PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for The
Starburst Government Income Fund. This report covers activity in the fund over
the six-month period from November 1, 1995, through April 30, 1996.
It begins with an investment review in which the investment adviser provides a
brief commentary on various economic and market conditions that influenced the
fund's strategies during the six-month period ended April 30, 1996. Following
the investment review is a complete list of the fund's holdings and the fund's
financial statements.
The fund is managed to help your money earn income by investing primarily in a
portfolio of U.S. government securities and government agency/instrumentality
securities and repurchase agreements backed by U.S. government and agency
securities.
Over the six-month period ended April 30, 1996, the fund paid income dividends
of $0.299 per share. The fund's performance, like that of many bonds and bond
funds, was impacted by rising interest rates during the first quarter of 1996,
which caused bond prices to fall. Total net assets stood at $54.2 million on the
last day of the period.
Thank you for pursuing your financial goals through The Starburst Government
Income Fund. We'll continue to keep you up to date on your investment as we
strive to provide your account with the highest level of personal service.
Sincerely,
(LOGO)
J. Christopher Donahue
President
June 15, 1996
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
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 portfolio limited primarily to securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, and,
subject to certain limitations, privately issued mortgage-backed securities.
During the six-month period ended April 30, 1996, the yield on the two-year
Treasury Note increased 43 basis points while the yield on the 30-year Treasury
Bond increased 57 basis points. Thus, the yield curve steepened 14 basis points.
The Federal Reserve Board lowered the Federal Funds rate target to 5.25% from
5.75% in order to increase money supply and strengthen a weak economy. Despite
the cut in the Federal Funds rate, Treasury Note and Treasury Bond yields
increased. However, the cut did allow short-term notes to outperform long-term
bonds and force the yield curve to steepen. A stunning increase in February
employment, higher commodity prices, and the inability of Congress to make any
progress on deficit reduction legislation all combined to overwhelm the bullish
impact of the Federal Funds rate cut.
Because of very conflicting economic data, Fund duration remained positioned at
approximately 3.25 years throughout the period. Exposure to mortgage-backed
securities was increased sharply in early January as prepayment fear widened
yield spreads to attractive levels versus U.S. Treasury obligations. Exposure to
agency securities was decreased as agency yield spreads tightened to
unattractive levels versus U.S. Treasury obligations.
THE STARBURST GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- -------------
LONG-TERM OBLIGATIONS--97.5%
- -------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--11.5%
----------------------------------------------------------------------------------
$ 2,334,198 5.80%, REMIC 7/15/2000 $ 2,324,441
----------------------------------------------------------------------------------
4,025,841 6.50%, Pass-Through 1/1/2011 3,903,737
---------------------------------------------------------------------------------- -------------
Total 6,228,178
---------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--19.4%
----------------------------------------------------------------------------------
7,000,000 8.70%, 6/10/1999 7,452,620
----------------------------------------------------------------------------------
3,106,841 7.00%, Pass-Through 3/1/2009 3,078,662
---------------------------------------------------------------------------------- -------------
Total 10,531,282
---------------------------------------------------------------------------------- -------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-REMIC--14.9%
----------------------------------------------------------------------------------
3,000,000 7.15%, 11/25/2005 3,001,560
----------------------------------------------------------------------------------
2,548,610 9.10%, 7/25/2018 2,587,833
----------------------------------------------------------------------------------
1,740,824 7.00%, 8/25/2018 1,739,536
----------------------------------------------------------------------------------
770,742 9.40%, 8/25/2018 773,363
---------------------------------------------------------------------------------- -------------
Total 8,102,292
---------------------------------------------------------------------------------- -------------
MERRILL LYNCH CMO TRUST--1.6%
----------------------------------------------------------------------------------
864,417 9.50%, 11/20/2000 872,361
---------------------------------------------------------------------------------- -------------
U.S. TREASURY NOTES--50.1%
----------------------------------------------------------------------------------
12,000,000 6.25%, 8/31/2000 11,940,840
----------------------------------------------------------------------------------
14,500,000 7.50%, 11/15/2001 15,184,980
---------------------------------------------------------------------------------- -------------
Total 27,125,820
---------------------------------------------------------------------------------- -------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $54,815,114) 52,859,933
---------------------------------------------------------------------------------- -------------
</TABLE>
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- -------------
(A) REPURCHASE AGREEMENT--1.2%
- -------------------------------------------------------------------------------------------------
$ 632,000 Sanwa Securities (USA) Co., L.P., 5.30%, dated 4/30/1996, due
5/1/1996 (at amortized cost) $ 632,000
---------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $55,447,114)(B) $ 53,491,933
---------------------------------------------------------------------------------- -------------
</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) The cost of investments for federal tax purposes amounts to $55,447,114. The
net unrealized depreciation of investments on a federal tax basis amounts to
$1,955,181 which is comprised of $9,938 appreciation and $1,965,119
depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($54,196,231) at April 30, 1996.
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
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $55,447,114) $ 53,491,933
- ---------------------------------------------------------------------------------------------------
Cash 793
- ---------------------------------------------------------------------------------------------------
Income receivable 978,349
- ---------------------------------------------------------------------------------------------------
Deferred expenses 5,070
- --------------------------------------------------------------------------------------------------- -------------
Total assets 54,476,145
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Income distribution payable $ 262,294
- ---------------------------------------------------------------------------------------
Accrued expenses 17,620
- --------------------------------------------------------------------------------------- ----------
Total liabilities 279,914
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 5,606,052 shares outstanding $ 54,196,231
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 59,069,149
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,955,181)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,917,737)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 54,196,231
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
($54,196,231 / 5,606,052 shares outstanding) $9.67
- --------------------------------------------------------------------------------------------------- -------------
OFFERING PRICE PER SHARE (100/97.50 of $9.67)* $9.92
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
* See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest $ 2,130,912
- --------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $ 225,916
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 42,698
- -------------------------------------------------------------------------------------
Custodian fees 11,665
- -------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 51,677
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,979
- -------------------------------------------------------------------------------------
Auditing fees 8,703
- -------------------------------------------------------------------------------------
Legal fees 2,290
- -------------------------------------------------------------------------------------
Portfolio accounting fees 21,021
- -------------------------------------------------------------------------------------
Distribution services fee 75,305
- -------------------------------------------------------------------------------------
Share registration costs 6,868
- -------------------------------------------------------------------------------------
Printing and postage 5,468
- -------------------------------------------------------------------------------------
Insurance premiums 2,704
- -------------------------------------------------------------------------------------
Miscellaneous 2,925
- ------------------------------------------------------------------------------------- -----------
Total expenses 459,219
- -------------------------------------------------------------------------------------
Waivers--
- -------------------------------------------------------------------------------------
Waiver of investment advisory fee $ (75,305)
- --------------------------------------------------------------------------
Waiver of distribution services fee (75,305)
- -------------------------------------------------------------------------- ---------
Total waivers (150,610)
- ------------------------------------------------------------------------------------- -----------
Net expenses 308,609
- -------------------------------------------------------------------------------------------------- -------------
Net investment income 1,822,303
- -------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 453,445
