick Chairman of Guilford Company, Inc. (real estate
development), President of Guilford Capital
(real estate investment) and President of
Empire-Rouse (real estate development) 2600 East
South Boulevard, Montgomery, Alabama 36116.
George W. Hansberry, M.D. Decatur General Hospital (medical services
provider P.O. Box 2239, Decatur, Alabama 35609-
2239 and Parkway Medical Center (medical
services provider) P.O. Box 2211, Decatur,
Alabama 35609-2211.
Directors:
Other Substantial Business, Profession
Name Vocation or Employment
D. Paul Jones, Jr. Chairman, Chief Executive Officer and
Treasurer of Compass Bancshares, Inc. and
Compass Bank; President of Compass Bank;
Director of Golden Enterprises, Inc. (snack food
distribution), 110 South Sixth Street,
Birmingham, Alabama 35205.
Goodwin L. Myrick President and Chairman, Alabama
Farmers Federation, ALFA Corporation, ALFA
Insurance Companies and ALFA Services, Inc.
(agriculture and insurance), the principal
address of each of which is 2108 East South
Boulevard, Montgomery, Alabama 36116.
John S. Stein President and Chief Executive Officer of
Golden Foods, Inc. (snack food distribution),
110 South Sixth Street, Birmingham, Alabama
35205.
All of the members of the Compass Bank Board of Directors are also members
of the Board of Directors of Compass Bancshares, Inc.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: American Leaders
Fund, Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious
Metals, Inc.; Cash Trust Series, Inc.; Cash Trust Series II;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Equity Funds; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 3-5 Years;First
Priority Funds; First Union Funds; Fixed Income Securities,
Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust; Newpoint
Funds; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; RIMCO Monument Funds; The Shawmut Funds; SouthTrust
Vulcan Funds; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Tower Mutual
Funds; Trademark Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations;
The Virtus Funds; Vision Fiduciary Funds, Inc.; Vision Group
of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Treasurer
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment COmpany Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Compass Bank 701 S. 32nd Street
("Investment Adviser") Birmingham, AL, 35233
Compass Bank 701 S. 32nd Street
("Custodian") Birmingham, AL, 35233
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom
a prospectus is delivered with a copy of Registrant's latest
annual report to shareholders, upon request and without
charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE STARBURST FUNDS, has
duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 27th day of December,
1995.
THE STARBURST FUNDS
BY: /s/C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
December 27, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/C. Grant Anderson
C. Grant Anderson Attorney In Fact December 27, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Trustee
J. Christopher Donahue* President
Edward C. Gonzales* Executive Vice President,
Treasurer and
Trustee (Principal Financial
and Accounting Officer)
Thomas G. Bigley* Trustee
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
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg SK
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of
The Starburst Funds:
We consent to the use in Post-Effective Amendment No. 22 to Registration
Statement (No. 33-30950) of The Starburst Fund (comprising the following
portfolios: The Starburst Government Income Fund, The Starburst Municipal
Income Fund, The Starburst Money Market Fund and The Starburst Government
Money Market Fund) of our report dated December 15, 1995, appearing in the
Prospectuses, which are a part of such Registration Statement, and to the
reference to us under the heading "Financial Highlights" in such
Prospectuses.
By:/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
Exhibit 1 under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
DECLARATION OF TRUST
THE CENTRAL CORE FUNDS
Dated August 7, 1989
DECLARATION OF TRUST made August 7, 1989, by John F. Donahue, Edward C.
Gonzales, William J. Copeland, James S. Dowd, Lawrence D. Ellis, M.D., Edward L.
Flaherty, Jr., J. Joseph Maloney, Jr., Gregor F. Meyer, Marjorie P. Smuts and
Wesley W. Posvar.
WHEREAS, the Trustees desire to establish a trust fund for the investment
and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property contributed
to the trust fund hereunder shall be held and managed under this Declaration of
Trust IN TRUST as herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name.
This Trust shall be known as The Central Core Funds.
Section 2. Definitions.
Wherever used herein, unless otherwise required by the context or
specifically provided:
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them
in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to The Central Core Funds;
(c) "Class" refers to a class of Shares established and designated
under or in accordance with the provisions of Article III;
(d) "Series" refers to a series of Shares established and designated
under or in accordance with the provisions of Article III;
(e) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;
(f) "Shareholder" means a record owner of Shares of any Series or
Class;
(g) The "Trustees" refer to the individual Trustees in their capacity
as Trustees hereunder of the Trust and their successor or successors for
the time being in office as such Trustees;
(h) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to
time, or if more than one Series or Class of Shares is authorized by the
Trustees, the equal proportionate units into which each Series or Class of
Shares shall be divided from time to time and includes fractions of Shares
as well as whole Shares; and
(i) The "1940 Act" refers to the Investment Company Act of 1940, and
the Rules and Regulations thereunder, (including any exemptions granted
thereunder) as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investments by investing primarily in securities (including options) and
also in debt instruments, commodities, commodity contracts and options thereon.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest.
The beneficial interest in the Trust shall at all times be divided into
transferable Shares, without par value. Subject to the provisions of
Section 5 of this Article III, each Share shall have voting rights as
provided in Article VIII hereof, and holders of the Shares of any Series
shall be entitled to receive dividends, when and as declared with respect
thereto in the manner provided in Article X, Section 1 hereof. The Shares
of any Series may be issued in two or more Classes, as the Trustees may
authorize pursuant to Article XII, Section 8 hereof. Unless the Trustees
have authorized the issuance of Shares of a Series in two or more Classes,
each Share of a Series shall represent an equal proportionate interest in
the assets and liabilities of the Series with each other Share of the same
Series, none having priority or preference over another. If the Trustees
have authorized the issuance of Shares of a Series in two or more Classes,
then the Classes may have such variations as to dividend, redemption, and
voting rights, net asset values, expenses borne by the Classes, and other
matters as the Trustees have authorized provided that each Share of a Class
shall repesent an equal proportionate interest in the assets and
liabilities of the Class with each other Share of the same Class, none
having priority or preference over another. The number of Shares
authorized shall be unlimited. The Trustees may from time to time divide
or combine the Shares of any Series or Class into a greater or lesser
number without thereby changing the proportionate beneficial interests in
the Series or Class.
Section 2. Ownership of Shares.
The ownership of Shares shall be recorded in the books of the Trust or
a transfer agent which books shall be maintained separately for the Shares
of each Series or Class. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record
books of the Trust or any transfer agent, as the case may be, shall be
conclusive as to who are the Shareholders of each Series or Class and as to
the number of Shares of each Series or Class held from time to time by
each.
ARTICLE III
Section 3. Investment in the Trust.
The Trustees shall accept investments in the Trust from such persons
and on such terms as they may from time to time authorize. After the date
of the initial contribution of capital (which shall occur prior to the
initial public offering of Shares), the number of Shares to represent the
initial contribution shall be considered as outstanding and the amount
received by the Trustees on account of the contribution shall be treated as
an asset of the Trust to be allocated among any Series or Classes in the
manner described in Section 5(a) of this Article. Subsequent to such
initial contribution of capital, Shares (including Shares which may have
been redeemed or repurchased by the Trust) may be issued or sold at a price
which will net the relevant Series or Class, as the case may be, before
paying any taxes in connection with such issue or sale, not less than the
net asset value (as defined in Article X, Section 3) thereof; provided,
however, that the Trustees may in their discretion impose a sales charge
upon investments in the Trust.
Section 4. No Pre-emptive Rights.
Shareholders shall have no pre-emptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.
Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any additional
series or class or to modify the rights and preferences of any existing
Series or Class, the initial series shall be, and are established and
designated as, The Central Core Government Money Market Fund and The
Central Core Money Market Fund.
Shares of any Series or Class established in this Section 5 shall have
the following relative rights and preferences:
(a) Assets belonging to Series or Class. All consideration
received by the Trust for the issue or sale of Shares of a particular
Series or Class, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds
thereof from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
Series or Class for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits and
proceeds thereof, from whatever source derived, including, without
limitation, any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment
of such proceeds, in whatever form the same may be, are herein referred
to as "assets belonging to" that Series or Class. In the event that
there are any assets, income, earnings, profits and proceeds thereof,
funds or payments which are not readily identifiable as belonging to any
particular Series or Class (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more
of the Series or Classes established and designated from time to time in
such manner and on such basis as they, in their sole discretion, deem
fair and equitable, and any General Assets so allocated to a particular
Series or Class shall belong to that Series or Class. Each such
allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series or Classes for all purposes.
(b) Liabilities Belonging to Series or Class. The assets
belonging to each particular Series or Class shall be charged with the
liabilities of the Trust in respect to that Series or Class and all
expenses, costs, charges and reserves attributable to that Series or
Class, and any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees to and among any one or more of
the Series or Classes established and designated from time to time in
such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. The liabilities, expenses, costs, charges and
reserves so charged to a Series or Class are herein referred to as
"liabilities belonging to" that Series or Class. Each allocation of
liabilities belonging to a Series or class by the Trustees shall be
conclusive and binding upon the Shareholders of all Series or Classes
for all purposes.
(c) Dividends, Distributions, Redemptions, Repurchases
and Indemnification. Notwithstanding any other provisions of this
-
Declaration, including, without limitation, Article X, no dividend or
distribution (including, without limitation, any distribution paid upon
termination of the Trust or of any Series or Class) with respect to, nor
any redemption or repurchase of the Shares of any Series or Class shall
be effected by the Trust other than from the assets belonging to such
Series or Class, nor except as specifically provided in Section 1 of
Article XI hereof, shall any Shareholder of any particular Series or
Class otherwise have any right or claim against the assets belonging to
any other Series or Class except to the extent that such Shareholder has
such a right or claim hereunder as a Shareholder of such other Series or
Class.
(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article VIII,
only Shareholders of a particular Series or Class shall be entitled to
vote on any matters affecting such Series or Class. Except with respect
to matters as to which any particular Series or Class is affected, all
of the Shares of each Series or Class shall, on matters as to which such
Series or Class is entitled to vote, vote with other Series or Classes
so entitled as a single class. Notwithstanding the foregoing, with
respect to matters which would otherwise be voted on by two or more
Series or Classes as a single class, the Trustees may, in their sole
discretion, submit such matters to the Shareholders of any or all such
Series or Classes, separately.
(e) Fraction. Any fractional Share of a Series or Class shall
carry proportionately all the rights and obligations of a whole Share of
that Series or Class, including rights with respect to voting, receipt
of dividends and distributions, redemption of Shares and termination of
the Trust or of any Series or Class.
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the
right to exchange said Shares for Shares of one or more other Series or
Classes in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series or Classes. The Trustees shall have
the authority, without the approval of the Shareholders of any Series or
Class, unless otherwise required by applicable law, to combine the
assets and liabilities belonging to a single Series or Class with the
assets and liabilities of one or more other Series or Classes.
(h) Elimination of Series or Classes. At any time that there are
no Shares outstanding of any particular Series or Class previously
established and designated, the Trustees may amend this Declaration of
Trust to abolish that Series or Class and to rescind the establishment
and designation thereof.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust.
The business and affairs of the Trust shall be managed by the Trustees,
and they shall have all powers necessary and desirable to carry out that
responsibility. The Trustees who shall serve until the election of
Trustees at the Meeting of Shareholders subsequent to the initial public
offering of Shares shall be John F. Donahue, Edward C. Gonzales, William J.
Copeland, James S. Dowd, Lawrence J. Ellis, M.D., Edward L. Flaherty, Jr.,
J. Joseph Maloney, Jr., Gregor F. Meyer, Marjorie P. Smuts and Wesley W.
Posvar.
Section 2. Election of Trustees at Meeting of Shareholders.
On a date fixed by the Trustees, which shall be subsequent to the
initial public offering of Shares, the Shareholders shall elect Trustees.
The number of Trustees shall be determined by the Trustees pursuant to
Article IV, Section 5.
Section 3. Term of Office of Trustees.
The Trustees shall hold office during the lifetime of this Trust, and
until its termination as hereinafter provided; except (a) that any Trustee
may resign his office at any time by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery
or upon such later date as is specified therein; (b) that any Trustee may
be removed at any time by written instrument signed by at least two-thirds
of the number of Trustees prior to such removal, specifying the date when
such removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become mentally or physically
incapacitated may be retired by written instrument signed by a majority of
the other Trustees, specifying the date of his retirement; and (d) a
Trustee may be removed at any special meeting of Shareholders of the Trust
by a vote of two-thirds of the outstanding Shares.
Section 4. Termination of Service and Appointment of Trustees.
In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase in number, or for any other reason, exist, the
remaining Trustees shall fill such vacancy by appointing such other person
as they in their discretion shall see fit. Such appointment shall be
effected by the signing of a written instrument by a majority of the
Trustees in office. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at
a later date, provided that said appointment shall become effective only at
or after the effective date of said retirement, resignation or increase in
number of Trustees. As soon as any Trustee so appointed shall have
accepted this Trust, the trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any further act or
conveyance, and he shall be deemed a Trustee hereunder. Any appointment
authorized by this Section 4 is subject to the provisions of Section 16(a)
of the 1940 Act.
Section 5. Number of Trustees.
The number of Trustees, not less than three (3) nor more than twenty
(20) serving hereunder at any time, shall be determined by the Trustees
themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled or while any Trustee is physically or mentally
incapacitated, the other Trustees shall have all the powers hereunder and
the certificate signed by a majority of the other Trustees of such vacancy,
absence or incapacity, shall be conclusive, provided, however, that no
vacancy which reduces the number of Trustees below three (3) shall remain
unfilled for a period longer than six calendar months.
Section 6. Effect of Death, Resignation, etc. of a Trustee.
The death, resignation, retirement, removal, or mental or physical
incapacity of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
Section 7. Ownership of Assets.
The assets belonging to each Series or Class shall be held separate and
apart from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustee. All of the
assets belonging to each Series or Class or owned by the Trust shall at all
times be considered as vested in the Trustees. No Shareholder shall be
deemed to have a severable ownership interest in any individual asset
belonging to any Series or Class or owned by the Trust or any right of
partition or possession thereof, but each Shareholder shall have a
proportionate undivided beneficial interest in a Series or Class.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers.
The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall
have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust or
a Series or Class. The Trustees shall not be bound or limited by present
or future laws or customs in regard to trust investments, but shall have
full authority and power to make any and all investments which they, in
their uncontrolled discretion, shall deem proper to accomplish the purpose
of this Trust. Without limiting the foregoing, the Trustees shall have the
following specific powers and authority, subject to any applicable
limitation in this Declaration of Trust or in the By-Laws of the Trust:
(a) To buy, and invest funds in their hands in securities
including, but not limited to, common stocks, preferred stocks, bonds,
debentures, warrants and rights to purchase securities, options,
certificates of beneficial interest, money market instruments, notes or
other evidences of indebtedness issued by any corporation, trust or
association, domestic or foreign, or issued or guaranteed by the United
States of America or any agency or instrumentality thereof, by the
government of any foreign country, by any State of the United States, or
by any political subdivision or agency or instrumentality of any State
or foreign country, or in "when-issued" or "delayed-delivery" contracts
for any such securities, or in any repurchase agreement or reverse
repurchase agreement, or in debt instruments, commodities, commodity
contracts and options thereon, or to retain assets belonging to each and
every Series or Class in cash, and from time to time to change the
investments of the assets belonging to each Series or Class;
(b) To adopt By-Laws of the Trust not inconsistent with the
Declaration of Trust providing for the conduct of the business of the
Trust and to amend and repeal them to the extent that they do not
reserve that right to the Shareholders;
(c) To Elect and remove such officers of the Trust and appoint
and terminate such agents of the Trust as they consider appropriate;
(d) To appoint or otherwise engage a bank or trust company as
custodian of any assets belonging to any Series or Class subject to any
conditions set forth in this Declaration of Trust or in the By-Laws;
(e) To appoint or otherwise engage transfer agents, dividend
disbursing agents, Shareholder servicing agents, investment advisers,
sub-investment advisers, principal underwriters, administrative service
agents, and such other agents as the Trustees may from time to time
appoint or otherwise engage;
(f) To provide for the distribution of any Shares of any Series
or Class either through a principal underwriter in the manner
hereinafter provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter provided for;
(h) To delegate such authority as they consider desirable to a
committee or committees composed of Trustees, including without
limitation, an Executive Committee, or to any officers of the Trust and
to any agent, custodian or underwriter;
(i) To sell or exchange any or all of the assets belonging to one
or more Series or Classes, subject to the provisions of Article XII,
Section 4(b) hereof;
(j) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute
and deliver powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall
deem proper;
(k) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts trust companies or investment companies;
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which belongs to any Series or Class; to consent to any
contract, lease, mortgage, purchase, or sale of property by such
corporation or concern, and to pay calls or subscriptions with respect
to any security which belongs to any Series or Class;
(n) To engage in and to prosecute, compound, compromise, abandon,
or adjust, by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims, demands, and things relating to the
Trust, and out of the assets belonging to any Series or Class to pay, or
to satisfy, any debts, claims or expenses incurred in connection
therewith, including those of litigation, upon any evidence that the
Trustees may deem sufficient (such powers shall include without
limitation any actions, suits, proceedings, disputes, claims, demands
and things relating to the Trust wherein any of the Trustees may be
named individually and the subject matter of which arises by reason of
business for or on behalf of the Trust);
(o) To make distributions of income and of capital gains to
Shareholders;
(p) To borrow money;
(q) From time to time to issue and sell the Shares of any Series
or Class either for cash or for property whenever and in such amounts as
the Trustees may deem desirable, but subject to the limitation set forth
in Section 3 of Article III.
