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
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS--TRUST SHARES 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Investment Limitations 5
FUND INFORMATION 5
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Management of the Fund 5
Distribution of Trust Shares 6
Administration of the Fund 6
NET ASSET VALUE 7
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INVESTING IN TRUST SHARES 7
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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
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REDEEMING TRUST SHARES 10
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Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
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Voting Rights 12
EFFECT OF BANKING LAWS 12
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TAX INFORMATION 13
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Federal Income Tax 13
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 14
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FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 15
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FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 23
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ADDRESSES 24
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SUMMARY OF FUND EXPENSES
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<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
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(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
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.05 0.03 0.03 0.04 0.06 0.05
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LESS DISTRIBUTIONS
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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%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.69% 0.68% 0.67% 0.65% 0.64% 0.62%(a)
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Net investment income 5.15% 3.09% 2.63% 3.64% 5.76% 7.61%(a)
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Expense waiver (c) 0.00% 0.00% 0.00% 0.01% 0.05% 0.10%(a)
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SUPPLEMENTAL DATA
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Net assets, end of period
(000 omitted) $121,074 $150,507 $175,601 $221,785 $174,158 $82,346
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</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
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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
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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
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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
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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
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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
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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
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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)
1010703A-I (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
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 TRUST SHARES 23
CONVERSION TO FEDERAL FUNDS 23
DETERMINING NET ASSET VALUE 24
USE OF THE AMORTIZED COST METHOD24
REDEEMING TRUST SHARES 26
REDEMPTION IN KIND 26
MASSACHUSETTS PARTNERSHIP LAW 27
TAX STATUS 27
THE FUND'S TAX STATUS 27
SHAREHOLDERS' TAX STATUS 28
TOTAL RETURN 28
YIELD 29
EFFECTIVE YIELD 30
PERFORMANCE COMPARISONS 30
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.
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
Cusip 855245403
1010703B-I (12/95)
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 23
CONVERSION TO FEDERAL FUNDS 25
DETERMINING NET ASSET VALUE 25
USE OF THE AMORTIZED COST METHOD25
REDEEMING INVESTMENT SHARES 27
REDEMPTION IN KIND 27
MASSACHUSETTS PARTNERSHIP LAW 28
TAX STATUS 29
THE FUND'S TAX STATUS 29
SHAREHOLDERS' TAX STATUS 29
TOTAL RETURN 29
YIELD 30
EFFECTIVE YIELD 31
PERFORMANCE COMPARISONS 31
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
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
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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
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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
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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
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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
GENERAL INFORMATION ABOUT THE FUND3
INVESTMENT OBJECTIVE AND POLICIES3
TYPES OF INVESTMENTS 3
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 5
REPURCHASE AGREEMENTS 5
REVERSE REPURCHASE AGREEMENTS 6
CREDIT ENHANCEMENT 7
RESTRICTED AND ILLIQUID SECURITIES
7
LENDING OF PORTFOLIO SECURITIES 8
INVESTMENT LIMITATIONS 8
REGULATORY COMPLIANCE 12
THE STARBURST FUNDS MANAGEMENT 13
FUND OWNERSHIP 21
TRUSTEES COMPENSATION 22
TRUSTEE LIABILITY 23
INVESTMENT ADVISORY SERVICES 24
ADVISER TO THE FUND 24
ADVISORY FEES 24
BROKERAGE TRANSACTIONS 25
OTHER SERVICES 27
FUND ADMINISTRATION 27
CUSTODIAN 27
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 27
INDEPENDENT AUDITORS 27
PURCHASING TRUST SHARES 27
CONVERSION TO FEDERAL FUNDS 28
DETERMINING NET ASSET VALUE 28
USE OF THE AMORTIZED COST METHOD28
REDEEMING TRUST SHARES 30
REDEMPTION IN KIND 31
MASSACHUSETTS PARTNERSHIP LAW 31
TAX STATUS 32
THE FUND'S TAX STATUS 32
SHAREHOLDERS' TAX STATUS 32
TOTAL RETURN 33
YIELD 33
EFFECTIVE YIELD 34
PERFORMANCE COMPARISONS 35
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.