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (1,940,208)
- -------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized loss on investments (1,486,763)
- -------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 335,540
- -------------------------------------------------------------------------------------------------- -------------
</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>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 1,822,303 $ 3,765,422
- --------------------------------------------------------------------
Net realized gain (loss) on investments ($453,445 and ($558,610),
respectively, as computed for federal tax purposes) 453,445 (558,610)
- --------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (1,940,208) 2,950,347
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from operations 335,540 6,157,159
- -------------------------------------------------------------------- ---------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income (1,822,303) (3,765,422)
- -------------------------------------------------------------------- ---------------------- --------------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 1,047,705 2,369,982
- --------------------------------------------------------------------
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 852,641 2,523,463
- --------------------------------------------------------------------
Cost of shares redeemed (9,738,169) (18,485,866)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from share transactions (7,837,823) 2,301,665
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets (9,324,586) 4,693,402
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 63,520,817 58,827,415
- -------------------------------------------------------------------- ---------------------- --------------------
End of period $ 54,196,231 $ 63,520,817
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.92 $ 9.54 $ 10.40 $ 10.25 $ 10.00
- --------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------
Net investment income 0.30 0.63 0.54 0.63 0.36
- --------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.25) 0.38 (0.86) 0.21 0.25
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
Total from investment operations 0.05 1.01 (0.32) 0.84 0.61
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------
Distributions from net investment income (0.30) (0.63) (0.54) (0.63) (0.36)
- --------------------------------------------------------
Distributions from net realized gain on investments -- -- -- (0.06) --
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
Total distributions (0.30) (0.63) (0.54) (0.69) (0.36)
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.67 $ 9.92 $ 9.54 $ 10.40 $ 10.25
- -------------------------------------------------------- ------------- --------- --------- --------- -----------
TOTAL RETURN (B) 0.46% 10.94% (3.12%) 8.42% 6.24%
- --------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------
Expenses 1.02%* 1.04% 1.20% 1.11% 0.79%*
- --------------------------------------------------------
Net investment income 6.05%* 6.51% 5.44% 6.11% 6.79%*
- --------------------------------------------------------
Expense waiver/reimbursement (c) 0.50%* 0.47% 0.30% 0.29% 0.60%*
- --------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------
Net assets, end of period (000 omitted) $54,196 $63,521 $58,827 $97,246 $65,984
- --------------------------------------------------------
Portfolio turnover 62 % 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 charge 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 INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(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 portfolios. The financial statements included herein
are only those of The Starburst Government Income Fund (the "Fund"), a
diversified portfolio. The investment objective of the Fund is to provide
current income. 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 Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities, listed corporate bonds,
other fixed income and asset-backed securities, and unlisted securities and
private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, 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.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral 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 STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
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
as 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 will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2001 $ 391,292
2002 $ 2,421,386
2003 $ 558,610
</TABLE>
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 over a period of five years from
the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------- --------------------
Shares sold 105,462 273,302
- --------------------------------------------------------------------
Shares issued in connection with acquisition of the Starburst
Quality Income Fund 85,727 1,620,192
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared -- 258,615
- --------------------------------------------------------------------
Shares redeemed (986,688) (1,914,646)
- -------------------------------------------------------------------- ---------- --------------------
Net change resulting from share transactions (795,499) 237,463
- -------------------------------------------------------------------- ---------- --------------------
</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 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this 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 fee paid to
FAS is based on the level of average aggregate net assets of the Trust for
the period.
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., the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets
of the Fund, annually, to compensate Federated Securities Corp. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company, serves as transfer
THE STARBURST GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
and dividend disbursing agent for the Fund. The fee paid to FServ 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. The fee is based on
the level of the Fund's average daily net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $22,617 were borne
initially by Federated Administrative Services.
The Fund has agreed to reimburse Federated Administrative Services for the
organizational expenses during the five-year period following the effective
date. For the six months ended
April 30, 1996, the Fund paid $2,949 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 six
months ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 36,600,222
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 44,563,323
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
Thomas G. Bigley President
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland Executive Vice President and Treasurer
James E. Dowd John W. McGonigle
Lawrence D. Ellis, M.D. Executive Vice President and Secretary
Edward L. Flaherty, Jr. Richard B. Fisher
Edward C. Gonzales Vice President
Peter E. Madden Jeffrey W. Sterling
Gregor F. Meyer Vice President and Assistant Treasurer
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts C. Grant Anderson
Assistant Secretary
SHARES OF THE STARBURST GOVERNMENT INCOME FUND 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 SHARES
OF THE STARBURST GOVERNMENT INCOME FUND INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO OF STARBURST FUNDS]
THE
STARBURST
GOVERNMENT
INCOME
FUND
A PORTFOLIO OF
THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO OF FEDERATED INVESTORS] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 855245809
2060308 (6/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for The
Starburst Government Money Market Fund. This report covers activity in the fund
over the six-month period from November 1, 1995, through April 30, 1996.
It begins with an investment review in which the investment adviser provides a
brief commentary on various economic and market conditions that influenced the
fund's strategies during the six-month period ended April 30, 1996. Following
the investment review is a complete list of the fund's holdings and its
financial statements.
The fund is managed to keep your ready cash at work pursuing income on a daily
basis, while pursuing a stable net asset value of $1.00 per share.* The fund
invests in money market securities issued or guaranteed by the U.S. government,
its agencies and instrumentalities and repurchase agreements collateralized by
U.S. government or agency securities.
Over the six-month period, the fund paid dividends of $0.024 and $0.023 per
share for the Trust Shares and Investment Shares, respectively. Total net assets
stood at $135.3 million on the last day of the period.
Thank you for keeping your ready cash at work through The Starburst Government
Money Market Fund. We'll continue to keep you up to date on your investment as
we strive to provide your account with the highest level of personal service.
Sincerely,
(LOGO)
J. Christopher Donahue
President
June 15, 1996
* Although money market funds seek to maintain a stable net asset value of $1.00
per share, there is no assurance that they will be able to do so. An
investment in the fund is neither insured nor guaranteed by the U.S.
government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Government Money Market Fund is to
provide current income consistent with stability of principal. The fund pursues
this investment objective by investing in a portfolio of short-term U.S.
government securities, including certain obligations of or guaranteed by U.S.
government agencies and instrumentalities. The average maturity in the fund's
portfolio will be 90 days or less.
During the six-month period ended April 30, 1996, the yield on the three-month
Treasury Bill decreased 34 basis points while the yield on the one-year Treasury
Bill increased seven basis points. Thus, the money market yield curve steepened
41 basis points. The Federal Reserve Board lowered the Federal Funds rate target
to 5.25% from 5.75% in order to increase money supply and strengthen a weak
economy. Despite the cut in the Federal Funds rate, one-year money market yields
increased. A stunning surge in February employment, higher commodity prices, and
the inability of Congress to make any progress on deficit reduction legislation
all combined to overwhelm the bullish impact of the Federal Funds rate cut.