(r) To purchase insurance of any kind, including, without
limitation, insurance on behalf of any person who is or was a Trustee,
Officer, employee or agent of the Trust, or is or was serving at the
request of the Trust as a Trustee, Director, Officer, agent or employee
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such.
(s) To sell, exchange, lend, pledge, mortgage, hypothecate,
lease, or write options with respect to or otherwise deal in any
property rights relating to any or all of the assets belonging to any
Series or Class.
The Trustees shall have all of the powers set forth in this Section 1 with
respect to all assets and liabilities of each Series and Class.
Section 2. Principal Transactions.
The Trustees shall not cause the Trust on behalf of any Series or Class
to buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets belonging to any Series or Class
to any Trustee or officer or employee of the Trust or any firm of which any
such Trustee or officer is a member acting as principal unless permitted by
the 1940 Act, but the Trust may employ any such other party or any such
person or firm or company in which any such person is an interested person
in any capacity not prohibited by the 1940 Act.
Section 3. Trustees and Officers as Shareholders.
Any Trustee, officer or other agent of the Trust or any Series or Class
may acquire, own and dispose of Shares of any Series or Class to the same
extent as if he were not a Trustee, officer or agent; and the Trustees may
issue and sell or cause to be issued or sold Shares of any Series or Class
to and buy such Shares from any such person or any firm or company in which
he is an interested person subject only to the general limitations herein
contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the By-Laws.
Section 4. Parties to Contract.
The Trustees may enter into any contract of the character described in
Article VII or in Article IX hereof or any other capacity not prohibited by
the 1940 Act with any corporation, firm, trust or association, although one
or more of the shareholders, Trustees, officers, employees or agents of the
Trust or any Series or Class or their affiliates may be an officer,
director, trustee, shareholder or interested person of such other party to
the contract, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship, nor shall any
person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust or any Series or Class
under or by reason of said contract or accountable for any profit realized
directly or indirectly therefrom, in the absence of actual fraud. The same
person (including a firm, corporation, trust or association) may be the
other party to contracts entered into pursuant to Article VII or Article IX
or any other capacity not prohibited by the 1940 Act, and any individual
may be financially interested or otherwise an interested person of persons
who are parties to any or all of the contracts mentioned in this Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement.
The Trustees shall be reimbursed from the assets belonging to each
particular Series or Class for all of such Trustees' expenses as such
expenses are allocated to and among any one or more of the Series or
Classes pursuant to Article III, Section 5(b), including, without
limitation, expenses of organizing the Trust or any Series or Class and
continuing its or their existence; fees and expenses of Trustees and
Officers of the Trust; fees for investment advisory services,
administrative services and principal underwriting services provided for in
Article VII, Sections 1, 2 and 3; fees and expenses of preparing and
printing Registration Statements under the Securities Act of 1933 and the
1940 Act and any amendments thereto; expenses of registering and qualifying
the Trust and any Series or Class and the Shares of any Series
or Class under federal and state laws and regulations; expenses of
preparing, printing and distributing prospectuses and any amendments
thereto sent to shareholders, underwriters, broker-dealers and to investors
who may be considering the purchase of Shares; expenses of registering,
licensing or other authorization of the Trust or any Series or Class as a
broker-dealer and of its or their officers as agents and salesmen under
federal and state laws and regulations; interest expenses, taxes, fees and
commissions of every kind; expenses of issue (including cost of share
certificates), purchases, repurchases and redemptions of Shares, including
expenses attributable to a program of periodic issue; charges and expenses
of custodians, transfer agents, dividend disbursing agents, Shareholder
servicing agents and registrars; printing and mailing costs; auditing,
accounting and legal expenses; reports to Shareholders and governmental
officers and commissions; expenses of meetings of Shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and
nonrecurring items as may arise, including all losses and liabilities by
them incurred in administering the Trust and any Series or Class, including
expenses incurred in connection with litigation, proceedings and claims and
the obligations of the Trust under Article XI hereof and the By-Laws to
indemnify its Trustees, Officers, employees, shareholders and agents, and
any contract obligation to indemnify principal underwriters under Section 3
of Article VII; and for the payment of such expenses, disbursements, losses
and liabilities, the Trustees shall have a lien on the assets belonging to
each Series or Class prior to any rights or interests of the Shareholders
of any Series or Class. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
Section 2. Trustee Compensation.
The Trustees shall be entitled to compensation from the Trust from the
assets belonging to any Series or Class for their respective services as
Trustees, to be determined from time to time by vote of the Trustees, and
the Trustees shall also determine the compensation of all Officers,
consultants and agents whom they may elect or appoint. The Trust may pay
out of the assets belonging to any Series or Class any Trustee or any
corporation, firm, trust or other entity of which a Trustee is an
interested person for services rendered in any capacity not prohibited by
the 1940 Act, and such payments shall not be deemed compensation for
services as a Trustee under the first sentence of this Section 2 of Article
VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
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Section 1. Investment Adviser.
Subject to a Majority Shareholder Vote by the relevant Series or Class,
the Trustees may in their discretion from time to time enter into an
investment advisory contract whereby the other party to such contract shall
undertake to furnish the Trustees investment advisory services for such
Series or Class upon such terms and conditions and for such compensation as
the Trustees may in their discretion determine. Subject to a Majority
Shareholder Vote by the relevant Series or Class, the investment adviser
may enter into a sub-investment advisory contract to receive investment
advice and/or statistical and factual information from the sub-investment
adviser for such Series or Class upon such terms and conditions and for
such compensation as the Trustees, in their discretion, may agree.
Notwithstanding any provisions of this Declaration of Trust, the Trustees
may authorize the investment adviser
or sub-investment adviser or any person furnishing administrative personnel
and services as set forth in Article VII, Section 2 (subject to such
general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio securities
belonging to a Series or Class on behalf of the Trustees or may authorize
any officer or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment adviser (and all without
further action by the Trustees). Any such purchases, sales and exchanges
shall be deemed to have been authorized by the Trustees. The Trustees may
also authorize the investment adviser to determine what firms shall be
employed to effect transactions in securities for the account of a Series
or Class and to determine what firms shall participate in any such
transactions or shall share in commissions or fees charged in connection
with such transactions.
Section 2. Administrative Services.
The Trustees may in their discretion from time to time contract for
administrative personnel and services whereby the other party shall agree
to provide the Trustees administrative personnel and services to operate
the Trust or a Series or Class on a daily basis, on such terms and
conditions as the Trustees may in their discretion determine. Such
services may be provided by one or more entities.
Section 3. Principal Underwriter.
The Trustees may in their discretion from time to time enter into an
exclusive or nonexclusive contract or contracts providing for the sale of
the Shares of a Series or Class to net such Series or Class not less than
the amount provided in Article III, Section 3 hereof, whereby a Series or
Class may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such shares. In
either case, the contract shall be on such terms and conditions (including
indemnification of principal underwriters allowable under applicable law
and regulation) as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article VII; and such contract may
also provide for the repurchase or sale of Shares of a Series or Class by
such other party as principal or as agent of the Trust and may provide that
the other party may maintain a market for shares of a Series or Class.
Section 4. Transfer Agent.
The Trustees may in their discretion from time to time enter into
transfer agency and shareholder services contracts whereby the other party
shall undertake to furnish a transfer agency and shareholder services. The
contracts shall be on such terms and conditions as the Trustees may in
their discretion determine not inconsistent with the provisions of this
Declaration of Trust or of the By-Laws. Such services may be provided by
one or more entities.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers.
Subject to the provisions set forth in Article III, Section 5(d), the
shareholders shall have power to vote, (i) for the election of Trustees as
provided in Article IV, Section 2; (ii) for the removal of Trustees as
provided in Article IV, Section 3(d); (iii) with respect to any investment
adviser or sub-investment adviser as provided in Article VII,
Section 1; (iv) with respect to the amendment of this Declaration of Trust
as provided in Article XII, Section 7; (v) to the same extent as the
shareholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders; and (vi) with respect to such additional matters relating to
the Trust as may be required by law, by this Declaration of Trust, or the
By-Laws of the Trust or any regulation of the Trust or the Commission or
any State, or as the Trustees may consider desirable. Each whole Share
shall be entitled to one vote as to any matter on which it is entitled to
vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. Until Shares of a
Series or Class are issued, the Trustees may exercise all rights of
Shareholders of such Series or Class with respect to matters affecting such
Series or Class, and may take any action with respect to the Trust or such
Series or Class required or permitted by law, this Declaration of Trust or
any By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings.
A Shareholders meeting shall be held as specified in Section 2 of
Article IV at the principal office of the Trust or such other place as the
Trustees may designate. Special meetings of the Shareholders may be called
by the Trustees or the Chief Executive Officer of the Trust and shall be
called by the Trustees upon the written request of Shareholders owning at
least one-tenth of the outstanding Shares of all Series and Classes
entitled to vote. Shareholders shall be entitled to at least fifteen days'
notice of any meeting.
Section 3. Quorum and Required Vote.
Except as otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders there must be
present, in person or by proxy, holders of more than fifty percent of the
total number of outstanding Shares of all Series and Classes entitled to
vote at such meeting. When any one or more Series or Classes is entitled
to vote as a single Series or Class, more than fifty percent of the shares
of each such Series or Class entitled to vote shall constitute a quorum at
a Shareholder's meeting of that Series or Class. If a quorum shall not be
present for the purpose of any vote that may properly come before the
meeting, the Shares present in person or by proxy and entitled to vote at
such meeting on such matter may, by plurality vote, adjourn the meeting
from time to time to such place and time without further notice than by
announcement to be given at the meeting until a quorum entitled to vote on
such matter shall be present, whereupon any such matter may be voted upon
at the meeting as though held when originally convened. Subject to any
applicable requirement of law or of this Declaration of Trust or the By-
Laws, a plurality of the votes cast shall elect a Trustee, and all other
matters shall be decided by a majority of the votes cast and entitled to
vote thereon.
Section 4. Additional Provisions.
The By-Laws may include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE IX
CUSTODIAN
The Trustees may, in their discretion, from time to time enter into
contracts providing for custodial and accounting services to the Trust or any
Series or Class. The contracts shall be on the terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Declaration of Trust or of the By-Laws. Such services may be provided
by one or more entities, including one or more sub-custodians.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay dividends
to the Shareholders of any Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the discretion of
the Trustees. Such dividends may be accrued and automatically
reinvested in additional Shares (or fractions thereof) of the relevant
Series or Class or paid in cash or additional Shares of such Series or
Class, all upon such terms and conditions as the Trustees may prescribe.
(b) The Trustees may distribute in respect of any fiscal year as
dividends and as capital gains distributions, respectively, amounts
sufficient to enable any Series or Class to qualify as a regulated
investment company to avoid any liability for federal income taxes in
respect of that year.
(c) The decision of the Trustees as to what constitutes income
and what constitutes principal shall be final, and except as
specifically provided herein the decision of the Trustees as to what
expenses and charges of any Series or Class shall be charged against
principal and what against the income shall be final. Any income not
distributed in any year may be permitted to accumulate and as long as
not distributed may be invested from time to time in the same manner as
the principal funds of any Series or Class.
(d) All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the holders of that
Series or Class in proportion to the number of Shares of that Series or
Class held by such holders and recorded on the books of the Trust or its
transfer agent at the date and time of record established for that
payment.
Section 2. Redemptions and Repurchases.
(a) In case any Shareholder of record of any Series or Class at
any time desires to dispose of Shares of such Series or Class recorded
in his name, he may deposit a written request (or such other form of
request as the Trustees may from time to time authorize) requesting that
the Trust purchase his Shares, together with such other instruments or
authorizations to effect the transfer as the Trustees may from time to
time require, at the office of the Transfer Agent, and the Trust shall
purchase his Shares out of assets belonging to such Series or Class.
The purchase price shall be the net asset value of his shares reduced by
any redemption charge as the Trustees from time to time may determine.
Payment for such Shares shall be made by the Trust to the Shareholder
of record within that time period required under the 1940 Act after the
request (and, if required, such other instruments or authorizations of
transfer) is deposited, subject to the right of the Trustees to postpone
the date of payment pursuant to Section 4 of this Article X. If the
redemption is postponed beyond the date on which it would normally occur
by reason of a declaration by the Trustees suspending the right of
redemption pursuant to Section 4 of this Article X, the right of the
Shareholder to have his Shares purchased by the Trust shall be similarly
suspended, and he may withdraw his request (or such other instruments or
authorizations of transfer) from deposit if he so elects; or, if he does
not so elect, the purchase price shall be the net asset value of his
Shares determined next after termination of such suspension (reduced by
any redemption charge), and payment therefor shall be made within the
time period required under the 1940 Act.
(b) The Trust may purchase Shares of a Series or Class by
agreement with the owner thereof at a purchase price not exceeding the
net asset value per Share (reduced by any redemption charge) determined
(1) next after the purchase or contract of purchase is made or (2) at
some later time.
(c) The Trust may pay the purchase price (reduced by any
redemption charge) in whole or in part by a distribution in kind of
securities from the portfolio of the relevant Series or Class, taking
such securities at the same value employed in determining net asset
value, and selecting the securities in such manner as the Trustees may
deem fair and equitable.
Section 3. Net Asset Value of Shares.
The net asset value of each Share of a Series or Class outstanding
shall be determined at such time or times as may be determined by or on
behalf of the Trustees. The power and duty to determine net asset value
may be delegated by the Trustees from time to time to one or more of the
Trustees or Officers of the Trust, to the other party to any contract
entered into pursuant to Section 1 or 2 of Article VII or to the custodian
or to a transfer agent or other person designated by the Trustees.
The net asset value of each Share of a Series or Class as of any
particular time shall be the quotient (adjusted to the nearer cent)
obtained by dividing the value, as of such time, of the net assets
belonging to such Series or Class (i.e., the value of the assets belonging
to such Series or Class less the liabilities belonging to such Series or
Class exclusive of capital and surplus) by the total number of Shares
outstanding of the Series or Class at such time in accordance with the
requirements of the 1940 Act and applicable provisions of the By-Laws of
the Trust in conformity with generally accepted accounting practices and
principles.
The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period in accordance with the 1940
Act.
Section 4. Suspension of the Right of Redemption.
The Trustees may declare a suspension of the right of redemption or
postpone the date of payment for the whole or any part of any period in
accordance with the 1940 Act.
Section 5. Trust's Right to Redeem Shares.
The Trust shall have the right to cause the redemption of Shares of any
Series or Class in any Shareholder's account for their then current net
asset value and promptly make payment to the shareholder (which payment may
be reduced by any applicable redemption charge), if at any time the total
investment in the account does not have a minimum dollar value determined
from time to time by the Trustees in their sole discretion.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and Indemnification of
Shareholders.
The Trustees, officers, employees or agents of the Trust shall have no
power to bind any Shareholder of any Series or Class personally or to call
upon such Shareholder for the payment of any sum of money or assessment
whatsoever, other than such as the Shareholder may at any time agree to pay
by way of subscription to any Shares or otherwise.
No Shareholder or former Shareholder of any Series or Class shall be
liable solely by reason of his being or having been a Shareholder for any
debt, claim, action, demand, suit, proceeding, judgment, decree, liability
or obligation of any kind, against, or with respect to the Trust or any
Series or Class arising out of any action taken or omitted for or on behalf
of the Trust or such Series or Class, and the Trust or such Series or Class
shall be solely liable therefor and resort shall be had solely to the
property of the relevant Series or Class of the Trust for the payment or
performance thereof.
Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in case
of a corporate entity, its corporate or general successor) shall be
entitled to be indemnified and reimbursed by the Trust to the full extent
of such liability and the costs of any litigation or other proceedings in
which such liability shall have been determined, including, without
limitation, the fees and disbursements of counsel if, contrary to the
provisions hereof, such Shareholder or former Shareholder of such Series or
Class shall be held to be personally liabile. Such indemnification and
reimbursement shall come exclusively from the assets of the relevant Series
or Class.
The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust or any Series or Class and satisfy any judgment
thereon.
Section 2. Limitation of Personal Liability of Trustees,
Officers, Employees or Agents of the Trust.
No Trustee, officer, employee or agent of the Trust shall have the
power to bind any other Trustee, officer, employee or agent of the Trust
personally. The Trustees, officers, employees or agents of the Trust
incurring any debts, liabilities or obligations, or in taking or omitting
any other actions for or in connection with the Trust are, and each shall
be deemed to be, acting as Trustee, officer, employee or agent of the Trust
and not in his own individual capacity.
Trustees and officers of the Trust shall be liable for their willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee or officer, as the
case may be, and for nothing else.
Section 3. Express Exculpatory Clauses and Instruments.