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.
Cusip 855245601
1010704B-I (12/95)
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
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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
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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
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<TABLE>
<S> <C> <C>
The Starburst Money Market Fund
Investment Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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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
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Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
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</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
GENERAL INFORMATION ABOUT THE FUND4
INVESTMENT OBJECTIVE AND POLICIES4
TYPES OF INVESTMENTS 4
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 6
REPURCHASE AGREEMENTS 6
REVERSE REPURCHASE AGREEMENTS 7
CREDIT ENHANCEMENT 8
RESTRICTED AND ILLIQUID SECURITIES
8
LENDING OF PORTFOLIO SECURITIES 9
INVESTMENT LIMITATIONS 9
REGULATORY COMPLIANCE 13
THE STARBURST FUNDS MANAGEMENT 14
FUND OWNERSHIP 22
TRUSTEES COMPENSATION 23
TRUSTEE LIABILITY 24
INVESTMENT ADVISORY SERVICES 25
ADVISER TO THE FUND 25
ADVISORY FEES 25
BROKERAGE TRANSACTIONS 26
OTHER SERVICES 28
FUND ADMINISTRATION 28
CUSTODIAN 28
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 28
INDEPENDENT AUDITORS 28
PURCHASING INVESTMENT SHARES 28
DISTRIBUTION PLAN 29
CONVERSION TO FEDERAL FUNDS 30
DETERMINING NET ASSET VALUE 30
USE OF THE AMORTIZED COST METHOD30
REDEEMING INVESTMENT SHARES 32
REDEMPTION IN KIND 33
MASSACHUSETTS PARTNERSHIP LAW 33
TAX STATUS 34
THE FUND'S TAX STATUS 34
SHAREHOLDERS' TAX STATUS 34
TOTAL RETURN 35
YIELD 35
EFFECTIVE YIELD 36
PERFORMANCE COMPARISONS 36
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
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
A SUBSIDIARY OF FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND3
INVESTMENT OBJECTIVE AND POLICIES3
ACCEPTABLE INVESTMENTS 3
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 5
PURCHASING PUT OPTIONS ON PORTFOLIO
SECURITIES 6
TEMPORARY INVESTMENTS 6
MUNICIPAL BOND INSURERS 8
PORTFOLIO TURNOVER 9
INVESTMENT LIMITATIONS 9
THE STARBURST FUNDS MANAGEMENT 14
FUND OWNERSHIP 23
TRUSTEES COMPENSATION 23
TRUSTEE LIABILITY 25
INVESTMENT ADVISORY SERVICES 25
ADVISER TO THE FUND 25
ADVISORY FEES 25
BROKERAGE TRANSACTIONS 26
OTHER SERVICES 28
FUND ADMINISTRATION 28
CUSTODIAN 28
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 28
INDEPENDENT AUDITORS 29
PURCHASING SHARES 29
DISTRIBUTION PLAN 29
CONVERSION TO FEDERAL FUNDS 30
DETERMINING NET ASSET VALUE 30
DETERMINING MARKET VALUE OF
SECURITIES 30
EXCHANGE PRIVILEGE 31
REDEEMING SHARES 32
REDEMPTION IN KIND 32
MASSACHUSETTS PARTNERSHIP LAW 32
TAX STATUS 33
THE FUND'S TAX STATUS 33
SHAREHOLDERS' TAX STATUS 33
TOTAL RETURN 34
YIELD 34
TAX-EQUIVALENT YIELD 35
TAX-EQUIVALENCY TABLE 35
PERFORMANCE COMPARISONS 37
APPENDIX 39
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.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED OCTOBER 31, 1995
Cusip 855245700
1102807B (12/95)
MANAGEMENT DISCUSSION AND ANALYSIS
---------------------------------------------------------------------------
The investment objective of The Starburst Municipal Income Fund is to
provide current income which is exempt from federal regular income tax.*
The fund pursues this investment objective by investing in a professionally
managed, diversified portfolio of municipal securities. Currently, the fund
invests at least 80% of its net assets in a portfolio of municipal
securities whose average weighted maturity is 15 years or less.