Because of conflicting economic data and uncertainty regarding Federal Reserve
Board monetary policy, Fund average maturity was targeted at 40 to 45 days
throughout most of the period. However, Fund average maturity was extended to 50
days during March after money market yields had risen considerably. Fund assets
were heavily concentrated in overnight repurchase agreements while the remainder
of the Fund was invested in U.S. Treasury securities.
THE STARBURST GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ------------------------------------------------------------------------------- ----------------
UNITED STATES TREASURY BILL--11.1%
- ----------------------------------------------------------------------------------------------
$ 15,000,000 5/2/96 $ 14,997,925
------------------------------------------------------------------------------- ----------------
UNITED STATES TREASURY NOTES--33.4%
- ----------------------------------------------------------------------------------------------
45,000,000 4.25%-8.50%, 5/15/96-4/30/97 45,215,225
------------------------------------------------------------------------------- ----------------
UNITED STATES TREASURY RECEIPT STRIP--13.3%
- ----------------------------------------------------------------------------------------------
18,000,000 5.00%, 5/15/96 17,965,455
------------------------------------------------------------------------------- ----------------
(a) REPURCHASE AGREEMENTS--41.8%
- ----------------------------------------------------------------------------------------------
31,621,000 Merrill Lynch, Pierce, Fenner and Smith, 5.25%, dated 4/30/96, due 5/1/96 31,621,000
-------------------------------------------------------------------------------
25,000,000 Sanwa-BGK Securities Co., L.P., 5.30%, dated 4/30/96, due 5/1/96 25,000,000
------------------------------------------------------------------------------- ----------------
TOTAL REPURCHASE AGREEMENTS 56,621,000
------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (AT AMORTIZED COST) (B) $ 134,799,605
------------------------------------------------------------------------------- ----------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at the date of the
portfolio.
(b) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($135,323,895) at April 30, 1996.
The following acronym is used throughout this portfolio:
STRIP--Separate Trading of Registered Interest & Principal of Securities
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 56,621,000
- ----------------------------------------------------------------------------------
Investments in securities 78,178,605
- ---------------------------------------------------------------------------------- -------------
Total investments in securities, at amortized cost and value $ 134,799,605
- -------------------------------------------------------------------------------------------------
Income receivable 1,005,303
- ------------------------------------------------------------------------------------------------- --------------
Total assets 135,804,908
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable $ 479,096
- ----------------------------------------------------------------------------------
Accrued expenses 1,917
- ---------------------------------------------------------------------------------- -------------
Total liabilities 481,013
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 135,323,895 shares outstanding $ 135,323,895
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
$130,586,394 / 130,586,394 shares outstanding $ 1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
$4,737,501 / 4,737,501 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
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 3,664,617
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 265,026
- ----------------------------------------------------------------------------------------
Administrative personnel and services fee 93,904
- ----------------------------------------------------------------------------------------
Custodian fees 17,925
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 34,649
- ----------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,193
- ----------------------------------------------------------------------------------------
Auditing fees 11,479
- ----------------------------------------------------------------------------------------
Legal fees 1,856
- ----------------------------------------------------------------------------------------
Portfolio accounting fees 25,061
- ----------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 7,699
- ----------------------------------------------------------------------------------------
Share registration costs 8,418
- ----------------------------------------------------------------------------------------
Printing and postage 5,933
- ----------------------------------------------------------------------------------------
Insurance premiums 5,043
- ----------------------------------------------------------------------------------------
Miscellaneous 655
- ---------------------------------------------------------------------------------------- ----------
Total expenses 479,841
- ----------------------------------------------------------------------------------------
Waivers--
- ----------------------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (3,080)
- ---------------------------------------------------------------------------------------- ----------
Net expenses 476,761
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income $ 3,187,856
- ---------------------------------------------------------------------------------------------------- ------------
</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>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 3,187,856 $ 7,608,940
- -------------------------------------------------------------------- ---------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------------
Trust Shares (3,045,006) (7,302,938)
- --------------------------------------------------------------------
Investment Shares (142,850) (306,002)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from distributions to
shareholders (3,187,856) (7,608,940)
- -------------------------------------------------------------------- ---------------------- --------------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 316,163,546 294,773,565
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 119,128 259,517
- --------------------------------------------------------------------
Cost of shares redeemed (307,316,245) (324,941,168)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from share transactions 8,966,429 (29,908,086)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets 8,966,429 (29,908,086)
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 126,357,466 156,265,552
- -------------------------------------------------------------------- ---------------------- --------------------
End of period $ 135,323,895 $ 126,357,466
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net investment income 0.02 0.05 0.03 0.03 0.04 0.06 0.05
- ------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------
Distributions from net investment income (0.02) (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 $ 1.00
- ------------------------------------------------ ----- --------- --------- --------- --------- --------- -----
TOTAL RETURN (B) 2.42% 5.29% 3.18% 2.65% 3.72% 6.05% 5.74%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.71%* 0.69% 0.68% 0.67% 0.65% 0.64% 0.62%*
- ------------------------------------------------
Net investment income 4.82%* 5.15% 3.09% 2.63% 3.64% 5.76% 7.61%*
- ------------------------------------------------
Expense waiver/reimbursement (c) -- -- -- -- 0.01% 0.05% 0.10%*
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $130,586 $121,074 $150,507 $175,601 $221,785 $174,158 $82,346
- ------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge 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
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991(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 0.02 0.05 0.03 0.02 0.04 0.03
- ----------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------
Distributions from net investment income (0.02) (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 $ 1.00
- ---------------------------------------------------------- ----- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 2.34% 5.14% 3.03% 2.50% 3.61% 2.74%
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------
Expenses 0.86%* 0.84% 0.83% 0.82% 0.76% 0.64%*
- ----------------------------------------------------------
Net investment income 4.67%* 5.00% 2.92% 2.48% 3.64% 5.04%*
- ----------------------------------------------------------
Expense waiver/reimbursement (c) 0.10%* 0.10% 0.19% 0.20% 0.16% 0.05%*
- ----------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------
Net assets, end of period (000 omitted) $4,738 $5,284 $5,759 $5,671 $7,874 $8,947
- ----------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge 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
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
(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 portfolios. The financial statements included herein
are only those of The Starburst Government Money Market Fund (the "Fund"), a
diversified portfolio. The investment objective of the Fund is to provide
current income consistent with stability of principal. 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 Shares and Investment Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral 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
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED OCTOBER
TRUST SHARES (UNAUDITED) 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
Shares sold 288,184,365 218,014,505
- --------------------------------------------------------------------
Shares redeemed (278,671,834) (247,446,938)
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from Trust Share transactions 9,512,531 (29,432,433)
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996 YEAR ENDED
INVESTMENT SHARES (UNAUDITED) OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
Shares sold 27,979,181 76,759,064
- --------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 119,128 259,513
- --------------------------------------------------------------------
Shares redeemed (28,644,411) (77,494,230)
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from Investment Share transactions (546,102) (475,653)
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from share transactions 8,966,429 (29,908,086)
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
THE STARBURST GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
At April 30, 1996, capital paid-in aggregated $135,323,895.