The Trustees shall use every reasonable means to assure that all
persons having dealings with the Trust or any Series or Class shall be
informed that the property of the Shareholders and the Trustees, officers,
employees and agents of the Trust or any Series or Class shall not be
subject to claims against or obligations of the Trust or any other Series
or Class to any extent whatsoever. The Trustees shall cause to be inserted
in any written agreement, undertaking or obligation made or issued on
behalf of the Trust or any Series or Class (including certificates for
Shares of any Series or Class) an appropriate reference to the provisions
of this Declaration, providing that neither the Shareholders, the Trustees,
the officers, the employees nor any agent of the Trust or any Series or
Class shall be liable thereunder, and that the other parties to such
instrument shall look solely to the assets belonging to the relevant Series
or Class for the payment of any claim thereunder or for the performance
thereof; but the omission of such provisions from any such instrument shall
not render any Shareholder, Trustee, officer, employee or agent liable, nor
shall the Trustee, or any officer, agent or employee of the Trust or any
Series or Class be liable to anyone for such omission. If, notwithstanding
this provision, any Shareholder, Trustee, officer, employee or agent shall
be held liable to any other person by reason of the omission of such
provision from any such agreement, undertaking or obligation, the
Shareholder, Trustee, officer, employee or agent shall be indemnified and
reimbursed by the Trust.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership.
It is hereby expressly declared that a trust and not a partnership is
created hereby.
Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of
Article XI, the Trustees shall not be liable for errors of judgment or
mistakes of fact or law. The Trustees may take advice of counsel or other
experts with respect to the meaning and operation of this Declaration of
Trust, and subject to the provisions of Article XI, shall be under no
liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 3. Establishment of Record Dates.
The Trustees may close the Share transfer books of the Trust maintained
with respect to any Series or Class for a period not exceeding sixty (60)
days preceding the date of any meeting of Shareholders of the Trust or any
Series or Class, or the date for the payment of any dividend or the making
of any distribution to Shareholders, or the date for the allotment of
rights, or the date when any change or conversion or
exchange of Shares of any Series or Class shall go into effect; or in lieu
of closing the Share transfer books as aforesaid, the Trustees may fix in
advance a date, not exceeding sixty (60) days preceding the date of any
meeting of Shareholders of the Trust or any Series or Class, or the date
for the payment of any dividend or the making of any distribution to
Shareholders of any Series or Class, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares of
any Series or Class shall go into effect, or the last day on which the
consent or dissent of Shareholders of any Series or Class may be
effectively expressed for any purpose, as a record date for the
determination of the Shareholders entitled to notice of, and, to vote at,
any such meeting and any adjournment thereof, or entitled to receive
payment of any such dividend or distribution, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion
or exchange of shares, or to exercise the right to give such consent or
dissent, and in such case such Shareholders and only such Shareholders as
shall be Shareholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting, or to receive payment of such
dividend or distribution, or to receive such allotment or rights, or to
exercise such rights, as the case may be, notwithstanding, after such date
fixed aforesaid, any transfer of any Shares on the books of the Trust
maintained with respect to any Series or Class. Nothing in the foregoing
sentence shall be construed as precluding the Trustees from setting
different record dates for different Series or Classes.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraphs (b), (c) and (d) of this Section
4.
(b) The Trustees may, by majority action, with the approval of
the holders of more than fifty percent of the outstanding Shares of each
Series or Class entitled to vote and voting separately by Series or
Class, sell and convey the assets of the Trust or any Series or Class to
another trust or corporation. Upon making provision for the payment of
all liabilities, by assumption or otherwise, the Trustees shall
distribute the remaining proceeds belonging to each Series or Class
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ratably among the holders of the Shares of that Series or Class then
outstanding.
(c) Subject to a Majority Shareholder Vote by such Series or
Class, the Trustees may at any time sell and convert into money all the
assets of the Trust or any Series or Class. Upon making provision for
the payment of all outstanding obligations, taxes and other liabilities,
accrued or contingent, belonging to each Series or Class, the Trustees
shall distribute the remaining assets belonging to each Series or Class
ratably among the holders of the outstanding Shares of that Series or
Class.
(d) Upon completion of the distribution of the remaining proceeds
of the remaining assets as provided in paragraphs (b) and (c), the Trust
or the applicable Series or Class shall terminate and the Trustees shall
be discharged of any and all further liabilities and duties hereunder or
with respect thereto and the right, title and interest of all parties
shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies, Headings, Counterparts.
The Trust shall maintain a usual place of business in Massachusetts,
which, initially, shall be 101 Arch Street, Boston, Massachusetts, and
shall continue to maintain an office at such address unless changed by the
Trustees to another location in Massachusetts. The Trust may maintain
other offices as the Trustees may from time to time determine. The
original or a copy of this instrument and of each declaration of trust
supplemental hereto shall be kept at the office of the Trust where it may
be inspected by any Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed by the Trustees with the
Massachusetts Secretary of State and the Boston City Clerk, as well as any
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other governmental office where such filing may from time to time be
required. Headings are placed herein for convenience of reference only and
in case of any conflict, the text of this instrument, rather than the
headings shall control. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
Section 6. Applicable Law.
The Trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of The
Commonwealth of Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily exercised by
such a trust.
Section 7. Amendments -- General.
Prior to the initial issuance of Shares pursuant to Section 3 of
Article III, a majority of the Trustees then in office may amend or
otherwise supplement this instrument by making a Declaration of Trust
supplemental hereto, which thereafter shall form a part hereof. Subsequent
to such initial issuance of Shares, amendments or supplements to this
instrument may be authorized by a majority of the Trustees then in office
and by the holders of a majority of the Shares of all Series and classes
then outstanding and entitled to vote thereon (except that any amendments
or supplements changing the name of the Trust or pursuant to Section 8
hereunder may be made without shareholder approval), or by any larger vote
which may be required by applicable law or this Declaration of Trust in any
particular case, which amendment or supplement thereafter shall form a part
hereof. Any such amendment or supplement (which may be in the form of a
complete restatement) may be evidenced by either (i) a supplemental
Declaration of Trust signed by at least a majority of the Trustees then in
office or (ii) by a certificate of the President and Secretary of the Trust
setting forth such amendment or supplement and certifying that such
amendment or supplement has been duly authorized by the Trustees, and if
required, by the shareholders. Copies of the supplemental Declaration of
Trust or the certificate of the President and Secretary, as the case may
be, shall be filed as specified in Section 5 of this Article XII.
Section 8. Amendments -- Series.
The establishment and designation of any series or class of Shares in
addition to those established and designated in Section 5 of Article III
hereof shall be effective upon the execution by a majority of the then
Trustees of an amendment to this Declaration of Trust, taking the form
of a complete restatement or otherwise, setting forth such establishment
and designation and the relative rights and preferences of any such
Series or Class, or as otherwise provided in such instrument.
Without limiting the generality of the foregoing, the Declaration of
the Trust may be amended to:
(a) create one or more Series or Classes of Shares (in addition
to any Series or Classes already existing or otherwise) with such rights
and preferences and such eligibility requirements for investment therein
as the Trustees shall determine and reclassify any or all outstanding
Shares as Shares of particular Series or Classes in accordance with such
eligibility requirements;
(b) combine two or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees shall
determine;
(c) change or eliminate any eligibility requirements for
investment in Shares of any Series or Class, including without
limitation the power to provide for the issue of Shares of any Series or
Class in connection with any merger or consolidation of the Trust with
another trust or company or any acquisition by the Trust of part or all
of the assets of another trust or company;
(d) change the designation of any Series or Class of Shares;
(e) change the method of allocating dividends among the various
Series and Classes of Shares;
(f) allocate any specific assets or liabilities of the Trust or
any specific items of income or expense of the Trust to one or more
Series and Classes of Shares;
(g) specifically allocate assets to any or all Series or Classes
of Shares or create one or more additional Series or Classes of Shares
which are preferred over all other Series or Classes of Shares in
respect of assets specifically allocated thereto or any dividends paid
by the Trust with respect to any net income, however determined, earned
from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with
respect to such Series or Classes.
Section 9. Use of Name.
The Trust acknowledges that Central Bank of the South has reserved the
right to grant the non-exclusive use of the name "Central Core" or any
derivative thereof to any other investment company, investment company
portfolio, investment adviser, distributor, or other business enterprise,
and to withdraw from the Trust or one or more Series or Classes any right
to the use of the name "Central Core".
IN WITNESS WHEREOF, the undersigned have executed this instrument the day
and year first above written.
/s/ John F. Donahue /s/ Edward C.
Gonzales
John F. Donahue Edward C. Gonzales
/s/ William J. Copeland /s/ James S.
Dowd
William J. Copeland James S. Dowd
/s/ Lawrence D. Ellis, M.D. /s/ Edward L.
Flaherty, Jr.
Lawrence D. Ellis, M.D. Edward L.
Flaherty, Jr.
/s/ J. Joseph Maloney, Jr. /s/ Gregor
F. Meyer
J. Joseph Maloney, Jr. Gregor F. Meyer
/s/ Marjorie P. Smuts /s/ Wesley W.
Posvar
Marjorie P. Smuts Wesley W.
Posvar
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on August 7, 1989, before me, the subscriber, a Notary
Public of the Commonwealth of Pennsylvania, in and for the County of Allegheny,
personally appeared John F. Donahue, Edward C. Gonzales, William J. Copeland,
James S. Dowd, Lawrence D. Ellis, M.D., Edward L. Flaherty, Jr., J. Joseph
Maloney, Jr., Gregor F. Meyer, Marjorie P. Smuts, and Wesley W. Posvar, who
acknowledged the foregoing Declaration of Trust to be their act.
Witness my hand and notarial seal the day and year above written.
Tracie P. Tucker
Notary Public
Exhibit 1(vi) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
THE STARBURST FUNDS
Amendment No. 8
DECLARATION OF TRUST
dated August 7, 1989
THIS Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"Section 5. Establishment and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional
series or class or to modify the rights and preferences of any
existing Series or Class, the series and classes of the Trust are
established and designated as:
The Starburst Government Income Fund
The Starburst Government Money Market Fund
Investment Shares
Trust Shares
The Starburst Money Market Fund
Investment Shares
Trust Shares
The Starburst Municipal Income Fund
The Starburst Equity Fund"
The undersigned Assistant Secretary of The Starburst Funds hereby
certifies that the above stated Amendment is a true and correct Amendment to the
Declaration of Trust, as adopted by the Board of Trustees on the 18th day of
November, 1993.
WITNESS the due execution hereof this 18th day of November, 1993.
/s/ C. Grant Anderson
C. Grant Anderson,
Assistant Secretary
Amendment No. 9 to Declaration of Trust
RECEIVED
Jul. 5, 1994
Secretary of State
Corporation Division
December 15, 1993
Ms. Sheila Burke
The Commonwealth of Massachusetts
Office of the Secretary of State
Room 1712 - Trust Division
One Ashburton Place
Boston, Massachusetts 02108
Re: THE STARBURST FUNDS
Dear Ms. Burke:
I, S. Elliott Cohan, Assistant Secretary of The Starburst Funds, am writing to
inform you that on November 18, 1993, the Board of Trustees voted to change the
Resident Agent of said Trust, from 176 Federal Street, Boston, Massachusetts
02110 to Donnelly, Conroy & Gelhaar, One Post Office Square, Boston,
Massachusetts 02109-2105. Please return a date stamped copy of the change.
Very truly yours,
/s/ S. Elliott Cohan
S. Elliott Cohan
Exhibit 2 under Form N-1A
Exhibit 3(b) under Item 601/Reg. S-K
The Starburst Funds
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I: OFFICERS AND THEIR ELECTION............................. 1
Section 1 Officers .......................................... 1
Section 2 Election of Officers .............................. 1
Section 3 Resignations and Removals and Vacancies ........... 1
ARTICLE II: POWERS AND DUTIES OF TRUSTEES AND OFFICERS.............. 1
Section 1 Trustees .......................................... 1
Section 2 Chairman of the Trustees ("Chairman") ............. 1
Section 3 President ......................................... 1
Section 4 Vice President .................................... 2
Section 5 Secretary ......................................... 2
Section 6 Treasurer ......................................... 2
Section 7 Assistant Vice President .......................... 2
Section 8 Assistant Secretaries and Assistant
Treasurers ...................................... 2
Section 9 Salaries .......................................... 2
ARTICLE III: POWERS AND DUTIES OF THE EXECUTIVE
AND OTHER COMMITTEES ................................. 3
Section 1 Executive and Other Committees .................... 3
Section 2 Vacancies in Executive Committee .................. 3
Section 3 Executive Committee to Report to Trustees ......... 3
Section 4 Procedure of Executive Committee .................. 3
Section 5 Powers of Executive Committee ..................... 3
Section 6 Compensation ...................................... 3
Section 7 Informal Action by Executive Committee or
Other Committee ................................. 3
ARTICLE IV: SHAREHOLDERS' MEETINGS.................................. 4
Section 1 Special Meetings .................................. 4
Section 2 Notices ........................................... 4
Section 3 Place of Meeting .................................. 4
Section 4 Action by Consent ................................. 4
Section 5 Proxies ........................................... 4
-i-
Page
ARTICLE V: TRUSTEES' MEETINGS...................................... 4
Section 1 Number and Qualifications of Trustees ............. 4
Section 2 Special Meetings .................................. 5
Section 3 Regular Meetings .................................. 5
Section 4 Quorum and Vote ................................... 5
Section 5 Notices ........................................... 5
Section 6 Place of Meeting .................................. 5
Section 7 Telephonic Meeting ................................ 5
Section 8 Special Action .................................... 5
Section 9 Action by Consent ................................. 6
Section 10 Compensation of Trustees .......................... 6
ARTICLE VI: SHARES.................................................. 6
Section 1 Certificates ...................................... 6
Section 2 Transfer of Shares ................................ 6
Section 3 Equitable Interest Not Recognized ................. 6
Section 4 Lost, Destroyed or Mutilated Certificates ......... 6
Section 5 Transfer Agent and Registrar: Regulations ......... 7
ARTICLE VII: INSPECTION OF BOOKS..................................... 7
ARTICLE VIII: AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC........... 7
Section 1 Agreements, Etc ................................... 7
Section 2 Checks, Drafts, Etc ............................... 7
Section 3 Endorsements, Assignments and Transfer of
Securities ...................................... 7
Section 4 Evidence of Authority ............................. 8
ARTICLE IX: INDEMNIFICATION OF TRUSTEES AND OFFICERS
Section 1 General ........................................... 8
Section 2 No Indemnification ................................ 8
Section 3 Conditions for Indemnification .................... 8
Section 4 Advancement of Expenses ........................... 8
Section 5 Non-Exclusivity ................................... 9
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Page
ARTICLE X: SEAL.................................................... 8
ARTICLE XI: FISCAL YEAR............................................. 9
ARTICLE XII: AMENDMENTS.............................................. 9
ARTICLE XIII: WAIVERS OF NOTICE....................................... 9
ARTICLE XIV: REPORT TO SHAREHOLDERS.................................. 9
ARTICLE XV: BOOKS AND RECORDS....................................... 10
ARTICLE XVI: TERMS................................................... 10
-iii-
THE STARBURST FUNDS
BY-LAWS
ARTICLE I
OFFICERS AND THEIR ELECTION
Section 1. Officers. The officers of the Trust shall be a Chairman of the
Trustees, a President, one or more Vice Presidents, a Treasurer, a Secretary and
such other officers as the Trustees may from time to time elect. It shall not
be necessary for any Trustee or other officer to be a holder of shares in any
Series or Class of the Trust.
Section 2. Election of Officers. The President, Vice President(s),
Treasurer and Secretary shall be chosen annually by the Trustees. The Chairman
of the Trustees shall be chosen annually by and from the Trustees.
Two or more offices may be held by a single person except the offices of
President and Secretary. The officers shall hold office until their successors
are chosen and qualified.
Section 3. Resignations and Removals and Vacancies. Any officer of the
Trust may resign by filing a written resignation with the Chairman of the
Trustees or with the Trustees or with the Secretary, which shall take effect on
being so filed or at such time as may be therein specified. The Trustees may
remove any officer, with or without cause, by a majority vote of all of the
Trustees. The Trustees may fill any vacancy created in any office whether by
resignation, removal or otherwise.
ARTICLE II
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
Section 1. Trustees. The business and affairs of the Trust shall be
managed by the Trustees, and they shall have all powers necessary and desirable
to carry out that responsibility.
Section 2. Chairman of the Trustees ("Chairman"). The Chairman shall be
the chief executive officer of the Trust. He shall have general supervision
over the business of the Trust and policies of the Trust. He shall employ and
define the duties of all employees of the Trust, shall have power to discharge
any such employees, shall exercise general supervision over the affairs of the
Trust and shall perform such other duties as may be assigned to him from time to
time by the Trustees. He shall preside at the meetings of shareholders and of
the Trustees. The Chairman shall appoint a Trustee or officer to preside at
such meetings in his absence.
Section 3. President. The President, in the absence of the Chairman,
shall perform all duties and may exercise any of the powers of the Chairman
subject to the control of the other Trustees. He shall counsel and
advise the Chairman on matters of major importance and shall perform such other
duties as may be assigned to him from time to time by the Trustees, the Chairman
or the Executive Committee.
Section 4. Vice President. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform all duties
and may exercise any of the powers of the President subject to the control of
the Trustees. Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Trustees, the Chairman or the Executive
Committee. ? ? ? Each Vice President shall be authorized to sign documents on
behalf of the Trust.
Section 5. Secretary. The Secretary shall be the chief legal officer of
the Trust responsible for providing legal guidance to the Trust. The Secretary
shall keep or cause to be kept in books provided for that purpose the Minutes of
the Meetings of Shareholders and of the Trustees; shall see that all Notices are
duly given in accordance with the provisions of these By-Laws and as required by
law; shall be custodian of the records and of the Seal of the Trust and see that
the Seal is affixed to all documents, the execution of which on behalf of the
Trust under its Seal is duly authorized; shall keep directly or through a
transfer agent a register of the post office address of each shareholder of each
Series or Class of the Trust, and make all proper changes in such register,
retaining and filing his authority for such entries; shall see that the books,
reports, statements, certificates and all other documents and records required
by law are properly kept and filed; and in general shall perform all duties
incident to the Office of Secretary and such other duties as may from time to
time be assigned to him by the Trustees, Chairman or the Executive Committee.