Historically, the fund also has attempted to diversify its portfolio
geographically.
Yields on tax-free municipal bonds fell sharply during the year ended
October 31, 1995. Much slower economic growth caused by excessive inventory
accumulation forced the Federal Reserve Board (the "Fed") to begin lowering
short-term interest rates on July 6, 1995. The Fed lowered rates to prevent
the inventory correction from evolving into a recession. Weak economic
growth, decreased inflation, easier monetary policy, and market perception
of a sincere effort by Congress to slash the federal budget deficit all
combined to push interest rates lower. However, yields on tax-free bonds
remained higher than they otherwise would have been because most of the
proposed deficit cut legislation included cuts in the top income tax rates.
For the year ended October 31, 1995, the yield on generic two-year tax-free
general obligation bonds rated AA by Standard & Poor's Ratings Group fell
67 basis points while the yield on comparable ten-year bonds fell 95 basis
points.
Fund average maturity and duration were extended slightly during the
year to take advantage of falling interest rates. However, the extension
was restrained because it did not seem prudent to take an aggressive
position given the threat of significantly lower income tax rates. Fund
assets were shifted out of low coupon, long-term bonds into higher coupon,
short-term bonds to protect the fund in the event Congress substantially
reduces the top income tax rates.
* Income may be subject to federal alternative minimum tax and state and local
taxes also may apply.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE STARBURST MUNICIPAL INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in The
Starburst Municipal Income Fund (the "Fund") from November 20, 1991 (start of
performance) to October 31, 1995 compared to the Lehman Brothers 5-Year State
General Obligations Bond Index (LB5GO)+.
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX "B"
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED OCTOBER 31, 1995
1 Year........................................7.86%
Start of Performance (11/20/91) 5.95%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1995, and, together with financial statements contained therein,
constitutes the Fund's annual report.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 2.50% ($10,000 investment minus $250 sales charge
= $9,750). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LB5GO has been adjusted to reflect reinvestment of
dividends on securities in the index.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The LB5GO is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
[LOGO] FEDERATED SECURITIES CORP.
-------------------------------------------------------------------------
Distributor
Cusip 855245700
007416 (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)
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
A SUBSIDIARY OF FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE FUND1
INVESTMENT OBJECTIVE AND POLICIES1
TYPES OF INVESTMENTS 1
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
FUTURES AND OPTIONS TRANSACTIONS2
LENDING OF PORTFOLIO SECURITIES 8
RESTRICTED SECURITIES 9
REPURCHASE AGREEMENTS 10
REVERSE REPURCHASE AGREEMENTS 10
PORTFOLIO TURNOVER 10
INVESTMENT LIMITATIONS 11
THE STARBURST FUNDS MANAGEMENT 15
FUND OWNERSHIP 23
TRUSTEES COMPENSATION 24
TRUSTEE LIABILITY 25
INVESTMENT ADVISORY SERVICES 25
ADVISER TO THE FUND 25
ADVISORY FEES 26
BROKERAGE TRANSACTIONS 27
OTHER SERVICES 28
FUND ADMINISTRATION 28
CUSTODIAN 29
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 29
INDEPENDENT AUDITORS 29
PURCHASING SHARES 29
DISTRIBUTION PLAN 29
CONVERSION TO FEDERAL FUNDS 31
DETERMINING NET ASSET VALUE 31
DETERMINING MARKET VALUE OF
SECURITIES 31
EXCHANGE PRIVILEGE 32
REDEEMING SHARES 32
REDEMPTION IN KIND 32
MASSACHUSETTS PARTNERSHIP LAW 33
TAX STATUS 33
THE FUND'S TAX STATUS 33
SHAREHOLDERS' TAX STATUS 34
TOTAL RETURN 34
YIELD 35
PERFORMANCE COMPARISONS 35
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)
THE STARBURST GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------
- ---
ANNUAL REPORT FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
MANAGEMENT DISCUSSION AND ANALYSIS
------------------------------------------------------------------------
- ---
The investment objective of The Starburst Government Income Fund is
to
provide current income. The fund pursues this investment objective by
investing in a professionally managed, diversified portfolio limited
primarily to securities issued or guaranteed by the U.S. government or
its
instrumentalities, including obligations of U.S. government agencies and
instrumentalities and, subject to certain limitations, privately issued
mortgage-backed securities.