(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 0.40% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The fee paid to
FAS is based on the level of average aggregate net assets of the Trust for
the period.
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 the average
daily net assets of the Investment Shares annually, to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company, serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FServ 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. The fee is based on
the level of the Fund's average daily 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.
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
Thomas G. Bigley President
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland Executive Vice President and Treasurer
James E. Dowd John W. McGonigle
Lawrence D. Ellis, M.D. Executive Vice President and Secretary
Edward L. Flaherty, Jr. Richard B. Fisher
Edward C. Gonzales Vice President
Peter E. Madden Jeffrey W. Sterling
Gregor F. Meyer Vice President and Assistant Treasurer
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts C. Grant Anderson
Assistant Secretary
SHARES OF THE STARBURST GOVERNMENT MONEY MARKET FUND 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 SHARES OF THE STARBURST GOVERNMENT MONEY MARKET
FUND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ALTHOUGH
THE STARBURST GOVERNMENT MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE, THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO OF STARBURST FUNDS]
THE
STARBURST
GOVERNMENT
MONEY MARKET
FUND
A PORTFOLIO OF
THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO OF FEDERATED INVESTORS] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 855245304
Cusip 855245403
0060102 (6/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present your Semi-Annual Report to Shareholders for The
Starburst Money Market Fund. This report covers activity in the fund over the
six-month period from November 1, 1995, through April 30, 1996.
It begins with an investment review in which the investment adviser provides a
brief commentary on various economic and market conditions that influenced the
fund's strategies during the six-month period ended April 30, 1996. Following
the investment review is a complete list of the fund's holdings and its
financial statements.
The fund is managed to keep your ready cash at work pursuing income on a daily
basis, while pursuing a stable net asset value of $1.00 per share.* The fund's
investments include high-quality money market securities issued by banks,
corporations, and the U.S. government or its agencies or instrumentalities.
Over the six-month period, the fund paid dividends of $0.025 and $0.024 per
share for the Trust Shares and Investment Shares, respectively. Total net assets
stood at $150.3 million on the last day of the period.
Thank you for keeping your ready cash at work through The Starburst Money Market
Fund. We'll continue to keep you up to date on your investment as we strive to
provide your account with the highest level of personal service.
Sincerely,
(LOGO)
J. Christopher Donahue
President
June 15, 1996
* Although money market funds seek to maintain a stable net asset value of $1.00
per share, there is no assurance that they will be able to do so. An
investment in the fund is neither insured nor guaranteed by the U.S.
government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Money Market Fund is to provide
current income consistent with stability of principal. The fund pursues this
investment objective by investing in a variety of high-quality money market
instruments maturing in thirteen months or less. The average maturity of the
fund's portfolio will be 90 days or less.
During the six-month period ended April 30, 1996, the yield on the three-month
Treasury Bill decreased 34 basis points while the yield on the one-year Treasury
Bill increased 7 basis points. Thus, the money market yield curve steepened 41
basis points. The Federal Reserve Board lowered the Federal Funds rate target to
5.25% from 5.75% in order to increase money supply and strengthen a weak
economy. Despite the cut in the federal funds rate, one-year money market yields
increased. A stunning surge in February employment, higher commodity prices, and
the inability of Congress to make any progress on deficit reduction legislation
all combined to overwhelm the bullish impact of the Federal Funds rate cut.
Because of conflicting economic data and uncertainty regarding Federal Reserve
Board monetary policy, Fund average maturity was targeted at 45 to 50 days
throughout most of the period. However, Fund average maturity was extended to 55
days during March after money market yields had risen considerably. Fund assets
were heavily concentrated in 30 and 60-day commercial paper and one-year
corporate notes while the remainder of the Fund was invested in overnight
repurchase agreements.
THE STARBURST MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
CERTIFICATE OF DEPOSIT--3.3%
- ------------------------------------------------------------------------------------------------
$ 5,000,000 Societe Generale Bank, 5.20%, 5/3/1996 $ 5,000,083
--------------------------------------------------------------------------------- --------------
(a) COMMERCIAL PAPER--53.5%
- ------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--4.0%
---------------------------------------------------------------------------------
6,000,000 Pitney Bowes Credit Corp., 5.309%-5.346%, 6/5/1996-6/6/1996 5,968,869
--------------------------------------------------------------------------------- --------------
ELECTRONIC TECHNOLOGY--3.3%
---------------------------------------------------------------------------------
5,000,000 Raytheon Co., 5.265%, 5/6/1996 4,996,347
--------------------------------------------------------------------------------- --------------
FINANCE--10.0%
---------------------------------------------------------------------------------
5,000,000 American General Finance Corp., 5.345%, 5/13/1996 4,991,133
---------------------------------------------------------------------------------
5,000,000 BankAmerica Corp., 5.317%, 5/21/1996 4,985,306
---------------------------------------------------------------------------------
3,000,000 Merrill Lynch & Co., Inc., 5.354%, 5/10/1996 2,996,002
---------------------------------------------------------------------------------
2,000,000 Transamerica Finance Corp., 5.355%, 5/10/1996 1,997,335
--------------------------------------------------------------------------------- --------------
Total 14,969,776
--------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--3.3%
---------------------------------------------------------------------------------
5,000,000 Vehicle Services of America, 5.205%, 6/14/1996 4,968,650
--------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--7.4%
---------------------------------------------------------------------------------
2,000,000 Avco Financial Services, Inc., 5.363%, 5/20/1996 1,994,374
---------------------------------------------------------------------------------
4,000,000 Transamerica Finance Corp., 5.317%-5.382%, 5/20/1996-6/14/1996 3,981,408
---------------------------------------------------------------------------------
5,100,000 Xerox Credit Corp., 5.342%, 5/14/1996 5,090,202
--------------------------------------------------------------------------------- --------------
Total 11,065,984
--------------------------------------------------------------------------------- --------------
FUNDING CORP--25.5%
---------------------------------------------------------------------------------
6,979,000 Credit Card Securitization, 5.35%-5.375%, 6/11/1996-6/25/1996 6,932,582
---------------------------------------------------------------------------------
7,000,000 Falcon Asset Securitization Corp., 5.379%-5.392%,
5/15/1996-7/10/1996 6,960,644
---------------------------------------------------------------------------------
7,000,000 Madison Funding Corp., 5.367%, 6/20/1996 6,948,278
---------------------------------------------------------------------------------
3,000,000 Preferred Receivable Funding Corp., 5.374%, 5/10/1996 2,995,988
---------------------------------------------------------------------------------
4,623,000 Receivables Capital Corp., 5.345%, 6/7/1996 4,597,770
---------------------------------------------------------------------------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
(a) COMMERCIAL PAPER--CONTINUED
- ------------------------------------------------------------------------------------------------
FUNDING CORP--CONTINUED
---------------------------------------------------------------------------------
$ 7,000,000 Riverwood Funding Corp., 5.307%-5.348%, 5/17/1996-5/28/1996 $ 6,975,471
---------------------------------------------------------------------------------
3,000,000 Safeco Credit Co., Inc., 5.19%, 5/13/1996 2,994,860
--------------------------------------------------------------------------------- --------------
Total 38,405,593
--------------------------------------------------------------------------------- --------------
TOTAL COMMERCIAL PAPER 80,375,219
--------------------------------------------------------------------------------- --------------
CORPORATE BONDS--15.7%
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.4%
---------------------------------------------------------------------------------
2,100,000 Philip Morris Cos., Inc., 7.50%-8.875%, 7/1/1996-3/15/1997 2,126,237
--------------------------------------------------------------------------------- --------------
FINANCE--1.9%