Section 6. Treasurer. The Treasurer shall be the principal financial and
accounting officer of the Trust responsible for the preparation and maintenance
of the financial books and records of the Trust. He shall deliver all funds and
securities belonging to any Series or Class to such custodian or sub-custodian
as may be employed by the Trust for any Series or Class. The Treasurer shall
perform such duties additional to the foregoing as the Trustees, Chairman or the
Executive Committee may from time to time designate.
Section 7. Assistant Vice President. The Assistant Vice President or Vice
Presidents of the Trust shall have such authority and perform such duties as may
be assigned to them by the Trustees, the Executive Committee or the Chairman.
Section 8. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform
the duties of the Secretary and of the Treasurer, respectively, in the absence
of those Officers and shall have such further powers and perform such other
duties as may be assigned to them respectively by the Trustees or the Executive
Committee or the Chairman.
Section 9. Salaries. The salaries of the Officers shall be fixed from
time to time by the Trustees. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a Trustee.
-2-
ARTICLE III
POWERS AND DUTIES OF THE
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Trustees may elect from
their own number an Executive Committee to consist of not less than two members.
The Executive Committee shall be elected by a resolution passed by a vote of at
least a majority of the Trustees then in office. The Trustees may also elect
from their own number other committees from time to time, the number composing
such committees and the powers conferred upon the same to be determined by vote
of the Trustees.
Section 2. Vacancies in Executive Committee. Vacancies occurring in the
Executive Committee from any cause shall be filled by the Trustees by a
resolution passed by the vote of at least a majority of the Trustees then in
office.
Section 3. Executive Committee to Report to Trustees. All action by the
Executive Committee shall be reported to the Trustees at their meeting next
succeeding such action.
Section 4. Procedure of Executive Committee. The Executive Committee
shall fix its own rules of procedure not inconsistent with these By-Laws or with
any directions of the Trustees. It shall meet at such times and places and upon
such notice as shall be provided by such rules or by resolution of the Trustees.
The presence of a majority shall constitute a quorum for the transaction of
business, and in every case an affirmative vote of a majority of all the members
of the Committee present shall be necessary for the taking of any action.
Section 5. Powers of Executive Committee. During the intervals between
the Meetings of the Trustees, the Executive Committee, except as limited by the
By-Laws of the Trust or by specific directions of the Trustees, shall possess
and may exercise all the powers of the Trustees in the management and direction
of the business and conduct of the affairs of the Trust in such manner as the
Executive Committee shall deem to be in the best interests of the Trust, and
shall have power to authorize the Seal of the Trust to be affixed to all
instruments and documents requiring same. Notwithstanding the foregoing, the
Executive Committee shall not have the power to elect Trustees, increase or
decrease the number of Trustees, elect or remove any Officer, declare dividends,
issue shares or recommend to shareholders any action requiring shareholder
approval.
Section 6. Compensation. The members of any duly appointed committee
shall receive such compensation and/or fees as from time to time may be fixed by
the Trustees.
Section 7. Informal Action by Executive Committee or Other Committee.
Any action required or permitted to be taken at any meeting of the Executive
Committee or any other duly appointed Committee may be taken without a meeting
if a consent in writing setting forth such action is signed by all members of
such committee and such consent is filed with the records of the Trust.
-3-
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. Special Meetings. A special meeting of the shareholders of the
Trust or of a particular Series or Class shall be called by the Secretary
whenever ordered by the Trustees, the Chairman or requested in writing by the
holder or holders of at least one-tenth of the outstanding shares of the Trust
or of the relevant Series or Class, entitled to vote. If the Secretary, when so
ordered or requested, refuses or neglects for more than two days to call such
special meeting, the Trustees, Chairman or the shareholders so requesting may,
in the name of the Secretary, call the meeting by giving notice thereof in the
manner required when notice is given by the Secretary.
Section 2. Notices. Except as above provided, notices of any special
meeting of the shareholders of the Trust or a particular Series or Class, shall
be given by the Secretary by delivering or mailing, postage prepaid, to each
shareholder entitled to vote at said meeting, a written or printed notification
of such meeting, at least fifteen days before the meeting, to such address as
may be registered with the Trust by the shareholder.
Section 3. Place of Meeting. Meetings of the shareholders of the Trust or
a particular Series or Class, shall be held at the principal place of business
of the Trust in Pittsburgh, Pennsylvania, or at such place within or without The
Commonwealth of Massachusetts as fixed from time to time by resolution of the
Trustees.
Section 4. Action by Consent. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the shareholders
entitled to vote on the subject matter thereof, and such consent is filed with
the records of the Trust.
Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person or by proxy. Every proxy shall be in
writing subscribed by the shareholder or his duly authorized attorney and dated,
but need not be sealed, witnessed or acknowledged. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust or,
the person acting as Secretary of the Meeting.
ARTICLE V
TRUSTEES' MEETINGS
Section 1. Number and Qualifications of Trustees. The number of Trustees
shall be as fixed from time to time by a majority of the Trustees but shall be
no less than three nor more than twenty. The Trustees may from time to time
increase or decrease the number of Trustees to such number as they deem
expedient, not to be less than three nor more than twenty, however, and fill the
vacancies so created. The term of office of a Trustee shall not be affected by
any decrease in the number of Trustees made by the Trustees pursuant to the
foregoing authorization.
-4-
Section 2. Special Meetings. Special meetings of the Trustees shall be
called by the Secretary at the written request of the Chairman or any Trustee,
and if the Secretary when so requested refuses or fails for more than twenty-
four hours to call such meeting, the Chairman or such Trustee may in the name of
the Secretary call such meeting by giving due notice in the manner required when
notice is given by the Secretary.
Section 3. Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that any Trustee who is absent when such
determination is made shall be given notice of the determination.
Section 4. Quorum and Vote. A majority of the Trustees shall constitute a
quorum for the transaction of business. The act of a majority of the Trustees
present at any meeting at which a quorum is present shall be the act of the
Trustees unless a greater proportion is required by the Declaration of Trust or
these By-Laws or applicable law. In the absence of a quorum, a majority of the
Trustees present may adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting need not be given.
Section 5. Notices. It shall be sufficient notice of a special meeting to
send notice by mail to a Trustee at least forty-eight hours or by telegram,
telex or telecopy or other electronic fascimile transmission method at least
twenty-four hours before the meeting addressed to the Trustee at his usual or
last known business or residence address or to give notice to such Trustee in
person or by telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given to any Trustee if a written waiver of notice,
executed by such Trustee before the meeting, is filed with the records of the
meeting, or to any Trustee who attends the meeting without protesting the lack
of notice to such Trustee prior thereto or at its commencement. Subject to
compliance with Section 15(c) of the 1940 Act, notice or waiver of notice need
not specify the purpose of any special meeting.
Section 6. Place of Meeting. Meetings of the Trustees shall be held at
the principal place of business of the Trust in Pittsburgh, Pennsylvania, or at
such place within or without The Commonwealth of Massachusetts as fixed from
time to time by resolution of the Trustees, or as the person or persons
requesting said meeting to be called may designate, but any meeting may adjourn
to any other place.
Section 7. Telephonic Meeting. Subject to compliance with Sections 15(c)
and 32(a) of the 1940 Act, if it is impractical for the Trustees to meet in
person, the Trustees may meet by means of a telephone conference circuit to
which all Trustees are connected or of which all Trustees shall have waived
notice, which meeting shall be deemed to have been held at a place designated by
the Trustees at the meeting.
Section 8. Special Action. When all the Trustees shall be present at any
meeting, however called, or whenever held, or shall assent to the holding of the
meeting without notice, or after the meeting shall sign a written assent thereto
on the record of such meeting, the acts of such meeting shall be valid as if
such meeting had been regularly held.
-5-
Section 9. Action by Consent. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meetings. Such consent shall be treated
as a vote of the Trustees for all purposes.
Section 10. Compensation of Trustees. The Trustees may receive a stated
salary for their services as Trustees, and by resolution of Trustees a fixed fee
and expenses of attendance may be allowed for attendance at each Meeting.
Nothing herein contained shall be construed to preclude any Trustee from serving
the Trust in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
ARTICLE VI
SHARES
Section 1. Certificates. All certificates for shares shall be signed by
the Chairman, President or any Vice President and by the Treasurer or Secretary
or any Assistant Treasurer or Assistant Secretary and sealed with the seal of
the Trust. The signatures may be either manual or facsimile signatures and the
seal may be either facsimile or any other form of seal. Certificates for shares
for which the Trust has appointed an independent Transfer Agent and Registrar
shall not be valid unless countersigned by such Transfer Agent and registered by
such Registrar. In case any officer who has signed any certificate ceases to be
an officer of the Trust before the certificate is issued, the certificate may
nevertheless be issued by the Trust with the same effect as if the officer had
not ceased to be such officer as of the date of its issuance. Share
certificates of each Series or Class shall be in such form not inconsistent with
law or the Declaration of Trust or these By-Laws as may be determined by the
Trustees.
Section 2. Transfer of Shares. The shares of each Series and Class of the
Trust shall be transferable, so as to affect the rights of the Trust or any
Series or Class, only by transfer recorded on the books of the Trust or its
transfer agent, in person or by attorney.
Section 3. Equitable Interest Not Recognized. The Trust shall be entitled
to treat the holder of record of any share or shares of a Series or Class as the
absolute owner thereof and shall not be bound to recognize any equitable or
other claim or interest in such share or shares of a Series or Class on the part
of any other person except as may be otherwise expressly provided by law.
Section 4. Lost, Destroyed or Mutilated Certificates. In case any
certificate for shares is lost, mutilated or destroyed, the Trustees may issue a
new certificate in place thereof upon indemnity to the relevant Series or Class
against loss and upon such other terms and conditions as the Trustees may deem
advisable.
-6-
Section 5. Transfer Agent and Registrar: Regulations. The Trustees shall
have power and authority to make all such rules and regulations as they may deem
expedient concerning the issuance, transfer and registration of certificates for
shares and may appoint a Transfer Agent and/or Registrar of certificates for
shares of each Series or Class, and may require all such share certificates to
bear the signature of such Transfer Agent and/or of such Registrar.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent,
and at what times and places, and under what conditions and regulations the
accounts and books of the Trust maintained on behalf of each Series and Class or
any of them shall be open to the inspection of the shareholders of any Series or
Class; and no shareholder shall have any right of inspecting any account or book
or document of the Trust except that, to the extent such account or book or
document relates to the Series or Class in which he is a Shareholder or the
Trust generally, such Shareholder shall have such right of inspection as
conferred by laws or authorized by the Trustees or by resolution of the
Shareholders of the relevant Series or Class.
ARTICLE VIII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. Agreements, Etc. The Trustees or the Executive Committee may
authorize any Officer or Agent of the Trust to enter into any Agreement or
execute and deliver any instrument in the name of the Trust on behalf of any
Series or Class, and such authority may be general or confined to specific
instances; and, unless so authorized by the Trustees or by the Executive
Committee or by these By-Laws, no Officer, Agent or Employee shall have any
power or authority to bind the Trust by any Agreement or engagement or to pledge
its credit or to render it liable pecuniarily for any purpose or for any amount.
Section 2. Checks, Drafts, Etc. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be signed by
such Officers, Employees, or Agents, as shall from time to time be designated by
the Trustees or the Executive Committee, or as may be specified in or pursuant
to the agreement between the Trust on behalf of any Series or Class and the
custodian appointed, pursuant to the provisions of the Declaration of Trust.
Section 3. Endorsements, Assignments and Transfer of Securities. All
endorsements, assignments, stock powers, other instruments of transfer or
directions for the transfer of portfolio securities, whether or not registered
in nominee form, or belonging to any Series or Class shall be made by such
Officers, Employees, or Agents as may be authorized by the Trustees or the
Executive Committee.
-7-
Section 4. Evidence of Authority. Anyone dealing with the Trust shall be
fully justified in relying on a copy of a resolution of the Trustees or of any
committee thereof empowered to act in the premises which is certified as true by
the Secretary or an Assistant Secretary under the seal of the Trust.
ARTICLE IX
INDEMNIFICATION OF TRUSTEES AND OFFICERS
Section 1. General. Every person who is or has been a Trustee or officer
of the Trust and persons who serve at the Trust's request as director, officer,
trustee, partner or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise shall be indemnified by the Trust (or the
appropriate Series or Class, where such Trustee or officer is acting on behalf
of or with respect to a single Series or Class) to the fullest extent permitted
by law against liability and all expenses, including amounts incurred in
satisfaction of judgments, settlements, compromises, fines, penalties, and
counsel fees reasonably incurred or paid by him in connection with any debt,
claim, action, demand, suit or proceeding of any kind, whether civil or
criminal, in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer of the Trust or his serving or having
served as a director, officer, trustee, partner or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise at the
request of the Trust; provided that the Trust shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such person
only if such proceeding was authorized by the Board of Trustees.
Section 2. No Indemnification. No indemnification shall be provided
hereunder to a Trustee or officer against any liability to the Trust or any
Series or Class or the Shareholders of any Series or Class by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Section 3. Conditions for Indemnification. Except as provided in
Section 4 hereof, in the absence of a final decision on the merits by a court or
other body before which such proceeding was brought, an indemnification payment
will not be made, unless a reasonable determination based upon a factual review
has been made by a majority vote of a quorum of non-party trustees who are not
interested persons of the Trust, or 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.
Section 4. Advancement of Expenses. The Trust shall pay the expenses
incurred in the defense of a proceeding in advance of its final disposition
(upon undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) if at least one of the following conditions is
fulfilled: (i) the indemnitee provides security for his undertaking, (ii) the
Trust or any relevant Series or Class is insured against any loss arising by
reason of any lawful advance 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.
-8-
Section 5. Non-Exclusivity. Nothing contained in this Article shall
affect any rights to indemnification to which Trustees, officers or any other
persons may be entitled by contract or otherwise under law, nor the power of the
Trust to purchase and maintain insurance on their behalf.
ARTICLE X
SEAL
The seal of the Trust shall consist of a flat-faced die with the word
"Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Trust and each Series or Class shall be as
designated from time to time by the Trustees.
ARTICLE XII
AMENDMENTS
These By-Laws may be amended by a majority vote of all of the Trustees.
ARTICLE XIII
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of any statute of The Commonwealth of Massachusetts, or under the provisons of
the Declaration of Trust or these By-Laws, a waiver thereof in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto. A notice shall be
deemed to have been given if telegraphed, cabled, or sent by wireless when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled, or sent by wireless.
Any notice shall be deemed to be given if mailed at the time when the same shall
be deposited in the mail.
ARTICLE XIV
REPORT TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the shareholders of
each Series or Class a written financial report of the transactions of that
Series or Class including financial statements which shall at least annually be
certified by independent public accountants.
-9-
ARTICLE XV
BOOKS AND RECORDS
The books and records of the Trust and any Series or Class, including the
stock ledger or ledgers, may be kept in or outside The Commonwealth of
Massachusetts at such office or agency of the Trust as may from time to time be
determined by the Trustees.
ARTICLE XVI
TERMS
Terms defined in the Declaration of Trust and not otherwise defined herein
are used herein with the meanings set forth or referred to in the Declaration of
Trust.
Exhibit 4(ii) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST GOVERNMENT INCOME FUND
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 80 9
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
GOVERNMENT INCOME FUND Portfolio of THE STARBURST FUNDS hereafter called the
"Trust," transferable on the books of the Trust by the owner, in person or by
duly authorized attorney, upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 4(iii) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST GOVERNMENT MONEY MARKET FUND
(INVESTMENT SHARES)
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 30 4
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
GOVERNMENT MONEY MARKET FUND Portfolio of THE STARBURST FUNDS hereafter called
the "Trust," transferable on the books of the Trust by the owner, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 4(iv) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST GOVERNMENT MONEY MARKET FUND
(TRUST SHARES)
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 40 3
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
GOVERNMENT MONEY MARKET FUND Portfolio of THE STARBURST FUNDS hereafter called
the "Trust," transferable on the books of the Trust by the owner, in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 4(i) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST MUNICIPAL INCOME FUND
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 70 0
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
MUNICIPAL INCOME FUND Portfolio of THE STARBURST FUNDS hereafter called the
"Trust," transferable on the books of the Trust by the owner, in person or by
duly authorized attorney, upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 4(v) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST MONEY MARKET FUND
(INVESTMENT SHARES)
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 50 2
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
MONEY MARKET FUND Portfolio of THE STARBURST FUNDS hereafter called the "Trust,"
transferable on the books of the Trust by the owner, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 4(vi) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
THE STARBURST FUNDS
THE STARBURST MONEY MARKET FUND
(TRUST SHARES)
PORTFOLIO
Number Shares
Account No. Organized Under the See Reverse Side For
Laws of the CommonwealthCertain Definitions
of Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP 855245 60 1
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE STARBURST
MONEY MARKET FUND Portfolio of THE STARBURST FUNDS hereafter called the "Trust,"
transferable on the books of the Trust by the owner, in person or by duly
authorized attorney, upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: THE STARBURST FUNDS
Seal
1989
Massachusetts
/s/Edward C. Gonzales /s/ J. Christopher Donahue
Vice President and Treasurer President
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------- -
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with THE STARBBURST FUNDS, a Massachusetts business trust,
must look solely to the Trust property for the enforcement of any claim against
the Trust, as the Trustees, officers, agents or shareholders of the Trust assume
no personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 5(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
THE STARBURST FUNDS
INVESTMENT ADVISORY CONTRACT
This Contract is made this 17th day of April, 1992, between Central Bank of
the South (the "Adviser"), an Alabama state member bank having its principal
place of business in Birmingham, Alabama and which is a wholly owned subsidiary
of Central Bancshares of the South, Inc., a bank holding company organized under
the laws of Delaware, and The Starburst Funds, a Massachusetts business trust
having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 and is registered as
such with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of the
portfolios ("Funds") of the Trust on whose behalf the Trust executes an exhibit
to this Contract, and Adviser, by its execution of each such exhibit, accepts
the appointments. Subject to the direction of the Trustees of the Trust,
Adviser shall provide investment research and supervision of the investments of
each of the Funds and conduct a continuous program of investment evaluation and
of appropriate sale or other disposition and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds
will be guided by each of the Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statement and exhibits as may be
on file with the Securities and Exchange Commission.