Yields on U.S. Treasury securities fell sharply during the year
ended
October 31, 1995. Much slower economic growth caused by excessive
inventory
accumulation forced the Federal Reserve Board (the "Fed") to begin
lowering
short-term interest rates on July 6, 1995. The Fed lowered rates to
prevent
the inventory correction from evolving into a recession. Weak economic
growth, decreased inflation, easier monetary policy, and market
perception
of a sincere effort by Congress to slash the federal budget deficit all
combined to push interest rates lower. For the year ended October 31,
1995,
the yield on the two-year Treasury Note fell 122 basis points while the
yield on the ten-year Treasury Note fell 179 basis points. The Treasury
yield curve between two and thirty years flattened 42 basis points.
Fund average maturity and duration were extended significantly
during
the year to take advantage of falling interest rates. However, the
fund's
duration remained slightly short of neutral even after the extensions
because much of the economic data reported throughout the year indicated
growth would remain too strong to allow interest rates to continue to
decline. Some fund assets were shifted out of non-callable Treasury
Notes
into mortgage-backed securities to take advantage of improved yield
spreads
available on the mortgage-backed securities.
THE STARBURST GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------
- ---
GROWTH OF $10,000 INVESTED IN THE STARBURST GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in
The
Starburst Government Income Fund (the "Fund") from April 20, 1992 (start of
performance) to October 31, 1995 compared to the Lehman Brothers Intermediate
Government/Corporate Bond Index (LBIGB)+.
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX "A"
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED OCTOBER 31, 1995
1 Year......................................8.21%
Start of Performance (4/20/92) 5.46%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
This report must be preceded or accompanied by the Fund's prospectus dated
December 31, 1995, and, together with financial statements contained therein,
constitutes the Fund's annual report.
*Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 2.50% ($10,000 investment minus $250 sales
charge
= $9,750). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBIGB has been adjusted to reflect reinvestment of
dividends on securities in the index.
**Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+The LBIGB is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
[LOGO] FEDERATED SECURITIES CORP.
----------------------------------------------------------------------
- ---
Distributor
Cusip 855245809
007415 (12/95)
THE STARBURST FUNDS APPENDIX
A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Starburst Government Income Fund is represented by a bold solid line. The
Lehman Brothers Intermediate Government/Corporate Bond Index is represented
by a bold dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in The
Starburst Government Income Fund and the Lehman Brothers Intermediate
Government/Corporate Bond Index. The "x" axis reflects computation periods
from April 20, 1992 (start of performance) to October 31, 1995. The "y" axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in The Starburst Government Income Fund
as compared to the Lehman Brothers Intermediate Government/Corporate Bond
Index. The ending values were $12,070, and $12,722, respectively.
B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Starburst Municipal Income Fund is represented by a bold solid line. The
Lehman Brothers 5-Year State General Obligations Bond Index is represented by
a bold dotted line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in The Starburst
Municipal Income Fund and the Lehman Brothers 5-Year State General
Obligations Bond Index. The "x" axis reflects computation periods from
November 20, 1991 (start of performance) to October 31, 1995. The "y" axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in The Starburst Municipal Income Fund
as compared to the Lehman Brothers 5-Year State General Obligations Bond
Index. The ending values were $12,558 and $12,943, respectively.