---------------------------------------------------------------------------------
850,000 American General Finance Corp., 5.80%, 4/1/1997 849,602
---------------------------------------------------------------------------------
2,000,000 Merrill Lynch & Co., Inc., 5.00%, 12/15/1996 1,996,142
--------------------------------------------------------------------------------- --------------
Total 2,845,744
--------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--3.0%
---------------------------------------------------------------------------------
4,500,000 Ford Motor Credit Corp., 8.875%, 5/1/1996-8/1/1996 4,526,153
--------------------------------------------------------------------------------- --------------
FINANCE--COMMERCIAL--3.4%
---------------------------------------------------------------------------------
5,080,000 Associates Corp. of North America, 7.50%, 10/15/1996 5,123,468
--------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--1.5%
---------------------------------------------------------------------------------
1,000,000 Transamerica Finance Corp., 5.85%, 7/15/1996 1,000,710
---------------------------------------------------------------------------------
1,250,000 U.S. West Capital Funding, Inc., 8.00%, 10/15/1996 1,262,546
--------------------------------------------------------------------------------- --------------
Total 2,263,256
--------------------------------------------------------------------------------- --------------
LEASING--3.3%
---------------------------------------------------------------------------------
4,900,000 International Lease Finance Corp., 6.375%-7.99%,
10/15/1996-11/1/1996 4,937,015
--------------------------------------------------------------------------------- --------------
UTILITIES--1.2%
---------------------------------------------------------------------------------
1,750,000 Southern California Edison Co., 5.90%, 1/15/1997 1,755,838
--------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS 23,577,711
--------------------------------------------------------------------------------- --------------
</TABLE>
THE STARBURST MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
CORPORATE NOTES--6.7%
- ------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.3%
---------------------------------------------------------------------------------
$ 2,000,000 Philip Morris Cos., Inc., 8.55%, 7/26/1996 $ 2,011,971
--------------------------------------------------------------------------------- --------------
FINANCE--0.7%
---------------------------------------------------------------------------------
1,000,000 NationsBank Corp., 4.75%, 8/15/1996 996,265
--------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--0.7%
---------------------------------------------------------------------------------
1,000,000 Ford Motor Credit Corp., 8.125%, 3/26/1997 1,019,577
--------------------------------------------------------------------------------- --------------
FINANCIAL SERVICES--1.7%
---------------------------------------------------------------------------------
500,000 Avco Financial Services, Inc., 7.50%, 11/15/1996 505,211
---------------------------------------------------------------------------------
2,000,000 General Electric Capital Corp., 5.12%, 1/27/1997 1,991,407
--------------------------------------------------------------------------------- --------------
Total 2,496,618
--------------------------------------------------------------------------------- --------------
UTILITIES--2.3%
---------------------------------------------------------------------------------
3,500,000 Southwestern Bell Telephone Co., 8.30%, 6/1/1996 3,506,947
--------------------------------------------------------------------------------- --------------
TOTAL CORPORATE NOTES 10,031,378
--------------------------------------------------------------------------------- --------------
(b) VARIABLE RATE SECURITIES--6.7%
- ------------------------------------------------------------------------------------------------
10,000,000 Student Loan Marketing Association, 5.505%, 11/27/1996 10,003,955
--------------------------------------------------------------------------------- --------------
UNITED STATES TREASURY NOTES--1.3%
- ------------------------------------------------------------------------------------------------
2,000,000 6.875%, 3/31/1997 2,020,816
--------------------------------------------------------------------------------- --------------
(c) REPURCHASE AGREEMENT--12.7%
- ------------------------------------------------------------------------------------------------
19,116,000 Merrill Lynch, Pierce, Fenner and Smith, 5.25%, dated 4/30/1996, due 5/01/1996 19,116,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS, AT AMORTIZED COST (D) $ 150,125,162
--------------------------------------------------------------------------------- --------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
(b) Denotes a variable rate security which shows current rate and next demand
date.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(d) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($150,285,472) at April 30, 1996.
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 19,116,000
- ---------------------------------------------------------------------------------
Investments in securities 131,009,162
- --------------------------------------------------------------------------------- --------------
Total investments, at amortized cost and value $ 150,125,162
- -------------------------------------------------------------------------------------------------
Income receivable 708,662
- ------------------------------------------------------------------------------------------------- --------------
Total assets 150,833,824
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Income distribution payable 548,352
- ------------------------------------------------------------------------------------------------- --------------
Net Assets for 150,285,472 shares outstanding $ 150,285,472
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
TRUST SHARES:
- -------------------------------------------------------------------------------------------------
$116,585,147 / 116,585,147 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
INVESTMENT SHARES:
- -------------------------------------------------------------------------------------------------
$33,700,325 / 33,700,325 shares outstanding $1.00
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 4,733,379
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 334,118
- ------------------------------------------------------------------------------------
Administrative personnel and services fee 118,374
- ------------------------------------------------------------------------------------
Custodian fees 23,247
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 30,918
- ------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,188
- ------------------------------------------------------------------------------------
Auditing fees 9,617
- ------------------------------------------------------------------------------------
Legal fees 1,516
- ------------------------------------------------------------------------------------
Portfolio accounting fees 22,750
- ------------------------------------------------------------------------------------
Distribution services fee--Investment Shares 56,877
- ------------------------------------------------------------------------------------
Share registration costs 6,201
- ------------------------------------------------------------------------------------
Printing and postage 4,943
- ------------------------------------------------------------------------------------
Insurance premiums 3,249
- ------------------------------------------------------------------------------------
Miscellaneous 295
- ------------------------------------------------------------------------------------ -------------
Total expenses 613,293
- ------------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------------------
Waiver of distribution services fee--Investment Shares (22,751)
- ------------------------------------------------------------------------------------ -------------
Net expenses 590,542
- --------------------------------------------------------------------------------------------------- -------------
Net investment income $ 4,142,837
- --------------------------------------------------------------------------------------------------- -------------
</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>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 4,142,837 $ 10,415,125
- -------------------------------------------------------------------- ---------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------------
Trust Shares (3,040,175) (8,173,671)
- --------------------------------------------------------------------
Investment Shares (1,102,662) (2,241,454)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from distributions to
shareholders (4,142,837) (10,415,125)
- -------------------------------------------------------------------- ---------------------- --------------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 302,225,295 714,974,884
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 919,844 2,128,998
- --------------------------------------------------------------------
Cost of shares redeemed (349,208,078) (718,844,833)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets resulting from share transactions (46,062,939) (1,740,951)
- -------------------------------------------------------------------- ---------------------- --------------------
Change in net assets (46,062,939) (1,740,951)