3. The Trust shall pay or cause to be paid, on behalf of each Fund, all
of the Fund's expenses and the Fund's allocable share of Trust expenses,
including without limitation, the expenses of organizing the Trust and
continuing its existence; fees and expenses of officers and Trustees of the
Trust; fees for investment advisory services and administrative services; fees
and expenses of preparing and printing amendments to its Registration Statement
under the Securities Act of 1933 and the Investment Company Act of 1940;
expenses of registering and qualifying the Trust, the Funds and shares of the
Funds ("Shares") under federal and state laws and regulations; expenses of
preparing, printing and distributing prospectuses (and any amendments thereto)
and sales literature; expenses of registering, licensing, or other authorization
of the Trust as a broker-dealer and of its officers as agents and salesmen under
federal and state laws and regulations; interest expense, taxes, fees and
commissions of every kind; expenses of issue (including cost of Share
certificates), purchase, repurchase and redemption of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents and
registrars; printing and mailing costs, auditing, accounting and legal expenses;
reports to shareholders and governmental officers and commissions; expenses of
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance expenses; association membership dues; and such nonrecurring items as
may arise, including all losses and liabilities incurred in administering the
Trust and the Funds. The Trust will also pay each Fund's allocable share of
such extraordinary expenses as may arise, including expenses incurred in
connection with litigation, proceedings, and claims and the legal obligations of
the Trust to indemnify its officers and Trustees and agents with respect
thereto.
4. The Trust, on behalf of each of the Funds shall pay to Adviser, for all
services rendered to such Fund by Adviser hereunder, the fees set forth in the
exhibits attached hereto.
5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective.
6. This Contract shall begin for each Fund on the date that the Trust
executes an exhibit to this Contract relating to such Fund. This Contract shall
remain in effect for each Fund until the first meeting of Shareholders held
after the execution date of an exhibit relating to the respective Fund, and if
approved at such meeting by the shareholders of a particular Fund, shall
continue in effect for such Fund for two years from the date set forth above and
from year to year thereafter, subject to the provisions for termination and all
of the other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Contract or interested persons of any such party (other than as Trustees
of the Trust) cast in person at a meeting called for that purpose; and (b)
Adviser shall not have notified the Trust in writing at least sixty (60) days
prior to the anniversary date of this Contract in any year thereafter that it
does not desire such continuation with respect to that Fund.
7. Notwithstanding any provision in this Contract, it may be terminated at
any time with respect to any Fund, without the payment of any penalty, by the
Trustees of the Trust or by a vote of the shareholders of that Fund on sixty
(60) days' written notice to Adviser.
8. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. Adviser may employ or contract with
such other person, persons, corporation or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out this
Contract.
9. In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties under this Contract on the part of
Adviser, Adviser shall not be liable to the Trust or to any of the Funds or to
any shareholder for any act or omission in the course of or connected in any way
with rendering services or for any losses that may be sustained in the purchase,
holding or sale of any security.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless the Adviser and each person, if any, who controls
the Adviser within the meaning of Section 15 of the 1933 Act and Section 20 of
the Securities Exchange Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
Prospectus (as from time to time amended and supplemented) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make statements therein not misleading, unless such statement or
omission was made in reliance upon and conformity with written information
furnished to the Trust about the Adviser by or on behalf of the Adviser
expressly for use in the Registration Statement or any Prospectus, or any
amendment or supplement thereof.
If any action is brought against the Adviser or any controlling person
thereof in respect of which indemnity may be sought against the Trust pursuant
to the foregoing paragraph, the Adviser shall promptly notify the Trust in
writing of the institution of such action and the Trust shall assume the defense
of such action, including the employment of counsel selected by the Trust and
payment of expenses. The Adviser or any such controlling person thereof shall
have the right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Adviser or such
controlling person unless the employment of such counsel shall have been
authorized in writing by the Trust in connection with the defense of such action
or the Trust shall not have employed counsel to have charge of the defense of
such action, in any of which events such fees and expenses shall be borne by the
Trust and allocated to the Funds, as appropriate. Anything in this paragraph to
the contrary notwithstanding, the Trust or any of the Funds shall not be liable
for any settlement of any such claim or action effected without its written
consent. The Trust agrees promptly to notify the Adviser of the commencement of
any litigation or proceedings against the Trust or any of its Funds or any of
its officers or Trustees or controlling persons in connection with the issue and
sale of shares or in connection with the Registration Statement or any
Prospectus.
(b) The Adviser agrees to indemnify and hold harmless each of the Funds,
the Trust, each of its Trustees, each of its officers who have signed the
Registration Statement and each other person, if any, who controls the Trust
within the meaning of Section 15 of the Securities Act of 1933, but only with
respect to statements or omissions, if any, made in the Registration Statement
or any Prospectus or any amendment or supplement thereof in reliance upon, and
in conformity with, information furnished to the Trust with respect to the
Adviser by or on behalf of the Adviser expressly for use in the Registration
Statement or any Prospectus or any amendment or supplement thereof. In case any
action shall be brought against the Trust or any of the Funds or any other
person so indemnified based on the Registration Statement or any Prospectus, or
any amendment or supplement thereof, and in respect of which indemnity may be
sought against the Adviser, the Adviser shall have the rights and duties given
to the Trust, and the Trust and each other person so indemnified shall have the
rights and duties given to the Adviser by the provisions of subsection (a)
above.
(c) Nothing herein contained shall be deemed to protect any person against
liability to any of the Funds or the Trust or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of such person or by reason of
the reckless disregard by such person of the obligations and duties of such
person under this Contract.
11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority of
the Trustees of the Trust, including a majority of Trustees who are not parties
to this Contract or interested persons of any such party to this Contract (other
than as Trustees of the Trust), cast in person at a meeting called for that
purpose, and on behalf of a Fund by a majority of the outstanding voting
securities of such Fund.
12. The Adviser acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Adviser agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature. The Trust
agrees to cause its distributors to promptly review all such sales literature to
ensure compliance with relevant requirements, to promptly advise Adviser of any
deficiencies contained in such sales literature, to promptly file complying
sales literature with the relevant authorities, and to cause such sales
literature to be distributed to prospective investors in the Trust.
13. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations pursuant to this Contract of a particular Fund and of the Trust
with respect to that particular Fund be limited solely to the assets of that
particular Fund, and Adviser shall not seek satisfaction of any such obligation
from the assets of any other Fund, the shareholders of any Fund, the Trustees,
officers, employees or agents of the Trust, or any of them.
14. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
15. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
EXHIBIT A
THE STARBURST GOVERNMENT INCOME FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .75 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .75 of 1% applied
to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 17th day of April, 1992.
Attest: CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By: /s/ Fred Murphy
Secretary Vice President
Attest: THE STARBURST FUNDS
/s/ John W. McGonigle By: /s/ J/ Christopher Donahue
Secretary President
EXHIBIT B
THE STARBURST GOVERNMENT MONEY MARKET FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .40 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .40 of 1% applied
to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 27th day of May, 1992.
Attest: CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By:/s/ Fred Murphy
Secretary Vice President
THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ Richard B. Fisher
Secretary Vice President
EXHIBIT C
THE STARBURST MONEY MARKET FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .40 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .40 of 1% applied
to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 27th day of May, 1992.
Attest: CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By:/s/ Fred Murphy
Secretary Vice President
THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ Richard B. Fisher
Secretary Vice President
EXHIBIT D
THE STARBURST MUNICIPAL INCOME FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to .75 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of .75 of 1% applied
to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 27th day of May, 1992.
Attest: CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By: /s/ Fred Murphy
Secretary Vice President
Attest: THE STARBURST FUNDS
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
THE STARBURST FUNDS
INVESTMENT MANAGEMENT CONTRACT
This Contract is made this 1st of December, 1993, between Compass Bank, an
Alabama state member bank having its principal place of business in Birmingham,
Alabama (the "Manager"), and The Starburst Funds, a Massachusetts business trust
having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").
WHEREAS the Trust is an open-end management investment company as that term
is defined in the Investment Company Act of 1940 (the "40 Act") and is
registered as such with the Securities and Exchange Commission; and
WHEREAS Manager is engaged in the business of rendering investment
management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. The Trust hereby appoints Manager as Investment Manager for each of the
portfolios ("Funds") of the Trust which executes an exhibit to this Contract,
and Manager accepts the appointments. Subject to the direction of the Trustees
of the Trust, Manager shall have overall responsibility for the management of
each of the Funds' portfolios, and shall be responsible for the selection
(subject to approval by the Trustees), supervision, and evaluation of investment
advisers ("Advisers") for each of the Funds, including recommending to the
Trustees of the Trust whether an Adviser's Contract should be renewed or
terminated. Subject to the direction of the Trustees of the Trust, Manager,
through the Advisers, shall provide investment research and supervision of the
investments of the Funds and conduct a continuous program of investment
evaluation and of appropriate sale or other disposition and reinvestment of each
Fund's assets. Apart from the foregoing, Manager shall have no responsibility
for conducting, in whole or in part, the operation of the Trust or the Funds, or
for the establishment or registration of the Trust or the Funds or any shares
thereof.
2. Manager, in its supervision of the investments of each of the Funds,
will be guided by each of the Funds' investment objectives and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust as set forth in the Registration Statements and exhibits as may be on
file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and its
allocable share of Trust expenses, including, without limitation, the expenses
of organizing the Trust and continuing its existence; fees and expenses of
Trustees and officers of the Trust; fees for management services, investment
advisory services and administrative personnel and services; fees and expenses
of preparing and printing its Registration Statements under the Securities Act
of 1933 and the '40 Act and any amendments thereto; expenses of registering and
qualifying the Trust, the Funds, and shares ("Shares") of the Funds under
federal and state laws and regulations; expenses of preparing, printing, and
distributing prospectuses (and any amendments thereto) to shareholders; interest
expense, taxes, fees, and commissions of every kind; expenses of issue
(including cost of Share certificates), purchase, repurchase, and redemption of
Shares, including expenses attributable to a program of periodic issue; charges
and expenses of custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing and mailing costs,
auditing, accounting, and legal expenses; reports to shareholders and
-2-
governmental officers and commissions; expenses of meetings of Trustees and
shareholders and proxy solicitations therefor; insurance expenses; association
membership dues and such nonrecurring items as may arise, including all losses
and liabilities incurred in administering the Trust and the Funds. Each Fund
will also pay its allocable share of such extraordinary expenses as may arise
including expenses incurred in connection with litigation, proceedings, and
claims and the legal obligations of the Trust to indemnify its officers and
Trustees and agents with respect thereto.
4. Each of the Funds shall pay to Manager, for all services rendered to
each Fund by Manager hereunder, the fees set forth in the exhibits attached
hereto.
5. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
6. The Manager may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such expense
limitations (including, inter alia, limitations resulting from federal or state
securities laws, rules and regulations) as the Manager may, by notice to the
Fund, voluntarily declare to be effective.
7. This Contract shall begin for each Fund as of the date of execution by
the Manager and the Trust of the applicable exhibit and shall continue in effect
with respect to each Fund presently set forth on an exhibit (and any subsequent
Funds added pursuant to an exhibit during the initial term of this Contract) for
two years from the date of this Contract set forth above and thereafter for
successive periods of one year, subject to the provisions for termination and
-3-
all of the other terms and conditions hereof, if: (a) such continuation shall
be specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Contract or interested persons of any such party (other than as Trustees
of the Trust), cast in person at a meeting called for that purpose; and (b)
Manager shall not have notified a Fund in writing at least sixty (60) days prior
to the anniversary date of this Contract in any year thereafter that it does not
desire such continuation with respect to that Fund. If a Fund is added after
the first approval by the Trustees as described above, this Contract will be
effective as to that Fund upon execution of the applicable exhibit and will
continue in effect until the next annual approval of this Contract by the
Trustees and thereafter for successive periods of one year, subject to approval
as described above and termination as provided herein.
8. Notwithstanding any provision in this Contract, this Contract may be
terminated at any time with respect to any Fund, without the payment of any
penalty, by the Trustees of the Trust or by a vote of the shareholders of that
Fund on sixty (60) days' written notice to Manager.
9. This Contract may not be assigned by Manager and shall automatically
terminate in the event of any assignment. Manager may employ or contract with
such other person, persons, corporation, or corporations (including, subject to
approval of the Trustees of the Trust, one or more Advisers for the Funds) at
its own cost and expense as it shall determine in order to assist it in carrying
out this Contract.
10. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties under this Contract on the part
of Manager, Manager shall not be liable to the Trust or to any of the Funds or
-4-
to any shareholder or to any other person or entity (collectively, a "person")
for any act or omission in the course of or connected in any way with rendering
services or otherwise performing under this Contract.
11. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless the Manager and each person, if any, who controls
the Manager within the meaning of Section 15 of the 1933 Act and Section 20 of
the Securities Exchange Act of 1934, as amended, against any and all loss,
liability, claim, damage and expense whatsoever (including but not limited to
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
Prospectus (as from time to time amended and supplemented) or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make statements therein not misleading, unless such statement or
omission was made in reliance upon and conformity with written information
furnished to the Trust about the Manager by or on behalf of the Manager
expressly for use in the Registration Statement or any Prospectus, or any
amendment or supplement thereof.
If any action is brought against the Manager or any controlling person
thereof in respect of which indemnity may be sought against the Trust pursuant
to the foregoing paragraph, the Manager shall promptly notify the Trust in
writing of the institution of such action and the Trust shall assume the defense
of such action, including the employment of counsel selected by the Trust and
payment of expenses. The Manager or any such controlling person thereof shall
have the right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Manager or such
-5-
controlling person unless the employment of such counsel shall have been
authorized in writing by the Trust in connection with the defense of such action
or the Trust shall not have employed counsel to have charge of the defense of
such action, in any of which events such fees and expenses shall be borne by the
Trust and allocated to the Funds, as appropriate. Anything in this paragraph to
the contrary notwithstanding, the Trust or any of the Funds shall not be liable
for any settlement of any such claim or action effected without its written
consent. The Trust agrees promptly to notify the Manager of the commencement of
any litigation or proceedings against the Trust or any of its Funds or any of
its officers or Trustees or controlling persons in connection with the issue and
sale of shares or in connection with the Registration Statement or any
Prospectus.
(b) The Manager agrees to indemnify and hold harmless each of the Funds,
the Trust, each of its Trustees, each of its officers who have signed the
Registration Statement and each other person, if any, who controls the Trust
within the meaning of Section 15 of the Securities Act of 1933, but only with
respect to statements or omissions, if any, made in the Registration Statement
or any Prospectus or any amendment or supplement thereof in reliance upon, and
in conformity with, information furnished to the Trust with respect to the
Manager by or on behalf of the Manager expressly for use in the Registration
Statement or any Prospectus or any amendment or supplement thereof. In case any
action shall be brought against the Trust or any of the Funds or any other
person so indemnified based on the Registration Statement or any Prospectus, or
any amendment or supplement thereto, and in respect of which indemnity may be
sought against the Manager, the Manager shall have the rights and duties given
to the Trust, and the Trust and each other person so indemnified shall have the
rights and duties given to the Adviser by the provisions of subsection (a)
above.
-6-
(c) Nothing contained in this paragraph 11 shall be deemed to protect any
person against liability to any of the Funds or the Trust or its shareholders to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the duties of such person or
by reason of the reckless disregard by such person of the obligations and duties
of such person under this Contract.
12. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority of
the Trustees of the Trust, including a majority of the Trustees who are not
parties to this Contract or interested persons of any such party to this
Contract (other than as Trustees of the Trust) cast in person at a meeting
called for that purpose, and (if required by the '40 Act) on behalf of a Fund by
a majority of the outstanding voting securities of such Fund.
13. The Manager acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Manager agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature, provided,
however, that nothing herein shall be construed so as to create any obligation
or duty on the part of the Manager to produce sales literature for the Trust (or
any Fund). The Trust agrees to cause its distributor to promptly review all
such sales literature to ensure compliance with relevant requirements, to
promptly advise Manager of any deficiencies contained in such sales literature,
to promptly file complying sales literature with the relevant authorities, and
-7-
to cause such sales literature to be distributed to prospective investors in the
Trust.