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 196,348,411 198,089,362
- -------------------------------------------------------------------- ---------------------- --------------------
End of period $ 150,285,472 $ 196,348,411
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--TRUST SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991 1990(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------
Net investment income 0.02 0.05 0.03 0.03 0.04 0.06 0.06
- ----------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------
Distributions from net investment income (0.02) (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 $ 1.00
- ---------------------------------------------- ------ --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 2.50% 5.51% 3.29% 2.84% 4.07% 6.44% 5.89%
- ----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------
Expenses 0.67%* 0.56% 0.75% 0.70% 0.64% 0.62% 0.58%*
- ----------------------------------------------
Net investment income 5.00%* 5.38% 3.26% 2.83% 4.01% 6.13% 7.80%*
- ----------------------------------------------
Expense waiver/reimbursement (c) 0.00%* 0.10% 0.04% 0.00% 0.01% 0.05% 0.10%*
- ----------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------
Net assets, end of period (000 omitted) $116,585 $141,434 $158,367 $131,508 $187,394 $212,997 $117,716
- ----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge 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 MONEY MARKET FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992 1991(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 0.02 0.05 0.03 0.03 0.04 0.03
- -------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------
Distributions from net investment income (0.02) (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 $ 1.00
- ------------------------------------------------------- ------ --------- --------- --------- --------- ---------
TOTAL RETURN (B) 2.43% 5.35% 3.13% 2.69% 3.95% 2.90%
- -------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------
Expenses 0.82%* 0.71% 0.91%* 0.86% 0.78%* 0.61%*
- -------------------------------------------------------
Net investment income 4.85%* 5.22% 3.11%* 2.66% 3.65%* 5.51%*
- -------------------------------------------------------
Expense waiver/reimbursement (c) 0.10%* 0.20% 0.22%* 0.20% 0.19%* 0.05%*
- -------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------
Net assets, end of period (000 omitted) $33,700 $54,914 $39,722 $39,780 $36,432 $7,238
- -------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge 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 MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
(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 portfolios. The financial statements included herein
are only those of The Starburst Money Market Fund (the "Fund"), a diversified
portfolio. The investment objective of the Fund is to provide current income
consistent with stability of principal. 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 Shares and Investment Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral 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
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
THE STARBURST 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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
TRUST SHARES APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
Shares sold 135,069,603 334,084,839
- --------------------------------------------------------------------
Shares redeemed (159,918,992) (351,017,125)
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from Trust Share transactions (24,849,389) (16,932,286)
- -------------------------------------------------------------------- ---------------------- --------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
INVESTMENT SHARES APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
- -------------------------------------------------------------------- ---------------------- --------------------
Shares sold 167,155,692 380,890,045
- --------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 919,844 2,128,998
- --------------------------------------------------------------------
Shares redeemed (189,289,086) (367,827,708)
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from Investment Share
transactions (21,213,550) 15,191,335
- -------------------------------------------------------------------- ---------------------- --------------------
Net change resulting from share transactions (46,062,939) (1,740,951)
- -------------------------------------------------------------------- ---------------------- --------------------
</TABLE>
At April 30, 1996, capital paid-in aggregated $150,285,472.
THE STARBURST 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 0.40% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The fee paid to
FAS is based on the level of average aggregate net assets of the Trust for
the period.
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 the average
daily net assets of the Investment Shares annually, to compensate FSC. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company, serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FServ 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. The fee is based on
the level of the Fund's average daily 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.
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
Thomas G. Bigley President
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland Executive Vice President and Treasurer
James E. Dowd John W. McGonigle
Lawrence D. Ellis, M.D. Executive Vice President and Secretary
Edward L. Flaherty, Jr. Richard B. Fisher
Edward C. Gonzales Vice President
Peter E. Madden Jeffrey W. Sterling
Gregor F. Meyer Vice President and Assistant Treasurer
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts C. Grant Anderson
Assistant Secretary
SHARES OF THE STARBURST MONEY MARKET FUND 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 SHARES OF
THE STARBURST MONEY MARKET FUND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. ALTHOUGH THE STARBURST MONEY MARKET FUND SEEKS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE IS NO ASSURANCE THAT IT WILL BE
ABLE TO DO SO.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO OF STARBURST FUNDS]
THE
STARBURST
MONEY MARKET
FUND
A PORTFOLIO OF
THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO OF FEDERATED INVESTORS] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 855245502
Cusip 855245601
0060101 (6/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for The Starburst
Municipal Income Fund. This report covers activity in the fund over the
six-month period from November 1, 1995, through April 30, 1996.
It begins with an investment review in which the investment adviser provides a
brief commentary on various economic and market conditions that influenced the
fund's strategies during the six-month period ended April 30, 1996. Following
the investment review is a complete list of the fund's holdings and the fund's
financial statements.
The fund is managed to help tax-sensitive investors like you earn income free of
federal regular income tax.* The fund pursues this objective by investing in a
carefully researched portfolio of high-quality securities issued by various
governmental issuers.
Over the six-month period, the fund paid tax-free income dividends of $0.221 per
share. The fund's performance, like that of many bonds and bond funds, was
impacted by rising interest rates during the first quarter of 1996, which caused
bond prices to fall. Total net assets stood at $15.6 million on the last day of
the period.
Thank you for pursuing your financial goals through The Starburst Municipal
Income Fund. We'll continue to keep you up to date on your investment as we
strive to provide your account with the highest level of personal service.
Sincerely,
(LOGO)
J. Christopher Donahue
President
June 15, 1996
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of The Starburst Municipal Income Fund is to provide
current income exempt from federal regular income tax*. The fund pursues this
investment objective by investing in a professionally managed portfolio of
municipal securities. Currently, the fund invests at least 80% of its portfolio
in municipal securities whose average weighted maturity is 15 years or less.
During the six-month period ended April 30, 1996, the yield on two-year "AA"
rated tax-free general obligation bonds increased 11 basis points while the
yield on comparable 30-year bonds increased 14 basis points. Thus, the tax-free
yield curve steepened three basis points. The Federal Reserve Board lowered the
Federal Funds rate target to 5.25% from 5.75% in order to increase money supply
and strengthen a weak economy. Despite the cut in the Federal Funds rate,
tax-free bond yields increased. However, the cut allowed short-term notes to
outperform intermediate-term bonds and force the yield curve to steepen. A
stunning increase in February employment, higher commodity prices, and the
inability of Congress to make any progress on deficit reduction legislation all
combined to overwhelm the bullish impact of the Federal Funds rate cut.
Because of very conflicting economic data, the Fund's duration remained
defensively positioned at approximately 5.20 years throughout most of the
period. However, Fund average duration was extended slightly in late January
when it became apparent that the political determination to cut income taxes or
implement a flat tax had waned. Because of tight credit spreads, Fund assets
remained concentrated in high-grade general obligation and essential-service
revenue bonds.