14. Manager is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations pursuant to this Contract of a particular Fund and of the Trust
with respect to that particular Fund be limited solely to the assets of that
particular Fund, and Manager shall not seek satisfaction of any such obligation
from any other Fund, the shareholders of any Fund, the Trustees, officers,
employees or agents of the Trust, or any of them.
15. Manager shall not be deemed to be an agent of the Trust, and in the
performance of its duties under this Contract the Manager shall be an
independent contractor. In addition, no Adviser shall be deemed to be the agent
of either the Manager or the Trust and, in the performance of its duties, each
Adviser shall be an independent contractor.
16. If any provision of this Contract shall be held or made invalid by a
court or regulatory agency decision, statute, rule or otherwise, the remainder
of this Contract shall not be affected thereby.
17. This Contract shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania; provided, however, that nothing herein
shall be construed in a manner inconsistent with the Investment Company Act of
1940 or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
-8-
18. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract and shall inure exclusively
to the benefit of the parties hereto.
19. The parties hereto acknowledge that Manager has reserved the right to
grant the non-exclusive use of the name "Starburst" or any derivative thereof to
any other investment company, investment company portfolio, investment adviser,
distributor or other business enterprise, and to withdraw from the Trust and one
or more of the Funds the use of the name "Starburst." The name "Starburst" will
continue to be used by the Trust and each Fund so long as such use is mutually
agreeable to Manager and the Trust.
EXHIBIT A
to the
Investment Management Contract
THE STARBURST EQUITY FUND
For all services rendered by Manager hereunder, the above-named Fund of the
Trust shall pay to Manager and Manager agrees to accept as full compensation for
-9-
all services rendered hereunder, an annual investment management fee equal
to l.00% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1.00% applied to the daily net
assets of the Fund.
The Management fee so accrued shall be paid to Manager daily.
Witness the due execution hereof this 1st day of December, 1993.
ATTEST: COMPASS BANK
/s/ Jerry W. Powell By: /s/ Fred Murphy
-------- -----------
Secretary Vice President
ATTEST: THE STARBURST FUNDS
/s/ J. W. McGonigle By: /s/ E. C. Gonzales
Secretary Vice President
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
THE STARBURST FUNDS
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 30th day of August, 1990, by and between THE STARBURST
FUNDS (the "Trust"), a Massachusetts business trust, and FEDERATED SECURITIES
CORP. ("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and distribute
shares of the Trust which may be offered in one or more series (the "Funds")
consisting of one or more classes (the "Classes") of shares (the "Shares") as
described and set forth on one or more exhibits to this Agreement at the current
offering price thereof as described and set forth in the current Prospectuses of
the Trust. FSC hereby accepts such appointment and agrees to provide such other
services for the Trust, if any, and accept such compensation from the Trust, if
any, as set forth in the applicable exhibit to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever
in the judgment of the Trust it is in its best interest to do so.
3. Neither FSC nor any other person is authorized by the Trust to give
any information or to make any representation relative to any Shares other than
those contained in the Registration Statement, Prospectuses, or Statements of
Additional Information ("SAIs") filed with the Securities and Exchange
Commission, as the same may be amended from time to time, or in any supplemental
information to said Prospectuses or SAIs approved by the Trust. FSC agrees that
any other information or representations other than those specified above which
it or any dealer or other person who purchases Shares through FSC may make in
connection with the offer or sale of Shares, shall be made entirely without
liability on the part of the Trust. No person or dealer, other than FSC, is
authorized to act as agent for the Trust for any purpose. FSC agrees that in
offering or selling Shares as agent of the Trust, it will, in all respects, duly
conform to all applicable state and federal laws and the rules and regulations
of the National Association of Securities Dealers, Inc., including its Rules of
Fair Practice. FSC will submit to the Trust copies of all sales literature
before using the same and will not use such sales literature if disapproved by
the Trust.
4. This Agreement is effective with respect to each Class as of the date
of execution of the applicable exhibit and shall continue in effect with respect
to each Class presently set forth on an exhibit and any subsequent Classes added
pursuant to an exhibit during the initial term of this Agreement for one year
from the date set forth above, and thereafter for successive periods of one year
if such continuance is approved at least annually by the Trustees of the Trust
including a majority of the members of the Board of Trustees of the Trust who
are not interested persons of the Trust and have no direct or indirect financial
interest in the operation of any Distribution Plan relating to the Trust or in
any related documents to such Plan ("Disinterested Trustees") cast in person at
a meeting called for that purpose. If a Class is added after the first annual
approval by the Trustees as described above, this Agreement will be effective as
to that Class upon execution of the applicable exhibit and will continue in
effect until the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as described
above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a majority
of the Disinterested Trustees or by a majority of the outstanding voting
securities of the particular Fund or Class on not more than sixty (60) days'
written notice to any other party to this Agreement. This Agreement may be
terminated with regard to a particular Fund or Class by FSC on sixty (60) days'
written notice to the Trust.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, provided, however, that FSC may employ such other person,
persons, corporation or corporations as it shall determine in order to assist it
in carrying out its duties under this Agreement.
7. FSC shall not be liable to the Trust for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is approved by
the Trustees of the Trust including a majority of the Disinterested Trustees of
the Trust cast in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless FSC and each person, if any, who controls FSC within
the meaning of Section 15 of the Securities Act of 1933 and Section 20 of the
Securities Act of 1934, as amended, against any and all loss, liability, claim,
damage and expense whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectuses or SAI's (as from
time to time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, unless such statement or omission was
made in reliance upon and in conformity with written information furnished to
the Trust about FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement thereof.
If any action is brought against FSC or any controlling person thereof with
respect to which indemnity may be sought against the Trust pursuant to the
foregoing paragraph, FSC shall promptly notify the Trust in writing of the
institution of such action and the Trust shall assume the defense of such
action, including the employment of counsel selected by the Trust and payment of
expenses. FSC or any such controlling person thereof shall have the right to
employ separate counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of FSC or such controlling person unless the
employment of such counsel shall have been authorized in writing by the Trust in
connection with the defense of such action or the Trust shall not have employed
counsel to have charge of the defense of such action, in any of which events
such fees and expenses shall be borne by the Trust. Anything in this paragraph
to the contrary notwithstanding, the Trust shall not be liable for any
settlement of any such claim of action effected without its written consent.
The Trust agrees promptly to notify FSC of the commencement of any litigation or
proceedings against the Trust or any of its officers or Trustees or controlling
persons in connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAI's.
(b) FSC agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration Statement and
each other person, if any, who controls the Trust within the meaning of
Section 15 of the Securities Act of 1933, but only with respect to statements or
omissions, if any, made in the Registration Statement or any Prospectus, SAI, or
any amendment or supplement thereof in reliance upon, and in conformity with,
information furnished to the Trust about FSC by or on behalf of FSC expressly
for use in the Registration Statement or any Prospectus, SAI, or any amendment
or supplement thereof. In case any action shall be brought against the Trust or
any other person so indemnified based on the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof, and with respect to
which indemnity may be sought against FSC, FSC shall have the rights and duties
given to the Trust, and the Trust and each other person so indemnified shall
have the rights and duties given to FSC by the provisions of subsection (a)
above.
(c) Nothing herein contained shall be deemed to protect any person against
liability to the Trust or its shareholders to which such person would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of the duties of such person or by reason of the reckless
disregard by such person of the obligations and duties of such person under this
Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940 for Trustees, officers, FSC
and controlling persons of the Trust by the Trust pursuant to this Agreement,
the Trust is aware of the position of the Securities and Exchange Commission as
set forth in the Investment Company Act Release No. IC-11330. Therefore, the
Trust undertakes that in addition to complying with the applicable provisions of
this Agreement, 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 Disinterested Trustees, 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 Trust 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, FSC or controlling person of the Trust 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 Trust is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a quorum of
non-party Disinterested 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.
11. FSC is hereby expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this agreement shall be limited in
any case to the Trust and its assets and FSC shall not seek satisfaction of any
such obligation from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.
12. FSC agrees to adopt compliance standards as to when a class of shares
may be sold to particular investors.
13. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
Exhibit A
The Starburst Funds
The Starburst Government Money Market Fund
Trust Shares
The Starburst Money Market Fund
Trust Shares
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between THE STARBURST FUNDS and Federated
Securities Corp., THE STARBURST FUNDS executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 29th day of April, 1991
ATTEST: THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B. Fisher
Secretary President
(SEAL)
Exhibit B
THE STARBURST FUNDS
The Starburst Government Money Market Fund
Investment Shares
The Starburst Money Market Fund
Investment Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 30th day of August, 1990, between THE STARBURST
FUNDS and Federated Securities Corp. with respect to Classes of the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Classes. Pursuant to this
appointment FSC is authorized to to select a group of brokers ("Brokers") to
sell shares of the above-listed Classes ("Shares"), at the current offering
price thereof as described and set forth in the respective prospectuses of
the Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support services to
the Trust and its shareholders.
2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .35% of
the average aggregate net asset value of the Investment Shares of the The
Starburst Government Money Market Fund and The Starburst Money Market Fund held
during the month. For the month in which this Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any classes expenses exceed such lower
expense limitation as FSC may, by notice to the Trust, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between THE STARBURST FUNDS and Federated
Securities Corp., THE STARBURST FUNDS executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 29th day of April, 1991.
ATTEST: THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B. Fisher
Secretary President
(SEAL)
Exhibit C
THE STARBURST FUNDS
The Starburst Municipal Income Fund
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 30th day of August, 1990, between THE STARBURST
FUNDS and Federated Securities Corp. with respect to Classes of the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Classes. Pursuant to this
appointment FSC is authorized to to select a group of brokers ("Brokers") to
sell shares of the above-listed Classes ("Shares"), at the current offering
price thereof as described and set forth in the respective prospectuses of
the Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support services to
the Trust and its shareholders.
2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of The Starburst Municipal Income Fund
held during the month. For the month in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any classes expenses exceed such lower
expense limitation as FSC may, by notice to the Trust, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between THE STARBURST FUNDS and Federated
Securities Corp., THE STARBURST FUNDS executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 7th day of November, 1991.
ATTEST: THE STARBURST FUNDS
/s/ C. Grant Anderson By:/s/ J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B. Fisher
Secretary President
(SEAL)
Exhibit D
THE STARBURST FUNDS
The Starburst Government Income Fund
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 30th day of August, 1990, between THE STARBURST
FUNDS and Federated Securities Corp. with respect to Classes of the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Classes. Pursuant to this
appointment FSC is authorized to to select a group of brokers ("Brokers") to
sell shares of the above-listed Classes ("Shares"), at the current offering
price thereof as described and set forth in the respective prospectuses of
the Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support services to
the Trust and its shareholders.
2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of The Starburst Government Income Fund
held during the month. For the month in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any classes expenses exceed such lower
expense limitation as FSC may, by notice to the Trust, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between THE STARBURST FUNDS and Federated
Securities Corp., THE STARBURST FUNDS executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 17th day of April, 1992.
ATTEST: THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ Richard B. Fisher
Secretary President
(SEAL)
Exhibit E
THE STARBURST FUNDS
The Starburst Equity Fund
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 30th day of August, 1990, between THE STARBURST
FUNDS and Federated Securities Corp. with respect to Classes of the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Classes. Pursuant to this
appointment FSC is authorized to to select a group of brokers ("Brokers") to
sell shares of the above-listed Classes ("Shares"), at the current offering
price thereof as described and set forth in the respective prospectuses of
the Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support services to
the Trust and its shareholders.
2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of The Starburst Government Income Fund
held during the month. For the month in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any classes expenses exceed such lower
expense limitation as FSC may, by notice to the Trust, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between The Starburst Funds and Federated
Securities Corp., The Starburst Funds executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1993.
ATTEST: THE STARBURST FUNDS
/s/John W. McGonigle By:/s/ J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ John W. McGonigle
Secretary President
(SEAL)
Exhibit F
THE STARBURST FUNDS
The Starburst Government Money Market Fund
Investment Shares
The Starburst Money Market Fund
Investment Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 30th day of August, 1990, between THE STARBURST
FUNDS and Federated Securities Corp. with respect to Classes of the Funds set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of Shares of the Classes. Pursuant to this
appointment FSC is authorized to to select a group of brokers ("Brokers") to
sell shares of the above-listed Classes ("Shares"), at the current offering
price thereof as described and set forth in the respective prospectuses of
the Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support services to
the Trust and its shareholders.
2. Administrative support services may include, but are not limited to,
the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located on
the Broker or Administrator's premises; 2) account closings: the Broker or
Administrator communicates account closings via computer terminals; 3) enter
purchase transactions: purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of a toll-free
telephone number; 4) enter redemption transactions: Broker or Administrator
enters redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide accounting
support for all transactions. Broker or Administrator also wires funds and
receives funds for Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the Trust's accounts, and
provides training and supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential customers; 10) design
services: the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to customers;
and 11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of the Investment Shares of the The
Starburst Government Money Market Fund and The Starburst Money Market Fund held
during the month. For the month in which this Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any classes expenses exceed such lower
expense limitation as FSC may, by notice to the Trust, voluntarily declare to be
effective.
5. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Brokers and Administrators a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Brokers and Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated August 30, 1990 between THE STARBURST FUNDS and Federated
Securities Corp., THE STARBURST FUNDS executes and delivers this Exhibit on
behalf of the Funds, and with respect to the separate Classes of Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of June, 1994.
ATTEST: THE STARBURST FUNDS
/s/ John W. McGonigle By:/s/ J. C. Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By:/s/ John A. Staley
Secretary Executive Vice President
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
THE STARBURST FUNDS
and
CENTRAL BANK OF THE SOUTH
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It............ 1
2. Duties of the Custodian With Respect to Property
of the Funds Held by the Custodian............................... 1
2.1 Holding Securities........................................ 1
2.2 Delivery of Securities.................................... 2
2.3 Registration of Securities................................ 4
2.4 Bank Accounts............................................. 4
2.5 Payments for Shares....................................... 4
2.6 Availability of Federal Funds............................. 4
2.7 Collection of Income...................................... 5
2.8 Payment of Fund Moneys.................................... 5
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased........................... 6
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund....................................... 6
2.11 Appointment of Agents..................................... 6
2.12 Deposit of Fund Assets in Securities System............... 7
2.13 Segregated Account........................................ 8
2.14 Joint Repurchase Agreements............................... 8
2.15 Ownership Certificates for Tax Purposes................... 8
2.16 Proxies................................................... 9
2.17 Communications Relating to Fund Portfolio Securities...... 9
2.18 Proper Instructions....................................... 9
2.19 Actions Permitted Without Express Authority............... 9
2.20 Evidence of Authority.....................................10
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income....................10
4. Records..........................................................10
5. Opinion of Funds' Independent Accountants........................11
6. Reports to Trust by Independent Public Accountants...............11
7. Compensation of Custodian........................................11
8. Responsibility of Custodian......................................11
9. Effective Period, Termination and Amendment......................13
10. Successor Custodian..............................................13
11. Interpretive and Additional Provisions...........................14
12. Massachusetts Law to Apply.......................................14
13. Notices..........................................................14
14. Counterparts.....................................................14
15. Limitations of Liability.........................................15
CUSTODIAN CONTRACT
This Contract between THE STARBURST FUNDS (the "Trust"), a Massachusetts
business trust, on behalf of the portfolios (the "Funds") of the Trust,
organized and existing under the laws of the Commonwealth of Massachusetts,
having its principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, and CENTRAL BANK OF THE SOUTH, an Alambama state
member bank, having its principal place of business in Birmingham, Alabama
hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of its portfolios (hereinafter collectively called the "Funds" and
individually referred to as a "Fund") of the Trust. Except as otherwise
expressly provided herein, the securities and other assets of each of the Funds
shall be segregated from the assets of each of the other Funds and from all
other persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income, payments of
principal or capital distributions received by them with respect to all
securities owned by the Funds from time to time, and the cash consideration
received by them for shares ("Shares") of beneficial interest of the Funds as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of the Funds held or received by the Funds and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-custodians
upon the terms specified in the Proper Instructions, provided that the Custodian
shall have no more or less responsibility or liability to the Trust or any of
the Funds on account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Fund all non-cash property, including all securities
owned by each Fund, other than securities which are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System", or securities which
are subject to a joint repurchase agreement with affiliated funds pursuant
to Section 2.14. The Custodian shall maintain records of all receipts,
deliveries and locations of such securities, together with a current
inventory thereof, and shall conduct periodic physical inspections of
certificates representing stocks, bonds and other securities held by it
under this Contract in such manner as the Custodian shall determine from
time to time to be advisable in order to verify the accuracy of such
inventory. With respect to securities held by any agent appointed pursuant
to Section 2.11 hereof, and with respect to securities held by any sub-
custodian appointed pursuant to Section 1 hereof, the Custodian may rely
upon certificates from such agent as to the holdings of such agent and from
such sub-custodian as to the holdings of such sub-custodian, it being
understood that such reliance in no way relieves the Custodian of its
responsibilities under this
Contract. The Custodian will promptly report to the Trust the results of
such inspections, indicating any shortages or discrepancies uncovered
thereby, and take appropriate action to remedy any such shortages or
discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities System
account of the Custodian only upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the parties, and
only in the following cases:
(1) Upon sale of such securities for the account of a Fund and receipt of
payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other similar
offers for portfolio securities of a Fund, in accordance with the
provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name of a
Fund or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to
Section 2.11 or into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery custom"; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own failure to act in accordance with the standard of reasonable care
or any higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
(9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
(10) For delivery in connection with any loans of portfolio securities of
a Fund, but only against receipt of adequate collateral in the form of
(a) cash, in an amount specified by the Trust, (b) certificated
securities of a description specified by the Trust, registered in the
name of the Fund or in the name of a nominee of the Custodian referred
to in Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust, transferred
through a Securities System in accordance with Section 2.12 hereof;
(11) For delivery as security in connection with any borrowings requiring
a pledge of assets by a Fund, but only against receipt of amounts
borrowed, except that in cases where additional collateral is required
to secure a borrowing already made, further securities may be released
for the purpose;
(12) For delivery in accordance with the provisions of any agreement among
the Trust, the Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(13) For delivery in accordance with the provisions of any agreement among
the Trust, the Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transaction for a Fund;
(14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Executive Committee of the Trust on behalf of a Fund signed by an
officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of a particular Fund or
in the name of any nominee of the Fund or of any nominee of the Custodian
which nominee shall be assigned exclusively to the Fund, unless the Trust
has authorized in writing the appointment of a nominee to be used in common
with other registered investment companies affiliated with the Fund, or in
the name or nominee name of any agent appointed pursuant to Section 2.11 or
in the name or nominee name of any sub-custodian appointed pursuant to
Section 1. All securities accepted by the Custodian on behalf of a Fund
under the terms of this Contract shall be in "street name" or other good
delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of each Fund, other than
cash maintained in a joint repurchase account with other affiliated funds
pursuant to Section 2.14 of this Contract or by a particular Fund in a bank
account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a Fund may
be deposited by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that every such
bank or trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees of the Trust. Such
funds shall be deposited by the Custodian in its capacity as Custodian for
the Fund and shall be withdrawable by the Custodian only in that capacity.
If requested by the Trust, the Custodian shall furnish the Trust, not later
than twenty (20) days after the last business day of each month, an
internal reconciliation of the closing balance as of that day in all
accounts described in this section to the balance shown on the daily cash
report for that day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements with the
Transfer Agent of each Fund, as will enable the Custodian to receive the
cash consideration due to each Fund and will deposit into each Fund's
account such payments as are received from the Transfer Agent. The
Custodian will provide timely notification to the Trust and the Transfer
Agent of any receipt by it of payments for Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the Trust
and the Custodian, the Custodian shall make federal funds available to the
Funds as of specified times agreed upon from time to time by the Trust and
the Custodian in the amount of checks, clearing house funds, and other non-
federal funds received in payment for Shares of the Funds which are
deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and other
payments with respect to registered securities held hereunder to which
each Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income
and other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as collected, to each
Fund's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. The collection of income due the Funds on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist the
Trust in arranging for the timely delivery to the Custodian of the
income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income due on
securities is not collected in due course and will provide the Trust
with monthly reports of the status of past due income.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out moneys of each Fund in the following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against the
delivery of such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking firm or trust
company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the name of
a nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer, (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.12 hereof or (c) in the case of repurchase
agreements entered into between the Trust and any other party, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the agreement by
the Custodian to repurchase such securities from the Fund;
(2) In connection with conversion, exchange or surrender of securities
owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by the
Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the account of
the Fund: interest; taxes; management, accounting, transfer agent and
legal fees; and operating expenses of the Fund, whether or not such
expenses are to be in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the
Executive Committee of the Trust on behalf of a Fund signed by an
officer of the Trust and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom such
payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of securities for the account
of a Fund is made by the Custodian in advance of receipt of the securities
purchased, in the absence of specific written instructions from the Trust
to so pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been
received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From such
funds as may be available for the purpose of repurchasing or redeeming
Shares of a Fund, but subject to the limitations of the Declaration of
Trust and any applicable votes of the Board of Trustees of the Trust
pursuant thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders of shares
of such Fund who have delivered to the Transfer Agent a request for
redemption or repurchase of their shares including without limitation
through bank drafts, automated clearinghouse facilities, or by other means.
In connection with the redemption or repurchase of Shares of the Funds, the
Custodian is authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, and any applicable state law or regulation, to act as a
custodian, as its agent to carry out such of the provisions of this Section
2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Fund Assets in Securities System. The Custodian may deposit
and/or maintain securities owned by the Funds in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the Funds
which are maintained in a Securities System shall identify by book-
entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the account of
each Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of a Fund upon (i) receipt of
advice from the Securities System that payment for such securities has
been transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities
System of transfers of securities for the account of a Fund shall
identify the Fund, be maintained for the Fund by the Custodian and be
provided to the Trust at its request. Upon request, the Custodian
shall furnish the Trust confirmation of each transfer to or from the
account of a Fund in the form of a written advice or notice and shall
furnish to the Trust copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the account of a
Fund.
(4) The Custodian shall provide the Trust with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
(5) The Custodian shall have received the initial certificate, required
by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage to a
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of the Trust,
it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any other
person which the Custodian may have as a consequence of any such loss
or damage if and to the extent that a Fund has not been made whole for
any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not relieve the
Custodian from using reasonable care and diligence in making use of any
Securities System.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance
with the provisions of any agreement among the Trust, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD
(or any futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for purpose
of segregating cash or government securities in connection with options
purchased, sold or written for a Fund or commodity futures contracts or
options thereon purchased or sold for a Fund, (iii) for the purpose of
compliance by the Trust or a Fund with the procedures required by any
release or releases of the Securities and Exchange Commission relating to
the maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Trust and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper Instructions, the
Custodian shall deposit and/or maintain any assets of a Fund and any
affiliated funds which are subject to joint repurchase transactions in an
account established solely for such transactions for the Fund and its
affiliated funds. For purposes of this Section 2.14, "affiliated funds"
shall include all investment companies and their portfolios for which
subsidiaries or affiliates of Federated Investors, Inc. serve as investment
advisers. The requirements of segregation set forth in Section 2.1 shall
be deemed to be waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of a Fund held by it and in connection with transfers
of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
a Fund or a nominee of a Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to
the Trust such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian shall
transmit promptly to the Trust all written information (including, without
limitation, pendency of calls and maturities of securities and expirations
of rights in connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures contracts purchased
or sold by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Trust desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action. However, the Custodian
shall nevertheless exercise its best efforts to take such action in the
event that notification is received three business days or less prior to
the date on which action is required.
2.18 Proper Instructions. Proper Instructions as used throughout this Section
2 means a writing signed or initialled by one or more person or persons as
the Board of Trustees shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person
previously authorized in Proper Instructions to give such instructions with
respect to the transaction involved. The Trust shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate of
the Secretary or an Assistant Secretary as to the authorization by the
Board of Trustees of the Trust accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian
are satisfied that such procedures afford adequate safeguards for a Fund's
assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in its
discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Trust in such form that it may be allocated to the affected Fund;
(2) surrender securities in temporary form for securities in definitive
form;
(3) endorse for collection, in the name of a Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of each Fund except as
otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other instrument
or paper reasonably believed by it to be genuine and to have been properly
executed on behalf of a Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of Trustees of the Trust as
conclusive evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination of or any action by the Board of
Trustees pursuant to the Declaration of Trust as described in such vote,
and such vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Trust to keep the
books of account of each Fund and/or compute the net asset value per share of
the outstanding Shares of each Fund or, if directed in writing to do so by the
Trust, shall itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also calculate daily the
net income of a Fund as described in the Fund's currently effective prospectus
and shall advise the Trust and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Trust to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of a Fund shall be made at the time or times
described from time to time in the Fund's currently effective prospectus.
4. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Trust and the Funds under the Investment Company Act of 1940,
with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for tax
purposes. All such records shall be the property of the Trust and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Trust and employees and
agents of the Securities and Exchange Commission. In the event of termination
of this Contract, the Custodian will deliver all such records to the Trust, to a
successor Custodian, or to such other person as the Trust may direct. The
Custodian shall, at the Trust's request, supply the Trust with a tabulation of
securities owned by a Fund and held by the Custodian and shall, when requested
to do so by the Trust and for such compensation as shall be agreed upon between
the Trust and the Custodian, include certificate numbers in such tabulations.
5. Opinion of Funds' Independent Accountants
The Custodian shall take all reasonable action, as the Trust may from time
to time request, to obtain from year to year favorable opinions from each Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's registration statement, periodic reports, or
any other reports to the Securities and Exchange Commission and with respect to
any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public accountants for each Fund
on the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian for the Fund under this
Contract; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Trust, to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
7. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Trust and the Custodian.
8. Responsibility of Custodian
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the Custodian shall
be held to any higher standard of care which would be imposed upon the Custodian
by any applicable law or regulation if such above stated standard of reasonable
care was not part of this Contract. The Custodian shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for the Trust) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice, provided that such action is not in violation
of applicable federal or state laws or regulations, and is in good faith and
without negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the assets of
the Fund involved in the issue at hand and be without liability for any action
taken or thing done by it in carrying out the terms and provisions of this
Contract in accordance with the above standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may be
asked to indemnify or save the Custodian harmless, the Trust shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Custodian will use all reasonable care to
identify and notify the Trust promptly concerning any situation which presents
or appears likely to present the probability of such a claim for
indemnification. The Trust shall have the option to defend the Custodian
against any claim which may be the subject of this indemnification, and in the
event that the Trust so elects it will so notify the Custodian and thereupon the
Trust shall take over complete defense of the claim, and the Custodian shall in
such situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case confess
any claim or make any compromise in any case in which the Trust will be asked to
indemnify the Custodian except with the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the reasonable opinion of the Custodian, result in the Custodian or its nominee
assigned to a Fund being liable for the payment of money or incurring liability
of some other form, the Custodian may request the Trust, as a prerequisite to
requiring the Custodian to take such action, to provide indemnity to the
Custodian in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from and
against all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) (referred to herein as authorized charges) incurred or
assessed against it or its nominee in connection with the performance of this
Contract, except such as may arise from it or its nominee's own failure to act
in accordance with the standard of reasonable care or any higher standard of
care which would be imposed upon the Custodian by any applicable law or
regulation if such above-stated standard of reasonable care were not part of
this Contract. To secure any authorized charges and any advances of cash or
securities made by the Custodian to or for the benefit of a Fund for any purpose
which results in the Fund incurring an overdraft at the end of any business day
or for extraordinary or emergency purposes during any business day, the Trust
hereby grants to the Custodian a security interest in and pledges to the
Custodian securities held for the Fund by the Custodian, in an amount not to
exceed 10 percent of the Fund's gross assets, the specific securities to be
designated in writing from time to time by the Trust or the Fund's investment
adviser. Should the Trust fail to make such designation, or should it instruct
the Custodian to make advances exceeding the percentage amount set forth above
and should the Custodian do so, the Trust hereby agrees that the Custodian shall
have a security interest in all securities or other property purchased for a
Fund with the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of the Trust
instructing their purchase shall be considered the requisite description and
designation of the property so pledged for purposes of the requirements of the
Uniform Commercial Code. Should the Trust fail to cause a Fund to repay
promptly any authorized charges or advances of cash or securities, subject to
the provision of the second paragraph of this Section 8 regarding
indemnification, the Custodian shall be entitled to use available cash and to
dispose of pledged securities and property as is necessary to repay any such
advances.
9. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Trusthas approved the initial use of
a particular Securities System as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended; provided further, however, that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Trust may
at any time by action of its Board of Trustees (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
10. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees of
the Trust, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder for each Fund and shall
transfer to separate accounts of the successor custodian all of each Fund's
securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract for each
Fund and to transfer to separate accounts of such successor custodian all of
each Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Contract.
12. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Custodian at 225 Franklin
Street, Boston, Massachusetts, 02110, or to such other address as the Trust or
the Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
15. Limitations of Liability
The Custodian is expressly put on notice of the limitation of liability as
set forth in Article XI of the Declaration of Trust and agrees that the
obligations and liabilities assumed by the Trust and any Fund pursuant to this
Contract, including, without limitation, any obligation or liability to
indemnify the Custodian pursuant to Section 8 hereof, shall be limited in any
case to the relevant Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the relevant Fund,
from any other Fund or its shareholders or from the Trustees, Officers,
employees or agents of the Trust, or any of
them. In addition, in connection with the discharge and satisfaction of any
claim made by the Custodian against the Trust, for whatever reasons, involving
more than one Fund, the Trust shall have the exclusive right to determine the
appropriate allocations of liability for any such claim between or among the
Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 2nd day of January, 1992.
ATTEST: THE STARBURST FUNDS
/s/ C. Grant Anderson By/s/ E. C. Gonzales
Assistant Secretary Vice President
ATTEST CENTRAL BANK OF THE SOUTH
/s/ Jerry W. Powell By/s/ Fred Murphy
Secretary Vice President
Exhibit 15(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
THE STARBURST FUNDS
PLAN
This Plan ("Plan") is adopted as of April 29, 1991, by the Board of
Trustees of THE STARBURST FUNDS (the "Trust"), a Massachusetts business trust,
with respect to certain classes of shares ("Classes") of the portfolios of the
Trust (the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("Act"), so as to allow the Trust to make payments as
contemplated herein, in conjunction with the distribution of Classes of the
Funds ("Shares").
2. This Plan is designed to finance activities of Federated Securities
Corporation ("FSC") principally intended to result in the sale of Shares to
include: (a) providing incentive to broker/dealers ("Brokers") to sell Shares
and to provide administrative support services to the Funds and their
shareholders; (b) compensating other participating financial institutions and
other persons ("Administrators") for providing administrative support services
to the Funds and their shareholders; (c) paying for the costs incurred in
conjunction with advertising and marketing of Shares to include expenses of
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, Brokers or Administrators; and (d) other costs
incurred in the implementation and operation of the Plan. In compensation for
services provided pursuant to this plan FSC will be paid a fee in respect of the
following Classes set forth in the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made pursuant
to the "Distributor's Contract" entered into by the Trust and FSC. Any payments
made by FSC to Brokers and Administrators with Funds received as compensation
under this Plan will be made pursuant to the "Rule 12b-1 Agreement" entered into
by FSC and the Broker or Administrator.
4. FSC has the right (i) to select, in its sole discretion, the Brokers
and Administrators to participate in the Plan and (ii) to terminate without
cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC shall
prepare and furnish to the Board of Trustees of the Trust, and the Board of
Trustees shall review, a written report of the amounts expended under the Plan
and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class (i) after
approval by majority votes of: (a) the Trust's Board of Trustees; (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding voting securities of the
particular Class, as defined in Section 2(a)(42) of the Act and (ii) upon
execution of an exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to an exhibit
during the initial year of this Plan for the period of one year from the date
set forth above and may be continued thereafter if this Plan is approved with
respect to each Class at least annually by a majority of the Trust's Board of
Trustees and a majority of the Disinterested Trustees, cast in person at a
meeting called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a Class after the first annual approval by the Trustees as
described above, this Plan will be effective as to that Class upon execution of
the applicable exhibit pursuant to the provisions of paragraph 6(ii) above and
will continue in effect until the next annual approval of this Plan by the
Trustees and thereafter for successive periods of one year subject to approval
as described above.
8. All material amendments to this Plan must be approved by a vote of the
Board of Trustees of the Trust and of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the costs
which the Classes may bear for distribution pursuant to the Plan without being
approved by a majority vote of the outstanding voting securities of the Classes
as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at any
time by: (a) a majority vote of the Disinterested Trustees; or (b) a vote of a
majority of the outstanding voting securities of the particular Class as defined
in Section 2(a)(42) of the Act; or (c) by FSC on 60 days notice to the
particular Trust.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion of the
Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be
subject to termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
EXHIBIT A
THE STARBURST FUNDS
The Starburst Government Money Market Fund
Investment Shares
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .35 of 1% of the average
aggregate net asset value of the Investment Shares of the The Starburst
Government Money Market Fund held during the month.
Witness the due execution hereof this 29th day of April , 1991.
THE STARBURST FUNDS
By:/s/ J. Christopher Donahue
President
EXHIBIT B
THE STARBURST FUNDS
The Starburst Money Market Fund
Investment Shares
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .35 of 1% of the average
aggregate net asset value of the Investment Shares of the The Starburst
Government Money Market Fund held during the month.
Witness the due execution hereof this 29th day of April , 1991.
THE STARBURST FUNDS
By:/s/ J. Christopher Donahue
President
EXHIBIT C
THE STARBURST FUNDS
The Starburst Municipal Income Fund
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at an annual rate of .25 of 1% of the average
aggregate net asset value of the Shares of The Starburst Municipal Income Fund
held during the month.
Witness the execution hereof this 7th day of November, 1991.
THE STARBURST FUNDS
By: /s/ J. Christopher Donahue
President
EXHIBIT D
THE STARBURST FUNDS
The Starburst Government Income Fund
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at an annual rate of .25 of 1% of the average
aggregate net asset value of the Shares of The Starburst Government Income Fund
held during the month.
Witness the execution hereof this 17th day of April, 1992.
THE STARBURST FUNDS
By: /s/ J. Christopher Donahue
President
EXHIBIT E
THE STARBURST FUNDS
The Starburst Equity Fund
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at an annual rate of .25 of 1% of the average
aggregate net asset value of the Shares of The Starburst Equity Fund held during
the month.
Witness the execution hereof this 1st day of December, 1993.
THE STARBURST FUNDS
By: /s/ J. C. Donahue
President
EXHIBIT F
THE STARBURST FUNDS
The Starburst Government Money Market Fund
Investment Shares
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .25 of 1% of the average
aggregate net asset value of the Investment Shares of the The Starburst
Government Money Market Fund held during the month.
Witness the due execution hereof this 1st day of June, 1994.