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
THE STARBURST MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- ----------- -------------
SHORT-TERM MUNICIPAL SECURITIES--1.0%
- ---------------------------------------------------------------------------------------
$ 162,114 Lehman Brothers Tax-Free Money Market (at net asset value) NR $ 162,114
------------------------------------------------------------------------- -------------
LONG-TERM MUNICIPALS--97.5%
- ---------------------------------------------------------------------------------------
ALABAMA--32.9%
-------------------------------------------------------------------------
1,885,000 Alabama State Municipal Electric Authority, Power Supply Revenue Bonds,
6.50% (MBIA Insurance Corporation INS)/
(United States Treasury PRF)/(Original Issue Yield: 6.80%),
9/1/2005 (@101) AAA 2,064,132
-------------------------------------------------------------------------
1,000,000 Auburn University, AL, Housing and Dining University Refunding Revenue
Bonds, 5.20% (MBIA Insurance Corporation INS)/(Original Issue Yield:
5.30%), 6/1/2004 AAA 1,016,780
-------------------------------------------------------------------------
1,000,000 Birmingham, AL Special Care Facilities Financing Authority, Health Care
Facilities Refunding Revenue Bonds (Series B), 5.00% (Children's
Hospital)/(MBIA Insurance Corporation INS)/(Original Issue Yield: 5.05%),
6/1/2003 AAA 1,005,590
-------------------------------------------------------------------------
1,000,000 Birmingham, AL Waterworks & Sewer Board, Refunding Revenue Bonds, 6.25%
(Original Issue Yield: 6.30%), 1/1/2008 AA 1,056,240
------------------------------------------------------------------------- -------------
Total 5,142,742
------------------------------------------------------------------------- -------------
FLORIDA--6.5%
-------------------------------------------------------------------------
25,000 Homestead, FL Special Insurance Assessment, Refunding Revenue Bonds,
4.90% (Hurricane Andrew Covered Claim)/
(MBIA Insurance Corporation INS)/(Original Issue Yield: 5.00%), (United
States Treasury, ETM) 9/1/2000 AAA 25,344
-------------------------------------------------------------------------
975,000 Homestead, FL Special Insurance Assessment, Revenue Bonds, 4.90%
(Hurricane Andrew Covered Claim)/(MBIA Insurance Corporation
INS)/(Original Issue Yield: 5.00%),
9/1/2000 AAA 991,497
------------------------------------------------------------------------- -------------
Total 1,016,841
------------------------------------------------------------------------- -------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- ----------- -------------
LONG-TERM MUNICIPALS--CONTINUED
- ---------------------------------------------------------------------------------------
ILLINOIS--7.7%
-------------------------------------------------------------------------
$ 1,200,000 Chicago, IL School Finance Authority, GO UT Refunding Bonds (Series A),
5.20% (FGIC INS)/(Original Issue Yield: 5.40%), 6/1/2006 AAA $ 1,197,432
------------------------------------------------------------------------- -------------
INDIANA--3.8%
-------------------------------------------------------------------------
600,000 Indiana Transportation Finance Authority, Refunding Revenue Bonds (Series
A), 5.25% (AMBAC INS)/(Original Issue Yield: 5.75%), 6/1/2009 AAA 591,324
------------------------------------------------------------------------- -------------
MARYLAND--7.1%
-------------------------------------------------------------------------
1,000,000 Washington Suburban Sanitation District, MD, GO UT Revenue Bonds (Second
Series), 6.90% (United States Treasury PRF), 6/1/2009 (@102) AA 1,115,350
------------------------------------------------------------------------- -------------
NEVADA--3.1%
-------------------------------------------------------------------------
500,000 Las Vegas, NV, GO LT Sewer Refunding Revenue Bonds (Series B), 5.00%
(MBIA Insurance Corporation INS)/(Original Issue Yield: 5.20%), 1/1/2008 AAA 481,765
------------------------------------------------------------------------- -------------
TEXAS--23.0%
-------------------------------------------------------------------------
1,000,000 Alief, TX Independent School District, GO UT Refunding Bonds, 5.875%
(PSFG INS)/(Original Issue Yield: 6.00%),
2/15/2005 AAA 1,034,640
-------------------------------------------------------------------------
600,000 Carrollton, Texas Farmers Branch Independent School District, GO UT
Bonds, 6.75% (United States Treasury PRF)/ (Original Issue Yield: 6.85%),
2/15/2007 (@100) AAA 654,186
-------------------------------------------------------------------------
500,000 Dallas, TX, GO LT Revenue Bonds, 6.20%, 1/1/2003 AAA 534,220
-------------------------------------------------------------------------
500,000 Plano, TX, Refunding & Improvement Bonds, 5.60% (AMBAC INS)/(Original
Issue Yield: 5.85%), 9/1/2005 AAA 515,125
-------------------------------------------------------------------------
800,000 Sabine River Authority, TX, Water Supply Facilities Revenue Refunding
Bonds, 6.50% (Lake Fork Project)/(United States Treasury PRF)/(Original
Issue Yield: 6.70%), 12/1/2002 (@100) AA 863,024
------------------------------------------------------------------------- -------------
Total 3,601,195
------------------------------------------------------------------------- -------------
</TABLE>
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
- ------------ ------------------------------------------------------------------------- ----------- -------------
LONG-TERM MUNICIPALS--CONTINUED
- ---------------------------------------------------------------------------------------
VIRGINIA--6.3%
-------------------------------------------------------------------------
$ 1,000,000 Virginia State Housing Development Authority, Refunding Revenue Bonds
(Series E), 5.45%, 11/1/2007 AA+ $ 990,410
------------------------------------------------------------------------- -------------
WASHINGTON--7.1%
-------------------------------------------------------------------------
1,000,000 Washington State Public Power Supply, Revenue Refunding Bonds (Series B),
7.25% (Nuclear Project No. 3)/(United States Treasury PRF)/(Original
Issue Yield: 7.492%), 7/1/2015 (@102) AAA 1,106,990
------------------------------------------------------------------------- -------------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $15,013,483) 15,244,049
------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $15,175,597) (A) $ 15,406,163
------------------------------------------------------------------------- -------------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $15,175,597. The
net unrealized appreciation of investments on a federal tax basis amounts to
$230,566 which is comprised of $293,573 appreciation and $63,007
depreciation at April 30, 1996.
* Please refer to the Appendix of the Statement of Additional Information for
an explanation of the credit ratings.