THE STARBURST FUNDS
By:/s/ J. C. Donahue
President
EXHIBIT G
THE STARBURST FUNDS
The Starburst Money Market Fund
Investment Shares
The Plan is adopted by The Starburst Funds with respect to the class of
Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC will
be paid a monthly fee computed at the annual rate of .25 of 1% of the average
aggregate net asset value of the Investment Shares of the The Starburst Money
Market Fund held during the month.
Witness the due execution hereof this 1st day of June, 1994.
THE STARBURST FUNDS
By:/s/ J. C. Donahue
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
RULE 12b-1 AGREEMENT
This Agreement is made between the Financial Institution executing this
Agreement ("Administrator") and Federated Securities Corp. ("FSC") for the
shares of beneficial interest or capital stock ("Shares") which Shares may be
offered in one or more series (the "Funds") and one or more classes thereof (the
"Class") and which have adopted a Rule 12b-1 Plan ("Plan") in relation to such
Funds and Classes and approved this form of agreement pursuant to Rule 12b-1
under the Investment Company Act of 1940. In consideration of the mutual
covenants hereinafter contained, it is hereby agreed by and between the parties
hereto as follows:
1. FSC hereby appoints Administrator to render or cause to be rendered sales
and administrative support services to the Funds with respect to the Classes
thereof and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating account openings through computer terminals located on
the Administrator's premises ("computer terminals"), through a toll-free
telephone number or otherwise;
(b) communicating account closings via the computer terminals, through a
toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals, through
a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchase and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholder reports;
(i) advertising the availability of its services and products;
(j) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of making such
materials accessible to customers and potential customers; and
(k) responding to customers' and potential customers' questions about the
Funds.
The services listed above are illustrative. The Administrator is not required
to perform each service and may at any time perform either more or fewer
services than described above.
3. During the term of this Agreement, FSC will pay the Administrator fees
for each Fund or Class thereof set forth in a written schedule delivered to the
Administrator pursuant to this Agreement. FSC's fee schedule for Administrator
may be changed by FSC sending a new fee schedule to the Administrator pursuant
to Paragraph 12 of this Agreement. For the payment period in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of the fee on the basis of the number of days that the Rule 12b-1
Agreement is in effect during the period.
4. The Administrator will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code, as
amended. For purposes of that Section, the Administrator understands that any
person who exercises any discretionaly authority or discretionary control with
respect to any individual retirement account or its assets, or who renders
investment advice for a fee, or has any authority or responsibility to do so, or
has any discretionary authority or discretionary responsibility in the
administration of such an account, is a fiduciary.
5. The Administrator understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that would exempt
fiduciaries from this interpretation. Without specific authorization
discretionary assets in any fund pursuant to an arrangement where the fiduciary
is to be compensated by the fund for such investment. Receipt of such
compensation could violate ERISA provisions against fiduciary self-dealing and
conflict of interest and could subject the fiduciary to substantial penalties.
6. The Administrator agrees not to solicit or cause to be solicited
directly, or indirectly, at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the mutual fund or funds, unless a court of competent jurisdiction
shall have determined that the conduct of a majority of the Board of Directors
or Trustees of the mutual fund or funds constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties. This Paragraph 6
will survive the term of this Agreement.
7. With respect to each Fund or Class thereof, this Agreement shall
continue in effect for one year from the date of its execution, and thereafter
for successive periods of one year if the form of this Agreement is approved at
least annually by the Directors or Trustees of the mutual fund, including a
majority of the members of the Board of Directors or Trustees of the mutual fund
who are not interested persons of the mutual fund and have no direct or indirect
financial interest in the operation of the mutual fund's Plan or in any related
documents to the Plan ("Disinterested Directors or Trustees") cast in person at
a meeting for that purpose.
8. Notwithstanding Paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Directors or Trustees of the mutual fund or
by a vote of a majority of the outstanding voting securities of the Fund or
any Class thereof as defined in the Investment Company Act of 1940 on not
more than sixty (60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940 or upon the termination of the
"Distributor's Contract" between the mutual fund or funds and FSC; and
(c) by either party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to
terminate.
9. The termination of this Agreement with respect to any one Fund or
Class thereof will not cause the Agreement's termination with respect to any
other Fund or Class thereof.
10. The Administrator agrees to obtain any taxpayer identification number
certification form its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide FSC or its
designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation of any
required backup withholding.
11. This Agreement supersedes any prior service agreements between the
parties for the mutual funds.
12. This Agreement may be amended by FSC from time to time by the
following procedure. FSC will mail a copy of the amendment to the
Administrator's address, as shown below. If the Administrator does not object
to the amendment within thirty (30) days after its receipt, the amendment will
become part of the Agreement. The Administrator's objection must be in writing
and be received by FSC within such thirty days.
13. This Agreement shall be construed in accordance with the Laws of the
Commonwealth of Pennsylvania.
Administrator
Address
City, State, Zip Code
Dated: By:
Authorized Signature
Title
Print Name of Authorized
Signature
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Richard B. Fisher, President
FEE SCHEDULE FOR RULE 12b-1 AGREEMENT WITH
FEDERATED SECURITIES CORP.
April 29, 1991
FSC will pay the Administrator a periodic fee for the following Classes of the
Funds set forth below thereof computed at an annual rate of the average net
asset value of Shares held in each of these Funds during the period in accounts
for which the Administrator provides services under Rule 12b-1 Agreement, so
long as the average net asset value of the Shares in a Class of the Fund during
the period is at least $100,000.
Funds Fee Rate Period
The Starburst Government Money Market Fund -
Investment Shares .35 of 1% Monthly
The Starburst Money Market Fund
Investment Shares .35 of 1% Monthly
Amendment No. 1
to
FEE SCHEDULE FOR RULE 12b-1 AGREEMENT WITH
FEDERATED SECURITIES CORP.
, 1991
-----------
FSC will pay the Administrator a periodic fee for the following Classes of the
Funds set forth below thereof computed at an annual rate of the average net
asset value of Shares held in each of these Funds during the period in accounts
for which the Administrator provides services under Rule 12b-1 Agreement, so
long as the average net asset value of the Shares in a Class of the Fund during
the period is at least $100,000.
Funds Fee Rate Period
The Starburst Government Money Market Fund -
Investment Shares .35 of 1% Monthly
The Starburst Money Market Fund
Investment Shares .35 of 1% Monthly
The Starburst Municipal Bond Fund .25 of 1% Monthly
Amendment No. 2
to
FEE SCHEDULE FOR RULE 12b-1 AGREEMENT WITH
FEDERATED SECURITIES CORP.
, 1992
-----------
FSC will pay the Administrator a periodic fee for the following Classes of the
Funds set forth below thereof computed at an annual rate of the average net
asset value of Shares held in each of these Funds during the period in accounts
for which the Administrator provides services under Rule 12b-1 Agreement, so
long as the average net asset value of the Shares in a Class of the Fund during
the period is at least $100,000.
Funds Fee Rate Period
The Starburst Government Money Market Fund -
Investment Shares .35 of 1% Monthly
The Starburst Money Market Fund
Investment Shares .35 of 1% Monthly
The Starburst Municipal Income Fund .25 of 1% Monthly
Exhibit 16(i) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FUND NAME: Starburst Municipal Income Fund
COMPUTATION OF SEC YIELD
AS OF: April 30, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $52,182
NET EXPENSES FOR THE PERIOD $6,811.59
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 1,043,630
MAXIMUM OFFERING PRICE PER SHARES AS OF 04-30-92 $9.92
UNDISTRIBUTED NET INCOME $0.00000
YIELD = 2[( $52,181.59 - 6,811.59)+1)^6-1] =
5.32%
1043630.44 * ($9.92 - 0)
SEC YIELD BEFORE 12-B-1 FEES 5.32%
12-B-1 FEES (IN BASIS POINTS) 0.15%
SEC YIELD ADJUSTED FOR 12-B-1 FEES 5.17%
Exhibit 16(ii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FUND NAME: Starburst Government Income Fund
COMPUTATION OF SEC YIELD
AS OF: July 31, 1992
DIVIDEND AND/OR INTEREST INCOME
FOR THE 30 DAYS ENDED $216,711
NET EXPENSES FOR THE PERIOD $20,565.32
AVG DAILY SHARES OUTSTANDING AND
ENTITLED TO RECEIVE DIVIDENDS 3,605,906
MAXIMUM OFFERING PRICE PER SHARES AS OF 07-31-92 $10.34
UNDISTRIBUTED NET INCOME $0.00000
YIELD = 2[( $216,710.62 - 20,565.32)+1)^6-1] =
6.40%
3,605,905.68 * ($10.34 - 0)
SEC YIELD BEFORE 12-B-1 FEES 6.40%
12-B-1 FEES (IN BASIS POINTS) 0.15%
SEC YIELD ADJUSTED FOR 12-B-1 FEES 6.25%
Exhibit 16(iii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
THE STARBURST GOVERNMENT MONEY MARKET FUND
SCHEDULE FOR COMPUTATION OF YIELD CALCULATION
This example illustrates the yield quotation for the seven-day period ended
April 30, 1990:
Value of a hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of same account (excluding capital changes) at end
of seven-day base period* $1.001430685
Net change in account value .001430685
Base Period Return:
Net Change in account value dividend by the beginning
account value ($.001430685 - $1.000000000) .001430685
Annualized Current Net Yield $.001430685 X (365/7)! 7.46
Effective Yield** (.001430685 + 1) - 1 7.74
* This value includes the value of additional shares purchased with dividends
from the original share, and dividends declared on both the original share and
any such additional shares.
** This value may change to include shares purchased with dividends reinvested
on a less frequest basis.
Exhibit 16(iv) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
THE STARBURST MONEY MARKET FUND
SCHEDULE FOR COMPUTATION OF YIELD CALCULATION
This example illustrates the yield quotation for the seven-day period ended
April 30, 1990:
Value of a hypothetical pre-existing account with exactly
one share at the beginning of the base period $1.000000000
Value of same account (excluding capital changes) at end
of seven-day base period* $1.001478630
Net change in account value .001478630
Base Period Return:
Net Change in account value dividend by the beginning
account value ($.001478630 - $1.000000000) .001478630
Annualized Current Net Yield $.001478630 X (365/7)! 7.71
Effective Yield** (.001478630 + 1) - 1 8.01
* This value includes the value of additional shares purchased with dividends
from the original share, and dividends declared on both the original share and
any such additional shares.
** This value may change to include shares purchased with dividends reinvested
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of THE STARBURST FUNDS and the Deputy
General Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection thterewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection thereiwth,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Trustee December 1, 1995
John F. Donahue
/s/ J. Christopher Donahue President December 1, 1995
J. Christopher Donahue
/s/ Edward C. Gonzales Executive Vice President, December 1, 1995
Edward C. Gonzales Treasurer & Trustee
(Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Trustee December 1, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Trustee December 1, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Trustee December 1, 1995
William J. Copeland
/s/ James E. Dowd Trustee December 1, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D.Trustee December 1, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr.Trustee December 1, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee December 1, 1995
Peter E. Madden
/s/ Gregor F. Meyer Trustee December 1, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Trustee December 1, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee December 1, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee December 1, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 1st day of December, 1995.
/s/ Marie M. Hamm
<TABLE> <S> <C>
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<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> THE STARBURST FUNDS
THE STARBURST GOVERNMENT INCOME FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 62,725,769
<INVESTMENTS-AT-VALUE> 62,710,796
<RECEIVABLES> 982,694
<ASSETS-OTHER> 8,215
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,701,705
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 180,888
<TOTAL-LIABILITIES> 180,888
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,906,972
<SHARES-COMMON-STOCK> 6,401,551
<SHARES-COMMON-PRIOR> 6,164,088
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,371,182)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14,973)
<NET-ASSETS> 63,520,817
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,368,686
<OTHER-INCOME> 0
<EXPENSES-NET> 603,264
<NET-INVESTMENT-INCOME> 3,765,422
<REALIZED-GAINS-CURRENT> (558,610)
<APPREC-INCREASE-CURRENT> 2,950,347
<NET-CHANGE-FROM-OPS> 6,157,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,765,422
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,893,494
<NUMBER-OF-SHARES-REDEEMED> 1,914,646
<SHARES-REINVESTED> 258,615
<NET-CHANGE-IN-ASSETS> 4,693,402
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,812,572)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 434,754
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 874,801
<AVERAGE-NET-ASSETS> 58,376,337
<PER-SHARE-NAV-BEGIN> 9.540
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> 0.380
<PER-SHARE-DIVIDEND> 0.630
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.920
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> THE STARBURST FUNDS
THE STARBURST GOVERNMENT MMKT FUND
INVESTMENT SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 126,399,432
<INVESTMENTS-AT-VALUE> 126,399,432
<RECEIVABLES> 533,965
<ASSETS-OTHER> 945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126,934,342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576,876
<TOTAL-LIABILITIES> 576,876
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126,357,466
<SHARES-COMMON-STOCK> 5,283,603
<SHARES-COMMON-PRIOR> 5,759,256
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,283,603
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,639,506
<OTHER-INCOME> 0
<EXPENSES-NET> 1,030,566
<NET-INVESTMENT-INCOME> 7,608,940
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,608,940
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 306,002
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76,759,064
<NUMBER-OF-SHARES-REDEEMED> 77,494,230
<SHARES-REINVESTED> 259,513
<NET-CHANGE-IN-ASSETS> (29,908,086)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 591,636
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,036,688
<AVERAGE-NET-ASSETS> 6,121,988
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> THE STARBURST FUNDS
THE STARBURST GOVERNMENT MMKT FUND
TRUST SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 126,399,432
<INVESTMENTS-AT-VALUE> 126,399,432
<RECEIVABLES> 533,965
<ASSETS-OTHER> 945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126,934,342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576,876
<TOTAL-LIABILITIES> 576,876
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126,357,466
<SHARES-COMMON-STOCK> 121,073,863
<SHARES-COMMON-PRIOR> 150,506,296
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 121,073,863
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,639,506
<OTHER-INCOME> 0
<EXPENSES-NET> 1,030,566
<NET-INVESTMENT-INCOME> 7,608,940
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,608,940
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,302,938
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 218,014,505
<NUMBER-OF-SHARES-REDEEMED> 247,446,938
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (29,908,086)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 591,636
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,036,688
<AVERAGE-NET-ASSETS> 141,787,142
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> THE STARBURST FUNDS
THE STARBURST MUNICIPAL INCOME FUND
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 18,677,844
<INVESTMENTS-AT-VALUE> 19,236,767
<RECEIVABLES> 311,116
<ASSETS-OTHER> 1,802
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,549,685
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,992
<TOTAL-LIABILITIES> 63,992
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,258,353
<SHARES-COMMON-STOCK> 1,827,345
<SHARES-COMMON-PRIOR> 2,777,919
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (331,583)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 558,923
<NET-ASSETS> 19,485,693
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,128,995
<OTHER-INCOME> 0
<EXPENSES-NET> 202,198
<NET-INVESTMENT-INCOME> 926,797
<REALIZED-GAINS-CURRENT> (330,889)
<APPREC-INCREASE-CURRENT> 1,564,438
<NET-CHANGE-FROM-OPS> 2,160,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 926,797
<DISTRIBUTIONS-OF-GAINS> 10,622
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76,118
<NUMBER-OF-SHARES-REDEEMED> 1,089,169
<SHARES-REINVESTED> 62,477
<NET-CHANGE-IN-ASSETS> (8,424,913)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 9,928
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165,541
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 439,171
<AVERAGE-NET-ASSETS> 22,177,974
<PER-SHARE-NAV-BEGIN> 10.050
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> 0.610
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.660
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> THE STARBURST FUNDS
THE STARBURST MONEY MARKET FUND
INVESTMENT SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 196,337,764
<INVESTMENTS-AT-VALUE> 196,337,764
<RECEIVABLES> 805,162
<ASSETS-OTHER> 222
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 197,143,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794,737
<TOTAL-LIABILITIES> 794,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,348,411
<SHARES-COMMON-STOCK> 54,913,875
<SHARES-COMMON-PRIOR> 39,722,540
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 54,913,875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,576,511
<OTHER-INCOME> 0
<EXPENSES-NET> 1,161,386
<NET-INVESTMENT-INCOME> 10,415,125
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,415,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,241,454
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 380,890,049
<NUMBER-OF-SHARES-REDEEMED> 367,827,708
<SHARES-REINVESTED> 2,128,994
<NET-CHANGE-IN-ASSETS> (1,740,951)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 779,414
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,392,785
<AVERAGE-NET-ASSETS> 42,922,416
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> THE STARBURST FUNDS
THE STARBURST MONEY MARKET FUND
TRUST SHARES
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Oct-31-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 196,337,764
<INVESTMENTS-AT-VALUE> 196,337,764
<RECEIVABLES> 805,162
<ASSETS-OTHER> 222
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 197,143,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794,737
<TOTAL-LIABILITIES> 794,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,348,411
<SHARES-COMMON-STOCK> 141,434,536
<SHARES-COMMON-PRIOR> 158,366,822
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 141,434,536
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,576,511
<OTHER-INCOME> 0
<EXPENSES-NET> 1,161,386
<NET-INVESTMENT-INCOME> 10,415,125
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,415,125
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,173,671
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 334,084,839
<NUMBER-OF-SHARES-REDEEMED> 351,017,125
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,740,951)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 779,414
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,392,785
<AVERAGE-NET-ASSETS> 151,930,999
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