Note: The categories of investments are shown as a percentage of net assets
($15,630,324) at April 30, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
ETM -- Escrowed to Maturity
FGIC -- Financial Guaranty Insurance
Company
GO -- General Obligation
INS -- Insured
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PRF -- Prerefunded
PSFG -- Permanent School Fund Guarantee
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $15,175,597) $ 15,406,163
- ---------------------------------------------------------------------------------------------------
Income receivable 277,820
- ---------------------------------------------------------------------------------------------------
Deferred expenses 901
- --------------------------------------------------------------------------------------------------- -------------
Total assets 15,684,884
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Income distribution payable $ 52,859
- ----------------------------------------------------------------------------------------
Accrued expenses 1,701
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 54,560
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,487,202 shares outstanding $ 15,630,324
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 15,630,060
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 230,566
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (230,302)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 15,630,324
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($15,630,324 / 1,487,202 shares outstanding) $10.51
- --------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/97.50 of $10.51)* $10.78
- --------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (100/100 of $10.51) $10.51
- --------------------------------------------------------------------------------------------------- -------------
</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
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Interest $ 438,904
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------------
Investment advisory fee $ 66,032
- -------------------------------------------------------------------------------------------
Administrative personnel and services fee 24,899
- -------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 25,454
- -------------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,502
- -------------------------------------------------------------------------------------------
Auditing fees 7,359
- -------------------------------------------------------------------------------------------
Legal fees 2,535
- -------------------------------------------------------------------------------------------
Portfolio accounting fees 22,267
- -------------------------------------------------------------------------------------------
Distribution services fee 22,011
- -------------------------------------------------------------------------------------------
Share registration costs 6,797
- -------------------------------------------------------------------------------------------
Printing and postage 4,696
- -------------------------------------------------------------------------------------------
Insurance premiums 798
- -------------------------------------------------------------------------------------------
Miscellaneous 1,039
- ------------------------------------------------------------------------------------------- ----------
Total expenses 185,389
- -------------------------------------------------------------------------------------------
Waivers and reimbursements--
- -------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ (66,032)
- --------------------------------------------------------------------------------
Waiver of administrative personnel and services fee (24,899)
- --------------------------------------------------------------------------------
Waiver of distribution services fee (22,011)
- -------------------------------------------------------------------------------- ---------
Total waivers and reimbursements (112,942)
- ------------------------------------------------------------------------------------------- ----------
Net expenses 72,447
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 366,457
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments 101,281
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments (328,357)
- ------------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized gain on investments (227,076)
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 139,381
- ------------------------------------------------------------------------------------------------------- ---------
</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>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------
Net investment income $ 366,457 $ 926,797
- -------------------------------------------------------------------------
Net realized gain (loss) on investments ($101,281 and ($330,889),
respectively, as computed for federal tax purposes) 101,281 (330,889)
- -------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (328,357) 1,564,438
- ------------------------------------------------------------------------- ---------------- --------------------
Change in net assets resulting from operations 139,381 2,160,346
- ------------------------------------------------------------------------- ---------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------
Distributions from net investment income (366,457) (926,797)
- -------------------------------------------------------------------------
Distributions from net realized gains -- (10,622)
- ------------------------------------------------------------------------- ---------------- --------------------
Change in net assets resulting from distributions to shareholders (366,457) (937,419)
- ------------------------------------------------------------------------- ---------------- --------------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------
Proceeds from sale of shares 54,470 786,394
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 213,871 645,818
- -------------------------------------------------------------------------
Cost of shares redeemed (3,896,634) (11,080,052)
- ------------------------------------------------------------------------- ---------------- --------------------
Change in net assets resulting from share transactions (3,628,293) (9,647,840)
- ------------------------------------------------------------------------- ---------------- --------------------
Change in net assets (3,855,369) (8,424,913)
- -------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------
Beginning of period 19,485,693 27,910,606
- ------------------------------------------------------------------------- ---------------- --------------------
End of period $ 15,630,324 $ 19,485,693
- ------------------------------------------------------------------------- ---------------- --------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
THE STARBURST MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.66 $ 10.05 $ 10.82 $ 10.08 $ 9.90
- -------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------
Net investment income 0.22 0.43 0.44 0.47 0.46
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.15) 0.61 (0.70) 0.74 0.18
- ------------------------------------------------------------------- ------ --------- --------- --------- ---------
Total from investment operations 0.07 1.04 (0.26) 1.21 0.64
- ------------------------------------------------------------------- ------ --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------
Distributions from net investment income (0.22) (0.43) (0.44) (0.47) (0.46)
- -------------------------------------------------------------------
Distributions in excess of net investment income (a) 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------
Distributions from net realized gain on investment transactions 0.00 0.00 (0.07) 0.00 0.00
- ------------------------------------------------------------------- ------ --------- --------- --------- ---------
Total distributions (0.22) (0.43) (0.51) (0.47) (0.46)
- ------------------------------------------------------------------- ------ --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.51 $ 10.66 $ 10.05 $ 10.82 $ 10.08
- ------------------------------------------------------------------- ------ --------- --------- --------- ---------
TOTAL RETURN (B) 0.65% 10.65% (2.49)% 12.22% 6.60%
- -------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------
Expenses 0.82%** 0.92% 0.75% 0.52% 0.77%**
- -------------------------------------------------------------------
Net investment income 4.16%** 4.20% 4.18% 4.41% 4.89%**
- -------------------------------------------------------------------
Expense waiver/reimbursement (c) 1.28%** 1.08% 0.89% 1.26% 1.25%**
- -------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------
Net assets, end of period (000 omitted) $15,630 $19,486 $27,911 $42,966 $14,487
- -------------------------------------------------------------------
Portfolio turnover 4 % 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 charge 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 MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
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 portfolios. The financial statements included herein
are only those of The Starburst Municipal Income Fund (the "Fund"), a
diversified portfolio. The investment objective of the Fund is to provide
current income which is exempt from federal regular income tax. 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 Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. Short-term securities are valued at the
prices provided by an independent pricing service. However, 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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as 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
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
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 over a period of five years from
the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
Shares sold 5,110 76,118
- --------------------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 19,981 62,477
- --------------------------------------------------------------------
Shares redeemed (365,234) (1,089,169)
- -------------------------------------------------------------------- ---------- --------------------
Net change resulting from share transactions (340,143) (950,574)
- -------------------------------------------------------------------- ---------- --------------------
</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 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this 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 fee paid to
FAS 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.
THE STARBURST MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
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., the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets
of the Fund, annually, to compensate Federated Securities Corp. The
distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company, serves as transfer and dividend disbursing agent for the Fund. The
fee paid to FServ 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. The fee is based on
the level of the Fund's average daily net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $22,000 were borne
initially by FAS. The Fund has agreed to reimburse FAS for the
organizational expenses during the five-year period following the effective
date. For the six months ended April 30, 1996, the Fund paid $443 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 six
months ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
PURCHASES $ 614,436
- ---------------------------------------------------------------------------------------------------- ------------
SALES $ 3,704,391
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue J. Christopher Donahue
Thomas G. Bigley President
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland Executive Vice President and Treasurer
James E. Dowd John W. McGonigle
Lawrence D. Ellis, M.D Executive Vice President and Secretary
Edward L. Flaherty, Jr Richard B. Fisher
Edward C. Gonzales Vice President
Peter E. Madden Jeffrey W. Sterling
Gregor F. Meyer Vice President and Assistant Treasurer
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts C. Grant Anderson
Assistant Secretary
SHARES OF THE STARBURST MUNICIPAL INCOME FUND 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 SHARES OF
THE STARBURST MUNICIPAL INCOME FUND INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO OF STARBURST FUNDS]
THE
STARBURST
MUNICIPAL
INCOME
FUND
A PORTFOLIO OF
THE STARBURST FUNDS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO OF FEDERATED INVESTORS] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 855245700
3052008 (6/96)
